<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>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
COMPDENT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] 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:
Common Stock, par value $.01 per share ("Common Stock"), of CompDent
Corporation.
(2) Aggregate number of securities to which transaction applies:
10,291,129 shares of Common Stock (includes 178,500 underlying options
to purchase shares of Common Stock)
(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):
$18.00 per share in cash-out merger plus the difference between
$18.00 and the exercise price of each share subject to option
(4) Proposed maximum aggregate value of transaction:
$185,240,322
(5) Total fee paid:
$37,048.06 (previously paid on October 27, 1998)
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
COMPDENT CORPORATION
100 MANSELL COURT EAST, SUITE 400
ROSWELL, GEORGIA 30076
December 30, 1998
Dear Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
CompDent Corporation (the "Company") to be held on January 29, 1999, at 10:00
a.m., local time, at the offices of King & Spalding, located at 191 Peachtree
Street, Atlanta, Georgia. The purpose of the Special Meeting is to consider and
vote upon a merger that, if approved and subsequently consummated, will result
in the public stockholders of CompDent (other than stockholders who have
perfected their appraisal rights and certain members of management and other
investors) receiving $18.00 in cash per share for their shares of CompDent
common stock, $.01 par value ("Common Stock"). The acquiror of CompDent, TAGTCR
Acquisition, Inc., a newly formed Delaware corporation (the "Acquiror"), was
organized at the direction of three private investment partnerships and their
affiliates that have jointly agreed, together with certain members of management
and other investors, to acquire the Common Stock of the CompDent public
stockholders.
A Special Committee of the Board of Directors of CompDent, consisting of
three independent directors, was formed to consider and evaluate the Merger. The
Special Committee has unanimously recommended to CompDent's Board of Directors
that the Merger and related agreements be approved. In connection with its
evaluation of the Merger, the Special Committee engaged The Robinson-Humphrey
Company, LLC to act as its financial advisor. Robinson-Humphrey has rendered its
opinion dated July 28, 1998, and has not withdrawn its opinion as of ,
1998, that based upon and subject to the assumptions, limitations and
qualifications set forth in such opinion, the cash merger consideration of
$18.00 per share to be received in the Merger is fair from a financial point of
view to the stockholders of the Company (other than certain members of
management, certain other investors and the Acquiror). The written opinion of
Robinson-Humphrey, dated July 28, 1998, is attached as Appendix B to the
enclosed Proxy Statement and should be read carefully and in its entirety by the
stockholders.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS BELIEVE THAT THE TERMS OF
THE MERGER ARE FAIR AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND
UNANIMOUSLY RECOMMEND THAT THE STOCKHOLDERS APPROVE THE MERGER.
Approval of the Merger at the Special Meeting will require the affirmative
vote of holders of a majority of the outstanding shares of Common Stock entitled
to vote at the Special Meeting. The accompanying Proxy Statement provides you
with a summary of the proposed Merger and additional information about the
parties involved and their interests. If the Merger is approved by the holders
of the Common Stock, the closing of the Merger will occur as soon after the
Special Meeting as all of the other conditions to closing the Merger are
satisfied.
PLEASE GIVE ALL THIS INFORMATION YOUR CAREFUL ATTENTION. WHETHER OR NOT YOU
PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL
MEETING. A FAILURE TO VOTE WILL COUNT AS A VOTE AGAINST THE MERGER. ACCORDINGLY,
YOU ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND. THIS
WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON IF YOU SUBSEQUENTLY
CHOOSE TO ATTEND.
Sincerely,
David R. Klock
Chairman and Chief Executive Officer
<PAGE> 3
COMPDENT CORPORATION
100 MANSELL COURT EAST, SUITE 400
ROSWELL, GEORGIA 30076
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 29, 1999
---------------------
Notice is hereby given that a Special Meeting of Stockholders of CompDent
Corporation, a Delaware corporation (the "Company"), will be held on January 29,
1999 at 10:00 a.m., local time, at the offices of King & Spalding, located at
191 Peachtree Street, Atlanta, Georgia, for the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement and
Plan of Merger, dated July 28, 1998, as amended and restated on ,
1998, pursuant to which TAGTCR Acquisition, Inc., a newly formed Delaware
corporation (the "Acquiror"), will be merged with and into the Company and
each stockholder of the Company (other than stockholders who are entitled
to and have perfected their appraisal rights, shares held by certain
members of management, shares held by certain stockholders of CompDent, and
shares held by the Acquiror) will become entitled to receive $18.00 in cash
for each outstanding share of common stock, $.01 par value, of the Company
(the "Common Stock") owned immediately prior to the effective time of the
Merger. A copy of the Merger Agreement is attached as Appendix A to and is
described in the accompanying Proxy Statement.
(2) To consider and act upon such other matters as may properly come
before the Special Meeting or any adjournment or adjournments thereof.
The Board of Directors has determined that only holders of Common Stock of
record at the close of business on December 28, 1998, will be entitled to notice
of, and to vote at, the Special Meeting or any adjournment or adjournments
thereof. A form of proxy and a Proxy Statement containing more detailed
information with respect to the matters to be considered at the Special Meeting
accompany and form a part of this notice.
By order of the Board of Directors,
BRUCE A. MITCHELL
Executive Vice President, General
Counsel
and Secretary
Atlanta, Georgia
December 30, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. PLEASE DO NOT SEND IN
ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
THE MERGER NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Any stockholder shall have the right to dissent from the Merger and to
receive payment of the "fair value" of his or her shares upon compliance with
the procedures set forth in Section 262 of the Delaware General Corporation Law.
See "RIGHTS OF DISSENTING STOCKHOLDERS" in the Proxy Statement that accompanies
this notice and the full text of Section 262 of the Delaware General Corporation
Law, which is attached as Appendix C and is described in the accompanying Proxy
Statement.
<PAGE> 4
COMPDENT CORPORATION
100 MANSELL COURT EAST, SUITE 400
ROSWELL, GEORGIA 30076
---------------------
PROXY STATEMENT
---------------------
THE PROXY STATEMENT WAS FIRST MAILED TO STOCKHOLDERS ON DECEMBER 30, 1998.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: Upon consummation of the Merger, the Acquiror will be merged with and into
CompDent with CompDent being the surviving corporation. All stockholders of
CompDent, other than the Acquiror, certain members of management, certain other
investors, and those stockholders who exercise their appraisal rights (the
"Public Stockholders"), will receive a cash payment for their outstanding shares
of Common Stock. After the Merger, CompDent will become a privately held company
owned by the following individuals and entities (the "Investor Group"):
THE MANAGEMENT SPONSORS
David R. Klock
Phyllis A. Klock
THE EQUITY INVESTORS
Golder, Thoma, Cressey, Rauner Fund V, L.P.
GTCR Associates V, L.P.
TA/Advent VIII L.P.
Advent Atlantic and Pacific III L.P.
TA Executives Fund LLC
TA Investors LLC
NMS Capital, L.P.
THE OTHER INVESTORS
The Kaufman Fund
Roger B. Kafker
Richard D. Tadler
Jane Broderick
Jonathan Goldstein
OTHER MANAGEMENT INVESTORS
Keith J. Yoder
Bruce Mitchell
William G. Jens, Jr.
Robert Donegan
Kenneth Hammer
Ronald Wood
Harrold Evans
James Harshaw
Kenneth Bohrer
Wiley Bryant
Kenneth MacDougall
Mitch Spelios
James Carpenter
Daniel Crowley
Miquel Montilla
Karen Mitchell
To review the structure of the Merger in greater detail, see pages 39 through
46.
Q: WHY IS COMPDENT BEING ACQUIRED?
A: The Board of Directors and the Investor Group each believes that the
acquisition of CompDent is in the best interests of the Public Stockholders of
CompDent and that as a private company, CompDent will have greater operating
flexibility to focus on enhancing value by emphasizing growth and operating cash
flow. To review the background and reasons for the Merger in greater detail, see
pages 12 through 36.
Q: WHY WAS THE SPECIAL COMMITTEE FORMED?
A: Because certain directors of CompDent will have a financial interest in the
Merger, the CompDent Board of Directors appointed a Special Committee of
disinterested directors to review and evaluate the proposed transaction. The
Special Committee has determined that the Merger is fair and in the best
interests of the Public Stockholders.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You will receive $18.00 in cash, without interest, for each share of CompDent
Common Stock. This is the "Cash Merger Consideration." For example: If you own
100 shares of CompDent Common Stock, upon completion of the Merger you will
receive $1,800 in cash.
i
<PAGE> 5
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the Merger during the first quarter of 1999.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The receipt of the Cash Merger Consideration by you will be a taxable
transaction for federal income tax purposes. To review the tax consequences to
you in greater detail, see pages 48 through 49.
YOUR TAX CONSEQUENCES WILL DEPEND ON YOUR PERSONAL SITUATION. YOU SHOULD
CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF
THE MERGER TO YOU.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to approve and adopt the Merger Agreement, which provides
for the acquisition of CompDent by the Acquiror. After the Merger, CompDent will
become a privately held company and you will no longer own an equity interest in
CompDent.
THE COMPDENT BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AND
RECOMMENDS VOTING FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed envelope as soon as possible, so that your shares will be
represented at the meeting.
Approval of the proposal requires the affirmative vote of a majority of the
outstanding shares of CompDent Common Stock. Therefore, a failure to vote or a
vote to abstain will have the same legal effect as a vote against the Merger.
The Special Meeting will take place on January 29, 1999 at 10:00 a.m.,
local time, at the offices of King & Spalding, 191 Peachtree Street, Atlanta,
Georgia. You may attend the Special Meeting and vote your shares in person,
rather than voting by proxy. In addition, you may withdraw your proxy up to and
including the day of the Special Meeting and either change your vote or attend
the Special Meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares of Common Stock only if you provide
instructions on how to vote. You should instruct your broker how to vote your
shares, following the directions your broker provides. If you do not provide
instructions to your broker, your shares will not be voted and they will be
counted as votes against the proposal to approve and adopt the Merger Agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Merger is completed, we will send you written instructions for
exchanging your Common Stock certificates for the Cash Merger Consideration.
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:
Keith J. Yoder
CompDent Corporation
100 Mansell Court East, Suite 400
Roswell, Georgia 30076
Telephone: 770-998-8936
You should note that Keith Yoder, as well as the other executive officers
of CompDent, are participants in the Merger.
ii
<PAGE> 6
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT AND OTHER STATEMENTS MADE FROM TIME TO TIME BY
COMPDENT, THE ACQUIROR, OR THEIR REPRESENTATIVES CONTAIN CERTAIN FORWARD-LOOKING
STATEMENTS. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF, OR
CURRENT EXPECTATIONS OF COMPDENT AND THE ACQUIROR AND MEMBERS OF THEIR
RESPECTIVE MANAGEMENT TEAMS, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS
ARE BASED. SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT
FACTORS CURRENTLY KNOWN TO MANAGEMENT OF COMPDENT AND THE ACQUIROR THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS DETAILED HEREIN AND: (I)
COMPETITIVE PRESSURES IN THE DENTAL BENEFITS AND MANAGEMENT INDUSTRIES; (II)
MANAGEMENT AND INTEGRATION OF THE OPERATIONS OF ACQUIRED BUSINESSES; (III)
COMPDENT'S BUSINESS AND GROWTH STRATEGIES; AND (IV) GENERAL ECONOMIC CONDITIONS.
COMPDENT AND THE ACQUIROR UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE
FORWARD-LOOKING STATEMENTS TO REFLECT CHANGES IN ASSUMPTIONS, THE OCCURRENCE OF
UNANTICIPATED EVENTS, OR CHANGES IN FUTURE OPERATING RESULTS OVER TIME.
iii
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... i
WHO CAN HELP ANSWER YOUR QUESTIONS.......................... ii
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... iii
SUMMARY..................................................... 1
Effects of the Merger..................................... 1
The Companies............................................. 1
The Special Meeting....................................... 1
Record Date; Voting Power................................. 1
Vote Required............................................. 2
Recommendations........................................... 2
Opinion of Financial Advisor.............................. 2
Terms of the Merger Agreement............................. 2
Share Ownership of CompDent following the Merger.......... 3
Accounting Treatment...................................... 4
Financing of the Merger................................... 4
Conflicts of Interest..................................... 4
Regulatory Approvals...................................... 5
Appraisal Rights.......................................... 5
Historical Market Information............................. 6
Selected Consolidated Financial Data...................... 7
Selected Unaudited Pro Forma Consolidated Financial
Data................................................... 9
Consolidated Ratios of Earnings to Fixed Charges and Book
Value Per Share........................................ 10
Company Projections....................................... 10
SPECIAL FACTORS............................................. 12
Background of the Merger.................................. 12
The Special Committee's and the Board's Recommendation.... 17
Opinion of Financial Advisor.............................. 21
Purpose and Reasons of the Investor Group for the
Merger................................................. 28
Position of the Investor Group as to Fairness of the
Merger................................................. 28
Conflicts of Interest..................................... 29
Certain Effects of the Merger............................. 34
Financing of the Merger................................... 34
Current Status of the Financing........................... 35
Conduct of CompDent's Business After the Merger........... 36
THE SPECIAL MEETING......................................... 37
Date, Time, and Place of the Special Meeting.............. 37
Proxy Solicitation........................................ 37
Record Date and Quorum Requirement........................ 37
Voting Procedures......................................... 37
Voting and Revocation of Proxies.......................... 38
Effective Time of the Merger and Payment for Shares....... 38
Other Matters to Be Considered............................ 38
THE MERGER.................................................. 39
Terms of the Merger Agreement............................. 39
Estimated Fees and Expenses of the Merger................. 46
RIGHTS OF DISSENTING STOCKHOLDERS........................... 47
FEDERAL INCOME TAX CONSEQUENCES............................. 48
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND
OTHERS.................................................... 50
CERTAIN INFORMATION CONCERNING THE ACQUIROR AND THE INVESTOR
GROUP..................................................... 51
</TABLE>
iv
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PURCHASES OF COMMON STOCK BY CERTAIN PERSONS................ 54
EXPERTS..................................................... 54
WHERE YOU CAN FIND MORE INFORMATION......................... 54
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 55
STOCKHOLDER PROPOSALS....................................... 56
OTHER MATTERS............................................... 56
APPENDIX A -- Amended and Restated Agreement and Plan of
Merger.................................................... A-1
APPENDIX B -- Opinion of The Robinson-Humphrey Company,
LLC....................................................... B-1
APPENDIX C -- Text of Section 262 of the Delaware General
Corporation Law........................................... C-1
</TABLE>
v
<PAGE> 9
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a more complete
understanding of the Merger and for a more complete description of the legal
terms of the Merger, you should read this entire document carefully, as well as
the additional documents to which we refer you, including the Merger Agreement.
See "Where You Can Find More Information" (page 39).
EFFECTS OF THE MERGER
Pursuant to the Merger, the Acquiror will be merged with and into CompDent
with CompDent being the surviving corporation (the "Surviving Corporation"). As
a result of the Merger, the entire equity interest in the Company will be owned
by the Investor Group, and CompDent Common Stock will no longer be publicly
traded. The Public Stockholders will no longer be stockholders of CompDent and
they will not participate in CompDent's future earnings and growth or bear the
risk of any decreases in the value of CompDent. Instead, the Public Stockholders
will have the right to receive $18.00 in cash, without interest, for each share
of Common Stock held (other than shares in respect of which appraisal rights
have been perfected under Delaware law). The Investor Group will have the
opportunity to benefit from any future earnings and growth of CompDent and will
bear the risk of any decrease in CompDent's value. In addition, the members of
the Management Group have interests in the Merger as employees and/or directors
which are different from, or in addition to, yours as a CompDent stockholder. To
review these interests, see "-- Conflicts of Interest" and "Special
Factors -- Conflicts of Interest."
THE COMPANIES
COMPDENT CORPORATION
100 Mansell Court East
Suite 400
Roswell, Georgia 30076
(770) 998-8936
CompDent is a fully integrated dental management company, offering a full
line of dental care plan services, including network-based dental care plans,
reduced fee-for-service, and third-party administration services. CompDent
markets its products to employers and other business entities and to
individuals. CompDent's benefit plans also include a reduced fee-for-service
product, a PPO and network dental product, and administrative services for self-
insured dental plans. CompDent also owns Dental Health Management, Inc., which
provides management and administrative services to dental practices.
TAGTCR ACQUISITION, INC.
c/o TA Associates, Inc.
125 High Street, Suite 2500
Boston, Massachusetts 02110
(617) 574-6700
TAGTCR Acquisition, Inc. was organized at the direction of three private
investment partnerships that have jointly agreed, together with certain
affiliated entities, members of management and other entities and individuals,
to acquire the public stock of CompDent. These partnerships and their affiliates
(the "Equity Investors") include (i) Golder, Thoma, Cressey, Rauner Fund V, L.P.
and GTCR Associates V, L.P., each of which is affiliated with Golder, Thoma,
Cressey, Rauner, Inc. (collectively, the "GTCR Partnership"), (ii) TA/Advent
VIII L.P., Advent Atlantic and Pacific III L.P., TA Executives Fund LLC, and TA
Investors LLC, each of which is affiliated with TA Associates, Inc.
(collectively, the "TA Fund"), and (iii) NMS Capital, L.P., an affiliate of
BankAmerica Corporation (the "NMS Partnership").
THE SPECIAL MEETING (PAGE 37)
The Special Meeting will be held on January 29, 1999, at 10:00 a.m., local
time, at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia.
At the Special Meeting, CompDent stockholders will be asked to consider and vote
upon a proposal to approve and adopt the Merger Agreement.
RECORD DATE; VOTING POWER (PAGE 37)
Holders of record of CompDent Common Stock at the close of business on
December 28, 1998 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. As of such date, there were shares of Common
Stock issued and outstanding held by approximately holders of
record. Holders of record
<PAGE> 10
of Common Stock on the Record Date are entitled to one vote per share on any
matter that may properly come before the Special Meeting.
VOTE REQUIRED (PAGE 37)
Approval by the CompDent stockholders of the proposal to approve and adopt
the Merger Agreement will require the affirmative vote of a majority of the
shares of CompDent Common Stock outstanding on the Record Date. Accordingly, a
failure to vote or a vote to abstain will have the same legal effect as a vote
against the Merger.
A "no" vote on the enclosed proxy card will be a vote against the Merger.
If we do not receive "yes" votes from a majority of the outstanding shares of
Common Stock, the Merger will not be approved and you will continue to own
shares in a publicly traded company.
A stockholder who gives a proxy with respect to voting on the Merger
Agreement may revoke it at anytime before it is voted at the Special Meeting by
(i) filing with the Secretary of CompDent an instrument revoking it, (ii)
submitting a duly executed proxy bearing a later date or (iii) voting in person
at the Special Meeting.
RECOMMENDATIONS (PAGE 17)
Because certain of the CompDent directors will have a financial interest in
the Merger, the CompDent Board of Directors appointed the Special Committee to
review and evaluate the proposed transaction. The Special Committee unanimously
recommended to the CompDent Board that the Merger Agreement be approved and that
it be recommended to the stockholders of the Company. Following the unanimous
recommendation of the Special Committee, the CompDent Board unanimously
determined that the Merger, the Merger Agreement, and the transactions
contemplated thereby were fair and in the best interests of the CompDent
stockholders and recommended that the stockholders approve the Merger Agreement.
The Special Committee and the CompDent Board recommend that the CompDent
stockholders vote "For" the approval of the Merger Agreement. You also should
refer to the reasons that the Special Committee and the CompDent Board
considered in determining whether to approve and adopt the Merger Agreement on
pages 12-17.
OPINION OF FINANCIAL ADVISOR (PAGE 21)
The Robinson-Humphrey Company, LLC, a nationally recognized investment
banking firm which served as financial advisor to the Special Committee, has
rendered an opinion dated July 28, 1998, and, after reviewing an amendment and
restatement of the Merger Agreement dated , 1998, has determined not
to withdraw its opinion as of , 1998, to the Special Committee that
the Cash Merger Consideration is fair from a financial point of view to the
Public Stockholders of CompDent. A copy of the fairness opinion, setting forth
the information reviewed, assumptions made, and matters considered, is attached
to this Proxy Statement as Appendix B. You should read the fairness opinion of
Robinson-Humphrey in its entirety.
TERMS OF THE MERGER AGREEMENT (PAGE 39)
The Merger Agreement is attached to this Proxy Statement as Appendix A. You
are encouraged to read the Merger Agreement in its entirety. It is the legal
document that governs the Merger.
General. The Merger Agreement provides that the Acquiror will be merged
with and into CompDent, with CompDent being the surviving corporation (the
"Surviving Corporation"). As a result of the Merger, the Public Stockholders of
CompDent will receive $18.00 in cash, without interest, for each share of Common
Stock. In addition, certain members of management will receive cash for the
aggregate unrealized gain on their vested stock options.
Conditions to the Merger. The completion of the Merger depends upon the
satisfaction of a number of conditions, including:
- approval of the Merger Agreement by a majority of the CompDent
stockholders;
- receipt of all necessary orders and consents of governmental authorities
and the expiration of any regulatory waiting periods;
- receipt by the Acquiror of sufficient financing pursuant to its existing
financing commitments to consummate the Merger; and
- absence of a material adverse effect on the business of CompDent.
2
<PAGE> 11
Each party may, at its option, waive the satisfaction of any condition to
such party's obligations under the Merger Agreement. EVEN IF THE STOCKHOLDERS
APPROVE THE MERGER, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL BE
CONSUMMATED.
No Solicitation. Until consummation or abandonment of the Merger, CompDent
and its affiliates are not permitted to initiate or solicit any proposal from a
third party with respect to a merger, consolidation, sale, or similar
transaction involving CompDent or any of its subsidiaries (an "Acquisition
Proposal").
Termination. Either CompDent or the Acquiror may terminate the Merger
Agreement under certain circumstances, including if:
- both parties consent in writing;
- the Merger is not completed before June 30, 1999;
- legal restraints or prohibitions prevent the consummation of the Merger;
- the CompDent stockholders do not approve the Merger Agreement; or
- the other party breaches in a material manner any of its representations,
warranties or covenants under the Merger Agreement and such breach is not
cured within 30 days of notice.
In addition, CompDent may terminate the Merger Agreement if it accepts or
recommends acceptance of an Acquisition Proposal with another party, and the
Acquiror may terminate the Merger Agreement if the CompDent Board or the Special
Committee withdraws, or adversely modifies, its approval or recommendation of
the Merger or approves, recommends or causes CompDent to enter into any
agreement with respect to an Acquisition Proposal.
Fees and Expenses. CompDent and the Acquiror will pay their own fees,
costs, and expenses incurred in connection with the Merger Agreement. However,
CompDent will pay the Acquiror a "break up" fee of $7.0 million, under certain
circumstances, if CompDent approves, enters into, or consummates a transaction
contemplated by an Acquisition Proposal, or if the Board or the Special
Committee withdraws its recommendation of the Merger. In negotiating the terms
of the Merger Agreement, the Special Committee wanted to preserve the
flexibility to approve, enter into, or consummate a transaction contemplated by
an Acquisition Proposal. The Special Committee believed that this flexibility
was necessary in order to maximize stockholder value in the event that a
transaction more attractive than the Merger became available. The Acquiror was
willing to grant this flexibility to the Special Committee, but only if CompDent
was willing to pay a "break up" fee to the Acquiror. The amount of the "break
up" fee and the circumstances under which it would be paid were negotiated by
the Special Committee and the Acquiror. Although the payment of the "break up"
fee would increase the cost of completing an Acquisition Proposal, the Special
Committee believes that the amount and the terms of the "break up" fee are
reasonable. CompDent would pay the break up fee, if incurred, either out of
available cash or from the proceeds of its current or a future credit facility.
In addition, each of the Acquiror and CompDent agrees to pay the other party's
fees and expenses (not to exceed $2.0 million) upon the termination of the
Merger Agreement after a material breach or failure to perform any
representation, warranty or covenant that such party has under the Merger
Agreement.
SHARE OWNERSHIP OF COMPDENT FOLLOWING THE MERGER (PAGE 29)
- The Management Sponsors. Pursuant to the Merger, David R. Klock,
Chairman and Chief Executive Officer of CompDent, and Phyllis A. Klock,
President and Chief Operating Officer of CompDent (the "Management
Sponsors"), will collectively cause 200,000 shares of Common Stock with
an agreed value of $18.00 per share (a total value of $3.6 million) to be
converted into (i) 675,110 shares of common stock, $.01 par value, of the
Surviving Corporation and (ii) 3,235 shares of Convertible Participating
Preferred Stock, $.01 par value (the "Convertible Preferred Stock"), of
the Surviving Corporation. The remaining 149,083 shares of Common Stock
held by the Management Sponsors, which will not be converted into common
stock and Convertible Preferred Stock of the surviving Corporation, will
be sold immediately prior to the Merger to the NMS Partnership for $18.00
per share (a total value of $2,683,494). The Management Sponsors will own
an initial aggregate equity
3
<PAGE> 12
interest in the Surviving Corporation of approximately 3.93%.
- The Equity Investors. The TA Fund will contribute approximately
$40,250,300 in cash to the Acquiror, the GTCR Partnership will contribute
approximately $25,830,300 in cash to the Acquiror, and the NMS
Partnership will contribute approximately $316,506 in cash to the
Acquiror, each in exchange for a combination of shares of common stock
and Convertible Preferred Stock of the Acquiror, which shares will be
converted into identical shares of the Surviving Corporation (i.e.,
CompDent) in the Merger. In addition, the NMS Partnership will cause its
shares of CompDent Common Stock (i.e., the shares purchased from the
Management Sponsors) with an agreed value of $18.00 per share (a total
value of $2,683,494) to be converted into a combination of shares of
common stock and Convertible Preferred Stock of the Surviving
Corporation. Immediately following the Merger, the GTCR Partnership will
transfer its equity interest in Dental Health Development Corporation
("DHDC"), a company in which CompDent has an indirect minority interest,
to a subsidiary of CompDent in exchange for such subsidiary's transfer to
the GTCR Partnership of shares of common stock and Convertible Preferred
Stock of the Surviving Corporation having an agreed value of $14,420,000,
which CompDent believes approximates fair market value. The transfer of
the GTCR Partnership's interest in DHDC will be accounted for under the
purchase method of accounting, and any required assets will be accounted
for as goodwill. The Equity Investors will own an initial aggregate
equity interest in the Surviving Corporation of approximately 91.2%.
- The Other Investors. Certain other investors will convert 233,300 shares
of Common Stock for shares of common stock and Convertible Preferred
Stock of the Surviving Corporation. The Other Investors will own an
initial aggregate equity interest in the Surviving Corporation of
approximately 4.59%.
- The Other Management Investors. Certain members of management will
purchase shares of common stock of the Surviving Corporation representing
an initial aggregate equity interest in the Surviving Corporation of
approximately 0.28%. These shares will be subject to certain vesting
restrictions. In addition, the Surviving Corporation will grant options
to purchase shares of common stock of the Surviving Corporation
representing approximately % of the common stock on a fully
converted basis and will reserve approximately 3% of the common stock of
the Surviving Corporation on a fully converted basis for the grant of
options to management employees on a prospective basis. The "Management
Sponsors" and the "Other Management Investors" are sometimes referred to
hereafter as the "Management Group."
ACCOUNTING TREATMENT
The Acquiror believes that the Merger will be accounted for as a
recapitalization for accounting purposes.
FINANCING OF THE MERGER (PAGE 34)
In order to consummate the Merger, the Acquiror has received financing
letters from NationsBank, N.A. for bank loans in the amount of $75 million and a
financing letter from NationsBridge, L.L.C. for a bridge loan in the amount of
$100 million. These financing letters are subject to the satisfaction of
numerous conditions, including the satisfaction of certain financial tests.
Based upon CompDent's most recent financial results and the definition of EBITDA
which NationsBank and NationsBridge have indicated that they will use, it
appears that NationsBank and NationsBridge will not be obligated to provide the
entire $175 million at the closing of the Merger. The Acquiror has indicated to
CompDent that it is actively seeking alternative financing for the approximately
$7 to $9 million of shortfall in the financing, but that it is unlikely that
alternative financing will be available to the Acquiror in amounts necessary to
acquire CompDent at an $18.00 per share price. However, we are soliciting your
proxy in the event that the Acquiror is successful in obtaining alternative
sources of financing prior to the closing of the Merger.
CONFLICTS OF INTEREST (PAGE 29)
- The Management Group. Certain members of the Management Group have
interests in the Merger as employees and/or
4
<PAGE> 13
directors that are different from, or in addition to, yours as a CompDent
stockholder. Members of the Management Group will continue to have an
equity interest in the Surviving Corporation and the ultimate value of
this interest could exceed the $18.00 per share to be received by the
Public Stockholders in the Merger. If the Merger is consummated, the
Management Sponsors will be designated as members of the CompDent Board
and members of the Management Group will remain as senior management of
CompDent. In addition, if the Merger is consummated, options to purchase
common stock of the Surviving Corporation will be made available to the
Management Group and certain members of the Management Group will amend
their existing employment agreements or enter into new employment
agreements with the Surviving Corporation. Also, certain indemnification
arrangements and directors' and officers' liability insurance for
existing directors and officers of CompDent will be continued by CompDent
after the Merger.
- Robinson-Humphrey. Robinson-Humphrey
served as financial advisor to the Special Committee and has had certain
relationships with CompDent and its management that could be perceived as
adversely affecting its independence. Robinson-Humphrey served as a
co-manager in CompDent's public offering of Common Stock in August 1995, as
placement agent in DHDC's private placement of securities in September
1997, and as financial advisor to CompDent in all of its material
acquisitions since January 1996, each in exchange for customary advisory
fees and/or commission arrangements. In addition, an affiliate of
Robinson-Humphrey purchased approximately $500,000, or 5%, of the Series A
Preferred Stock and Class A Common Stock of DHDC from the GTCR Partnership
on October 29, 1997. Dividends on each share of the Series A Preferred
Stock accrue at a compound rate of 31% per annum beginning on September 12,
1997, the date of the initial investment. Robinson-Humphrey has agreed to
resell its interest to the GTCR Partnership prior to the Merger for
$ , which is equal to the original cost of this interest plus the
accrued dividends thereon and which CompDent believes approximates fair
market value. Robinson-Humphrey believes that the foregoing arrangements do
not affect its ability to independently and impartially act as financial
advisor to the Special Committee.
- The Special Committee. Upon consummation of the Merger, the members of
the Special Committee will receive $18.00 per share in cash, without
interest, for each share of their Common Stock and will receive cash for
the aggregate unrealized gain on their vested stock options. The members
of the Special Committee believe that the foregoing arrangements do not
affect their independence or impartiality.
REGULATORY APPROVALS (PAGE 40)
CompDent is required to make filings with or obtain approvals from certain
regulatory authorities in connection with the Merger. These consents and
approvals include approval of the Federal Trade Commission, the Department of
Justice, and certain state insurance authorities. An application and notice will
be filed with the Federal Trade Commission and the Department of Justice. All
other necessary applications and notices have been filed.
We cannot predict whether or when we will obtain all required regulatory
approvals or the timing of these approvals.
APPRAISAL RIGHTS (PAGE 47)
Any stockholder of CompDent who does not vote in favor of the proposal to
approve the Merger Agreement and who complies strictly with the applicable
provisions of Section 262 of the Delaware General Corporation Law has appraisal
rights to be paid cash for the "fair value" for such holder's shares of Common
Stock. To perfect these appraisal rights with respect to the Merger, you must
follow the required procedures precisely. The applicable provisions of Section
262 are attached to this Proxy Statement as Appendix C.
5
<PAGE> 14
HISTORICAL MARKET INFORMATION
The Common Stock is traded on The Nasdaq National Market ("Nasdaq")
(symbol: CPDN). The following table sets forth the high and low sales prices for
each quarterly period for the two most recent fiscal years and for the current
fiscal year to date.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1996:
First quarter............................................... $45 1/8 $34 1/4
Second quarter.............................................. 51 35 1/8
Third quarter............................................... 51 11/16 33
Fourth quarter.............................................. 40 3/8 27 1/2
1997:
First quarter............................................... 39 1/4 27 1/2
Second quarter.............................................. 27 3/8 14 1/4
Third quarter............................................... 26 1/8 19 3/8
Fourth quarter.............................................. 27 5/8 18 5/8
1998:
First quarter............................................... 20 1/4 9 1/2
Second quarter.............................................. 17 12
Third quarter............................................... 17 1/2 12 3/4
Fourth quarter (through December 18, 1998).................. 14 1/8 9 7/8
</TABLE>
On July 27, 1998, the last trading day prior to the announcement of the
execution of the Merger Agreement, the closing price per share of Common Stock
as reported by Nasdaq was $13.50. On December 18, 1998, the last trading day
prior to printing of this Proxy Statement, the closing price per share of Common
Stock as reported by Nasdaq was $10 3/8.
Since January 1, 1996, the Company has not paid any cash dividends on its
Common Stock. Under the Merger Agreement, the Company has agreed not to pay any
dividends on the Common Stock prior to the closing of the Merger. Under the
Company's current senior credit facility, the distribution of dividends would
also require lender consent. In addition, applicable laws generally limit the
ability of the Company's subsidiaries to pay dividends to the extent that
required regulatory capital would be impaired, which in turn further limits the
Company's ability to pay dividends.
In May 1995, CompDent completed an underwritten public offering of
3,420,000 shares of Common Stock. The offering price per share was $14.50, and
the net proceeds received by CompDent were approximately $44.5 million. In
August 1995, CompDent completed an underwritten public offering of 1,935,000
shares of Common Stock. The offering price per share was $23.25, and the net
proceeds received by CompDent were approximately $42.0 million.
6
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Certain selected consolidated historical financial data derived from the
audited financial statements of the Company are set forth below. The selected
financial data should be read in conjunction with the Consolidated Financial
Statements of the Company, related notes, and other financial information
incorporated by reference into this Proxy Statement.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY(1)
-------------
SIX SIX
MONTHS MONTHS NINE MONTHS ENDED
ENDED ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
JUNE 30, DECEMBER 31, ---------------------------------------------- -------------------
1993 1993 1994(2) 1995(3) 1996(4)(5) 1997(6)(7) 1997 1998(8)
------------- ------------ ------- -------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Total revenue.............. $22,004 $24,003 $55,192 $106,661 $141,069 $158,726 $117,169 $129,511
Total expenses............. 21,583 21,619 50,084 96,525 122,180 205,015 100,286 113,541
Operating (loss) income.... 421 2,414 5,108 10,136 18,889 (46,289) 16,883 15,970
Income (loss) before income
taxes and extraordinary
items.................... (718) 1,206 2,721 8,969 17,758 (48,805) 15,214 13,345
Income taxes............... 55 553 1,316 3,765 7,866 4,900 6,559 5,751
Extraordinary items, net of
tax...................... -- -- -- 498 -- -- -- --
Net income (loss).......... (773) 653 1,405 4,706 9,892 (53,705) 8,655 7,594
Net income (loss) per
common share before
extraordinary
items -- basic........... 0.31 0.69 0.98 (5.32) 0.86 0.75
Extraordinary loss per
common share -- basic.... (0.07)
Net income (loss) per
common share -- basic.... 0.31 0.62 0.98 (5.32) 0.86 0.75
Net income (loss) per
common share before
extraordinary
items -- diluted......... 0.30 0.68 0.97 (5.32) 0.85 0.75
Extraordinary loss per
common
share -- diluted......... (0.07)
Net income (loss) per
common
share -- diluted......... 0.30 0.61 0.97 (5.32) 0.85 0.75
Weighted average number of
shares
outstanding -- basic..... 4,149 7,241 10,149 10,098 10,106 10,113
Weighted average number of
shares
outstanding -- diluted... 4,252 7,352 10,177 10,098 10,200 10,174
BALANCE SHEET DATA:
Working capital............ $ 136 $(2,109) $ 25,213 $ 9,810 $ 11,216 $ 14,006 $ 3,417
Total assets............... 37,202 63,342 129,396 184,167 150,871 209,655 151,757
Total assets less excess of
cost of assets acquired
over book value.......... 14,037 25,159 58,333 49,127 54,575 56,699 51,549
Long-term debt............. 26,250 33,450 0 41,663 56,595 55,980 56,481
Stockholders' equity....... 1,900 4,200 102,177 112,183 60,276 122,583 67,869
</TABLE>
- ---------------
(1) Presents consolidated financial data of the Company's predecessor, American
Prepaid Professional Services, Inc., for the period prior to the Company's
acquisition of all of the outstanding stock thereof effective in June 1993.
Because of such transaction, certain aspects of the consolidated results of
operations for the period prior to the period July 1, 1993 are not
comparable with those for subsequent periods. Consequently, net income per
share data are presented only for the years December 31, 1994 and
thereafter.
(2) The DentiCare, Inc. and UniLife Insurance Company acquisitions were
completed on December 28, 1994, and DentiCare and UniLife are, therefore,
included in the consolidated balance sheet of the Company at December 31,
1994 and thereafter, and the consolidated statement of operations (from the
date of acquisition) of the Company for the year ended December 31, 1994 and
thereafter. Net income
7
<PAGE> 16
per common share for the year ended December 31, 1994 has been computed
after deducting $109,000 from net income attributable to preferred stock
dividend accumulation.
(3) The CompDent Corporation acquisition was completed on July 5, 1995, and
CompDent is, therefore, included in the consolidated balance sheet of the
Company at December 31, 1995 and thereafter, and the consolidated statement
of operations of the Company (from the date of acquisition) for the years
ended December 31, 1995 and thereafter. Net income per common share for the
year ended December 31, 1995 has been computed after deducting $218,000 from
net income attributable to preferred stock dividend accumulation.
(4) The Texas Dental Plans, Inc. acquisition was completed on January 8, 1996
and Texas Dental is, therefore, included in the consolidated balance sheet
of the Company at December 31, 1996 and thereafter, and the consolidated
statement of operations of the Company (from the date of acquisition) for
the year ended December 31, 1996 and thereafter.
(5) The Dental Care Plus Management, Corp. acquisition was completed on May 8,
1996, and Dental Care Plus is, therefore, included in the consolidated
balance sheet of the Company at December 31, 1996 and thereafter, and the
consolidated statement of operations of the Company (from the date of
acquisition) for the year ended December 31, 1996 and thereafter.
(6) The American Dental Providers, Inc., and Diamond Dental & Vision, Inc.,
acquisition was completed on March 21, 1997 and is, therefore, included in
the consolidated balance sheet of the Company at December 31, 1997 and
thereafter, and the consolidated statement of operations of the Company
(from the date of acquisition) for the year ended December 31, 1997 and
thereafter.
(7) The Workman Management Group Ltd., and its affiliates, Old Cutler Dental
Associates, P.A., Robert T. Winfree, D.D.S., and the Stratman Management
Group acquisitions were completed on July 1, 1997, July 1, 1997, September
26, 1997, and November 7, 1997, respectively, and these four acquisitions
are included in the consolidated balance sheet of the Company at December
31, 1997 and thereafter, and the consolidated statement of operations of the
Company (from the date of acquisition) for the year ended December 31, 1997
and thereafter.
(8) The Reznik Group and Kendall Roberts, D.D.S., acquisitions were completed in
January 1998 and May 1998, respectively, and these two acquisitions are
included in the consolidated balance sheet and the consolidated statement of
operations of the Company (from the date of acquisition) at June 30, 1998
and thereafter.
8
<PAGE> 17
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth certain unaudited pro forma consolidated
financial data for CompDent as and for the fiscal year ended December 31, 1997
and the nine-month period ended September 30, 1998 and reflects the pro forma
effect of the Merger.
The selected income statement data gives pro forma effect to the Merger as
if it had occurred on January 1, 1997. The selected balance sheet data gives pro
forma effect to the Merger as if it had occurred on September 30, 1998. The
selected unaudited pro forma consolidated financial data do not purport to be
indicative of the results of operations or financial position of CompDent that
would have actually been obtained had the Merger been completed as of the
assumed dates and for the periods presented, or which may be obtained in the
future. The selected unaudited pro forma consolidated financial data should be
read in conjunction with the separate historical consolidated financial
statements of CompDent, and the notes thereto, and Management's Discussion and
Analysis of Results of Operations and Financial Condition of the Company which
has been incorporated by reference into this Proxy Statement.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA NINE MONTHS
YEAR ENDED ENDED
PRO FORMA DECEMBER 31, PRO FORMA SEPTEMBER 30,
HISTORICAL ADJUSTMENTS 1997 HISTORICAL ADJUSTMENTS 1998
---------- ----------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenue....................... $158,726 $158,726 $129,511 $129,511
Depreciation and amortization..... 5,735 2,297(1) 8,032 4,214 1,723(1) 5,937
Interest expense and financing
charges......................... 3,239 (2) 15,274 3,284 (2) 11,456
Income (loss) before income taxes
and extraordinary items......... (48,805) (14,332) (63,137) 13,245 (9,895) 3,350
Net income (loss)................. (53,705) (19,850) (73,555) 7,594 (5,684) 1,910
Net income (loss) per
share -- basic.................. $ (5.32) $ (7.28) $ 0.75 $ 0.19
Net income (loss) per
share -- fully diluted.......... $ (5.32) $ (7.28) $ 0.75 $ 0.19
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 9,980 $ 3,578(3) $ 13,558
Working Capital................... 3,417 3,417
Total Assets...................... 151,757 (11,435) 140,322
Total assets less excess of cost
of assets acquired over book
value........................... 51,549 51,549
Long-term debt.................... 56,481 98,519(4) 155,000
3,578(3)
85,000(5)
20,000(6)
(181,242)(7)
Shareholders' equity.............. $ 67,869 $ (14,420)(6) $(19,215)
</TABLE>
- ---------------
Pro Forma Adjustments:
(1) Depreciation and Amortization -- Amortization of the deferred financing fees
over a 5-year period.
(2) Reflects borrowings of $100 Senior Subordinated Notes and $55 million
pursuant to the Revolving Credit Facility. Pro forma adjustments of ($3,239)
and $15,274 for the year ended December 31, 1997 and pro forma adjustments
of ($3,284) and $11,456 for the nine months ended September 30, 1998.
(3) Reflects the proceeds received from the exercise of common stock options.
(4) Reflects borrowings of $100 Senior Subordinated Notes and $55 million
pursuant to the Revolving Credit Facility and the retirement of the current
Credit Facility ($56.5 million).
(5) Infusion of capital into CompDent by the TAGTCR group in exchange for 8.5
million shares of CompDent common stock.
(6) Reflects the $20.0 million dividend from DHMI and $14.4 million contribution
of GTCR's equity ownership of DHDC.
(7) Reflects the repurchase of approximately 10 million shares of CompDent
common stock.
9
<PAGE> 18
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND BOOK VALUE PER SHARE
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for each of the last two fiscal years and as of
September 30, 1998 and book value per share of Common Stock for the year ended
December 31, 1997 and as of September 30, 1998.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DEC. 31, 1996 DEC. 31, 1997 SEPTEMBER 30, 1998
------------- ------------- ------------------
<S> <C> <C> <C>
Ratio of earnings to fixed charges:(1)............. 6.1:1 --(2) 3.3:1
Book value per share............................... $11.02 $5.97 $6.67
</TABLE>
- ---------------
(1) For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income before
extraordinary items. Fixed charges consist of interest costs, whether
expensed or capitalized, and amortization of debt discounts and issue costs,
whether expensed or capitalized.
(2) The earnings for the year ended December 31, 1997 were a loss of
$53,706,000. Therefore the calculation of this ratio is not applicable.
Accordingly, the Company's earnings would have been insufficient to cover
the Company's fixed charges by $50,406,000.
COMPANY PROJECTIONS(1)
In connection with the Equity Investors' review of the Company and in the
course of the negotiations between the Company and the Equity Investors
described in "SPECIAL FACTORS -- Background to Merger," the Company provided the
Equity Investors with certain non-public business and financial information. The
non-public information provided by the Company included certain projections (the
"Company Projections") of the future operating performance of the "dental
benefits" operations of the Company. The Company Projections do not give effect
to the Merger or the financing thereof.
The Company does not, as a matter of course, publicly disclose projections
as to future revenues or earnings. The Company Projections were not prepared
with a view to public disclosure and are included in the Proxy Statement only
because such information was made available to the Equity Investors in
connection with its due diligence investigation of the Company. Accordingly, it
is expected that there will be differences between actual and projected results,
and actual results may be materially different than those set forth below. The
Company Projections were not prepared with a view to compliance with the
published guidelines of the Commission regarding projections, nor were they
prepared in accordance with the guidelines established by the American Institute
of Certified Public Accountants for preparation and presentation of financial
projections. These forward-looking statements reflect numerous assumptions made
by the Company's management. In addition, factors such as industry performance,
general business, economic, regulatory, and market and financial conditions, all
of which are difficult to predict, may cause the Company Projections or the
underlying assumptions to be inaccurate. Accordingly, there can be no assurance
that the Company Projections will be realized, and actual results may be
materially greater or less than those contained in the Company Projections.
The inclusion of the Company Projections herein should not be regarded as
an indication that the Equity Investors or the Company or their respective
financial advisors considered or consider the Company Projections to be a
reliable prediction of future events, and the Company Projections should not be
relied upon as such. None of the Company, the Equity Investors, or any of their
financial advisors intends to update or otherwise revise the Company Projections
to reflect circumstances existing after the date when made or to reflect the
occurrence of future events even in the event that any or all of the assumptions
underlying the Company Projections are shown to be in error.
The Company has provided to the Equity Investors the following Company
Projections: total revenue of $153.8 million and $161.4 million, and operating
income of $20.0 million and $21.7 million for fiscal years
10
<PAGE> 19
1999 and 2000, respectively. The Equity Investors took this information,
together with their own analyses, into account in determining whether to enter
into the Merger Agreement.
(1) PricewaterhouseCoopers LLP has not examined, compiled or applied any
procedures to the Company Projections in accordance with standards
established by the American Institute of Certified Public Accountants and
expresses no opinion or any assurance on their reasonableness or
achievability.
11
<PAGE> 20
SPECIAL FACTORS
BACKGROUND OF THE MERGER
During the latter part of 1997 and early 1998, changes in the dental
benefits marketplace were adversely affecting the Company's historical growth
rate and profitability. The Company had historically grown in size and
profitability through internal growth and acquisitions. During the latter part
of 1997 and early 1998, management of the Company observed that due to increased
competition and aggressive pricing by competitors, internal growth was becoming
more difficult to achieve. In addition, acquisitions were becoming less
attractive because acquisition prices had increased and the Company's reduced
stock price made acquisitions more expensive and dilutive to earnings.
Management of the Company undertook certain operational initiatives to
strengthen the Company and to position the Company for the future. In the first
quarter of 1997, the Company formed a new dental practice management company,
Dental Health Management, Inc. ("DHMI"), to become a full service dental care
company. In addition, in the third quarter of 1997, the Company acquired an
ownership interest in Dental Health Development Corporation ("DHDC"), a dental
development company specializing in developing start-up dental practices.
In addition to the operational initiatives, management of the Company met
several times with Morgan Stanley & Co. Incorporated during 1997 to discuss
various strategic alternatives available to the Company.
In the early part of November 1997, the Company was contacted by a large
industrial company ("Company No. 1") indicating a level of interest in
considering a possible transaction to acquire the Company. On November 11, 1997,
at a meeting of the Board of Directors, the Board authorized management to
engage in discussions with Company No. 1. On November 24, 1997, the Company
formally engaged Morgan Stanley to act as its financial advisor in connection
with a proposed transaction. On or about November 25, 1997, the Company received
a written indication of interest from Company No. 1 to acquire the Company for
$32.00 per share. On December 10, 1997, the Company was informed that the
potential bidder determined not to proceed with a transaction. Subsequent
conversations with the potential bidder in January 1998 convinced management of
the Company that the potential bidder was not indeed interested in pursuing an
acquisition of the Company despite the initial written offer from Company No. 1.
On multiple occasions in 1997, senior management of the Company was in
contact with a competitor ("Company No. 2") of the Company regarding a possible
strategic transaction. Management reported these contacts to the Board of
Directors and the Board authorized management to meet with Company No. 2 to
discuss a possible strategic transaction and to report the results of that
discussion to the Board. On December 21, 1997, David Klock and Phyllis Klock met
with the Chairman of the Board of Company No. 2 to discuss a possible strategic
transaction. The participants discussed the changing dental benefits industry
and the positions of their respective companies in that industry. No formal
proposal or indication of interest upon which the parties could continue
discussions followed these meetings.
During the fourth quarter of 1997, the Company completed an extensive
review of its operations. During late December 1997 and the week of January 5,
1998, the Company determined, based upon this review of its operations, that
changes had occurred which necessitated a number of unusual and one-time
charges. On Monday, January 12, 1998, the Company issued a press release that
stated the Company expected its financial results for the fourth quarter ended
December 31, 1997 to be below analysts' published consensus estimates. In
addition, the Company announced that it was assessing goodwill recorded in prior
acquisitions and was evaluating whether to record certain one-time charges,
including a charge relating to goodwill impairment. On January 12, following
this announcement, the per share price of the Common Stock dropped from $18.00
to $12.50. The Company ultimately recorded charges amounting to $68.4 million in
the aggregate. These charges were announced together with the Company's fourth
quarter earnings on February 10, 1998.
On January 22, 1998, David Klock, Phyllis Klock, and Philip Hertik met with
the senior management of a large regional insurance provider ("Company No. 3")
to discuss a possible transaction. The participants discussed both the dental
benefits and practice management industries in general and their respective
12
<PAGE> 21
companies in particular, but no formal proposal or indication of interest upon
which the parties could continue discussions was made. In March 1998, Company
No. 3 informed the Company that it was not interested at that time in pursuing a
transaction with the Company.
In addition, in late January 1998, senior management of the Company was
approached by certain financial buyers interested in discussing a possible
acquisition of the Company, which would include a significant investment by
management. David Klock reported this development to the full Board of Directors
on January 27, 1998. The Board of Directors encouraged Dr. Klock to pursue any
discussions that could lead to a transaction that would provide enhanced value
to the Company's stockholders. The Board of Directors considered the possibility
of an acquisition of the Company which would involve an investment by management
as one of a number of potential types of transactions which might provided
enhanced value to the Company's stockholders. At the time of the January 27,
1998 meeting, senior management was still focused on pursuing a transaction
which would not involve an investment by management. At the January 27, 1998
Board meeting, the directors held a preliminary discussion regarding the
compensation packages of certain executive officers.
During the first quarter of 1998, David Klock, Phyllis Klock, and other
members of senior management met several times with representatives of TA
Associates, Inc. ("TA Associates") and Golder, Thoma, Cressey, Rauner, Inc.
("GTCR"), individually, to discuss the possibility of acquiring the Company.
Concurrently, the management team held discussions with a number of other
potential financial buyers. At that time, senior management was considering an
acquisition in which it would make an investment, as well as other possible
transactions with both strategic and financial buyers, and had made no decision
to pursue any particular transaction.
On February 20, 1998, management of the Company recommended to the
Compensation Committee of the Board of Directors that the Compensation Committee
review the compensation packages of the executive officers of the Company in
light of the significant decline in the Company's stock price. The members of
the Compensation Committee were Joseph A. Ciffolillo, Joseph E. Stephenson and
David F. Scott, Jr. The decline in the Company's stock price had resulted in a
significant reduction in the value of the executives' existing stock options. In
addition, many of the executives' employment contracts did not have "change in
control" provisions, and, therefore, the executives could be terminated without
any significant payment if a third party acquired the Company. David Klock
expressed concern that certain key employees of the Company would seek
alternative career opportunities absent action by the Compensation Committee
providing them with more attractive long-term incentives and protection in the
event of a change in control of the Company.
The Compensation Committee retained the services of King & Spalding as
legal counsel and a compensation consultant to advise it in relation to
management's proposal. After considering the recommendations of the compensation
consultant, the Compensation Committee determined to (i) put in place new
employment agreements for certain management employees that contained
appropriate change in control provisions and (ii) delay taking any action with
respect to the executive officers' existing stock options to allow the
Compensation Committee to fully evaluate the Company's long-term incentives for
executive officers. On May 8, 1998, the Compensation Committee approved
employment agreements for certain management employees of the Company.
Discussions with TA Associates, GTCR and other potential acquirors
continued through the spring and early summer of 1998. Following an initial
meeting at an investment conference, a large multi-regional health care provider
("Company No. 4") visited the Company on March 18, 1998 to receive an overview
of the Company and its position in the dental benefits industry. No follow-up
conversation transpired.
Following an initial meeting with a large national health care provider
("Company No. 5"), Company No. 5 requested a meeting to discuss a possible
transaction. On May 7, 1998, David Klock, Phyllis Klock, Keith Yoder, and Philip
Hertik met with the senior management of Company No. 5 to discuss a possible
transaction. Approximately three weeks following the meeting, Company No. 5
indicated that it was not interested at that time in considering a transaction
with the Company.
13
<PAGE> 22
By July 1998, management had determined, based on its discussions with TA
Associates, GTCR and other potential bidders, that the combined proposal of TA
Associates and GTCR (together with the NMS Partnership, which joined the group
later) would provide the greatest likelihood that a transaction which would
provide enhanced value to the Company's stockholders. Management based this
determination on TA Associates' and GTCR's experience with and ability to close
transactions of this nature, their experience in the industry, their prior
relationships and experience with the Company, their available capital for
investments of this nature, and the fact that the Company's previous investments
in certain of GTCR's affiliates might make it more advantageous to engage in a
transaction involving GTCR.
A special meeting of the Company's Board of Directors was scheduled for
July 14, 1998, in anticipation of a proposal being made by TA Associates and
GTCR regarding the acquisition of the Company. At the special meeting,
representatives of TA Associates and GTCR made a presentation to the Board of
Directors and submitted a non-binding proposal to acquire the Company for $17.50
per share in cash (the "Initial Proposal"). TA Associates and GTCR told the
Board that David Klock, Phyllis Klock, and possibly other members of senior
management would participate in the proposed acquisition and have a continuing
equity interest in the Company.
After receiving the Initial Proposal, the Board of Directors formed the
Special Committee, consisting of Joseph E. Stephenson, Philip Hertik, and David
F. Scott, Jr., three members of the Board who are not employed by the Company
and who will not own equity interests in or be employed by the Surviving
Corporation, to consider the fairness to the Company's stockholders of the
proposed transaction and to report its determination regarding the fairness of
the Initial Proposal to the full Board of Directors. The Special Committee was
further authorized to establish such procedures, review such information, engage
such financial advisors and legal counsel as it deemed reasonable and necessary
to fully and adequately make such determination, and conduct negotiations with
the TA Fund, the GTCR Partnership, and the NMS Partnership (collectively, the
"Equity Investors") regarding the terms of the proposed transaction.
The Special Committee retained King & Spalding as its legal counsel.
Thereafter, the Special Committee and its legal counsel discussed the procedures
to be followed in analyzing the offer from the Equity Investors to acquire the
Company. As part of this discussion, King & Spalding advised the Special
Committee as to the Special Committee's legal responsibilities and the legal
principles applicable to, and the legal consequences of, actions taken by the
Special Committee with respect to the offer by the Equity Investors.
The Special Committee unanimously selected Robinson-Humphrey to serve as
its financial advisor for the purpose of advising and assisting the Special
Committee in negotiations with the Equity Investors. The Special Committee
instructed Robinson-Humphrey to commence its investigation and analysis of the
value of the Company and the Initial Proposal.
During the period from July 15 to July 20, 1998, Robinson-Humphrey reviewed
certain financial and other information concerning the Company and met with
certain members of the Company's management. On July 21, 1998, Robinson-Humphrey
met with the Special Committee and its legal counsel to discuss the preliminary
results of its analyses and to obtain further direction from the Special
Committee. Representatives of Robinson-Humphrey discussed with the Special
Committee the analyses they had performed to produce a range of implied values
for the Company's Common Stock. The Special Committee also discussed with
Robinson-Humphrey its preliminary findings in connection with
Robinson-Humphrey's investigation of the Company and questioned
Robinson-Humphrey concerning the assumptions made in connection with its
analyses and the facts on which these analyses were based. Robinson-Humphrey
explained to the Special Committee the assumptions, methodologies, and relative
limits of its analyses.
At the July 21 meeting, Robinson-Humphrey provided the Special Committee
with presentation materials outlining its valuation analyses. A copy of the
written materials provided by Robinson-Humphrey and distributed to the Special
Committee at the July 21 meeting has been filed as an exhibit to the Schedule
13E-3 filed with the Securities and Exchange Commission (the "Commission") in
connection with the Merger and is available for inspection and copying at the
principal executive offices of the Company during its regular business hours by
any stockholder or any representative of a stockholder who has been so
designated in writing. A copy of such materials shall be provided to any
stockholder or any representative of a
14
<PAGE> 23
stockholder who has been so designated in writing upon written request and at
the expense of the requesting stockholder or representative.
Robinson-Humphrey presented its analyses and advised the Special Committee
that the $17.50 per share cash offer did not, in Robinson-Humphrey's opinion,
give appropriate emphasis to certain valuation factors considered by it. In
addition, Robinson-Humphrey indicated that further negotiations with the Equity
Investors were possible. The Special Committee then concluded that it could not
recommend to the Board of Directors the original offer of $17.50 per share in
cash. The Special Committee concluded not to respond with a specific price
counteroffer to the Initial Proposal at that time. Instead, the Special
Committee concluded that it would be advisable for Robinson-Humphrey to meet
with the Equity Investors to discuss Robinson-Humphrey's analyses in support of
a higher price.
At the July 21, 1998 meeting, the Special Committee also reviewed with King
& Spalding the preliminary draft of the Merger Agreement that had been provided
by legal counsel for the Equity Investors. In addition, the Special Committee
met with members of management to discuss the Company's historical and projected
financial results and opportunities available to the Company to achieve higher
levels of internal growth and improved profitability.
The Special Committee considered the advisability of contacting other
potential acquirors regarding their interest in pursuing a transaction with the
Company. Robinson-Humphrey reported to the Special Committee that they and King
& Spalding had a discussion with Morgan Stanley on July 20, 1998 to review the
contacts the Company had over the prior eight months with potentially interested
third party acquirors. At that time, the Special Committee determined that it
was unlikely that any of these companies would pursue a transaction with the
Company. In addition, the Equity Investors had informed the Board of Directors
that they did not want their proposal to be used to attempt to generate other
bids from third parties. The Special Committee was concerned that if they
contacted other bidders at this time, the Equity Investors would withdraw their
proposal. Accordingly, the Special Committee determined at this time not to
contact other parties, but to attempt to negotiate a higher per share price from
the Equity Investors. In addition, the Special Committee instructed
Robinson-Humphrey to tell the Equity Investors that the Special Committee
required an appropriate "fiduciary out" from the non-solicitation covenant and a
reduced "break-up" fee that would not preclude the Special Committee from
accepting another acquisition proposal.
The Equity Sponsors initially proposed that CompDent agree to a provision
stating that until consummation or abandonment of the Merger, CompDent and its
subsidiaries would not initiate or solicit or have any discussions or
negotiations concerning an Acquisition Proposal (a "Non-solicitation Covenant").
The Equity Sponsors also proposed that CompDent agree to pay the Equity Sponsors
a higher "break up" fee of million if, under certain circumstances,
CompDent approved, entered into, or consummated a transaction contemplated by an
Acquisition Proposal or if the Board of the Special Committee withdrew its
recommendation of the Merger. During negotiations with the Equity Sponsors, the
Special Committee opposed both the "Non-solicitation Covenant" and the "break
up" fee, but the Equity Sponsors indicated that they would not be willing to
enter into the Merger Agreement if it did not contain both of these provisions.
The Equity Sponsors did, however, agree to modify the Non-solicitation Covenant
to allow the Special Committee to furnish information to, enter into discussions
or negotiations and otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal if the Special Committee determines that
failing to take such action would be inconsistent with its fiduciary duties to
the CompDent stockholders (the "Fiduciary Duty Exception"). The Equity Sponsors
also agreed to reduce the "break up" fee to $7.0 million. The benefit to the
Public Stockholders of the Special Committee agreeing to the "break up" fee is
that the Special Committee was able to successfully enter into the Merger
Agreement. Furthermore, by obtaining the Fiduciary Duty Exception to the
Non-solicitation Covenant, the Special Committee preserved the Company's ability
to enter into an Acquisition Proposal whose terms are more favorable than the
terms of the Merger, although the Company would have to pay the "break up" if it
were to enter into such a transaction. Thus, the "break up" fee does have the
effect of increasing the cost of entering into an Acquisition Proposal. CompDent
would pay the break up fee either out of available cash or with borrowings from
a credit facility.
15
<PAGE> 24
On July 22, 1998, Robinson-Humphrey met telephonically with the Equity
Investors to discuss the original offer of $17.50 per share in cash, the amount
of the break-up fee, and certain other matters. The Equity Investors and
Robinson-Humphrey discussed the Special Committee's view that the $17.50 per
share offer was inadequate. The Equity Investors indicated that the terms of
their financing commitments would restrict any increase in their per share offer
price beyond a certain level without the renegotiation of these financing
commitments. The Equity Investors informed Robinson-Humphrey that they would
review their Initial Proposal and respond to Robinson-Humphrey.
On July 22, 1998, King & Spalding provided the Equity Investors and
McDermott Will & Emery, then legal counsel to the Equity Investors, with
comments regarding the terms of the Merger Agreement and entered into
negotiations on behalf of the Special Committee with McDermott Will & Emery and
the Equity Investors regarding the terms of the Merger Agreement.
On July 23, 1998, the Equity Investors called Robinson-Humphrey and
informed them that they would be prepared to raise their offer to $18.00 per
share in cash. However, the Equity Investors informed Robinson-Humphrey that, to
offer $18.00 per share in cash, the Equity Investors would be required to
further discuss the terms of their financing commitments. Accordingly, the
Equity Investors wanted confirmation that $18.00 per share in cash was an amount
that the Special Committee thought it would be able to accept prior to the
Equity Investors renegotiating their financing commitments.
On July 24, 1998, the Special Committee, together with representatives of
Robinson-Humphrey and King & Spalding, met to consider the revised $18.00 per
share cash offer by the Equity Investors. Robinson-Humphrey indicated that based
on the discussions with the Equity Investors, it believed that the $18.00 per
share cash offer was the best offer available from the Equity Investors. Because
such price was consistent with and supported by Robinson-Humphrey's valuation
methodologies as a whole, Robinson-Humphrey indicated that it believed it would
be able to deliver an opinion that the $18.00 per share cash price was fair to
the Public Stockholders, from a financial point of view. The Special Committee
discussed the $18.00 per share cash offer in detail. The Special Committee
examined the advantages and disadvantages of continuing to urge the Equity
Investors to make an even higher offer, including the Equity Investors' ability
to decline to proceed with the transaction if the Special Committee insisted on
a higher price, with the result that the Company's stockholders would not
receive a substantial premium for their shares. Similarly, the Special Committee
again discussed the advantages and disadvantages of contacting other potential
acquirors regarding their interest in pursuing a transaction with the Company.
Based on Robinson-Humphrey's discussions with the Equity Investors and the
valuation analyses presented by Robinson-Humphrey to the Special Committee on
July 21, 1998, the Special Committee authorized Robinson-Humphrey to inform the
Equity Investors that the Special Committee would be willing to pursue a
transaction at $18.00 per share in cash. The Special Committee also authorized
King & Spalding to continue to negotiate the terms of the definitive Merger
Agreement.
On July 27, 1998, the Special Committee, together with representatives of
Robinson-Humphrey and King & Spalding, met to consider further the $18.00 per
share cash offer by the Equity Investors. Representatives of King & Spalding
reviewed again with the members of the Special Committee their legal duties in
connection with the consideration of the offer. King & Spalding also reviewed
with the Special Committee the terms of the proposed Merger Agreement and the
terms of the Equity Investors' commitment letters for the equity and debt
financing for the Merger. At the meeting, Robinson-Humphrey then presented an
analysis of the $18.00 per share cash offer and concluded that it was prepared
to give an opinion that such offer was fair, from a financial point of view, to
the Public Stockholders. The Special Committee discussed the $18.00 per share
cash offer in detail, and questioned Robinson-Humphrey regarding certain aspects
of its valuation methodologies and analyses. Based on the Robinson-Humphrey
opinion and the valuation analyses presented by Robinson-Humphrey to the Special
Committee during the July 27 meeting, the Special Committee's belief that the
$18.00 per share cash price was the best offer available and the other factors
described below in "-- The Special Committee's and the Board's Recommendation,"
the Special Committee unanimously decided to recommend the approval and adoption
of the $18.00 per share cash offer. The Special Committee authorized King &
Spalding to continue to negotiate the terms of the Merger Agreement with the
Equity Investors and McDermott Will & Emery. Immediately after the Special
Committee meeting on
16
<PAGE> 25
July 27, 1998, the Board of Directors of the Company met to receive the report
of the Special Committee. At this meeting, Mr. Stephenson, Chairman of the
Special Committee, gave the report of the Special Committee in which the Special
Committee unanimously recommended to the Board of Directors of the Company that
the Board accept the $18.00 per share cash offer and approve and adopt the
Merger Agreement. At the Board meeting, Robinson-Humphrey also summarized its
presentation given to the Special Committee on July 27 for the full Board of
Directors of the Company. Following the July 27 Board meeting, representatives
of King & Spalding, representatives of McDermott Will & Emery, and the Equity
Investors held telephone conferences and meetings to resolve the remaining terms
of the proposed Merger Agreement, resulting in a Merger Agreement mutually
satisfactory to the Equity Investors and the Special Committee.
On July 28, 1998, prior to the opening of trading on Nasdaq, the Special
Committee met to review with King & Spalding the changes made to the proposed
Merger Agreement the prior evening. After discussing the changes, the Special
Committee unanimously reaffirmed its recommendation to the Board of Directors to
accept the $18.00 per share cash offer and determined that the Merger, the
Merger Agreement, and the transactions contemplated thereby were fair and in the
best interests of the Public Stockholders of the Company. Immediately after the
Special Committee meeting, the Board of Directors met to review the changes to
the Merger Agreement. After discussing the changes and hearing the
recommendations of the Special Committee, the Board of Directors unanimously
determined that the Merger, the Merger Agreement, and the transactions
contemplated thereby were fair and in the best interests of the Public
Stockholders and approved the Merger Agreement.
At the conclusion of the July 28, 1998 meeting, the Company issued a press
release announcing that based on the recommendation of the Special Committee the
Board of Directors had approved the Equity Investors' merger proposal of $18.00
per share in cash.
A copy of the written materials provided by Robinson-Humphrey and
distributed to the Special Committee at the July 27, 1998 meeting has been filed
as an exhibit to the Schedule 13E-3 and is available for inspection and copying
at the principal executive offices of the Company during its regular business
hours by any stockholder or any representative of a stockholder who has been so
designated in writing. A copy of such materials shall be provided to any
stockholder or any representative of a stockholder who has been so designated in
writing upon written request and at the expense of the requesting stockholder or
representative. After reviewing an amendment and restatement of the Merger
Agreement, dated , 1998, Robinson-Humphrey has determined not to
withdraw its fairness opinion as of , 1998, the full text of which is
attached as Appendix B to this Proxy Statement.
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
Because certain of the CompDent directors will have a financial interest in
the Merger, the full Board formed the Special Committee, comprised of the sole
disinterested directors, to review and evaluate the proposed transaction. The
Special Committee unanimously recommended to the Board that the Merger Agreement
be approved and that it be recommended to the stockholders of the Company.
Following the unanimous recommendation of the Special Committee, the Board
approved the Merger Agreement and recommended that the stockholders of the
Company approve the Merger Agreement. In connection with the foregoing, the
Special Committee and the Board determined that the Merger, the Merger
Agreement, and the transactions contemplated thereby were fair and in the best
interests of the Public Stockholders. In connection with their recommendations,
the Special Committee and the Board each adopted the analyses and findings of
the Special Committee's financial advisor, Robinson-Humphrey. See "SPECIAL
FACTORS -- Opinion of Financial Advisor." The Special Committee and the Board
recommend that the stockholders vote "For" the approval of the Merger Agreement.
The Special Committee and the Board of Directors determined that it was an
appropriate time to enter into the proposed transaction when the Equity Sponsors
made their proposal to the Company based on recent developments in the dental
benefits industry and on contacts which the Company had had with other potential
acquirors during the previous several months. During the latter part of 1997 and
early 1998, changes in the dental benefits industry were adversely affecting the
Company's historical growth rate and profitability.
17
<PAGE> 26
The Company had historically grown in size and profitability through internal
growth and acquisitions. During this time period, management of the Company
reported to the Board of Directors that due to increased competition and
aggressive pricing by competitors, internal growth was becoming more difficult
to achieve. In addition, acquisitions were becoming less attractive because
acquisition prices had increased and the Company's reduced stock price made
acquisitions more expensive and dilutive to earnings. In addition, although the
Company had not actively sought to enter into a strategic transaction, several
potential acquirors had approached the Company about potential transactions.
Based on these contacts, the Special Committee and the Board of Directors were
aware of the terms on which those potential acquirors were willing to enter into
transactions with the Company. When the Equity Investors made their proposal,
the Special Committee and the Board of Directors determined that it was an
appropriate time to enter into a transaction on the proposed terms in light of
the foregoing factors and with the knowledge of the terms on which other
acquirors were willing to enter into a transaction at that time.
The Special Committee met on nine occasions between July 14, 1998 and the
date of this Proxy Statement, in person or by telephone conference, to consider
developments relating to a possible sale of the Company. The Special Committee
was assisted in its deliberations by its financial advisor, Robinson-Humphrey,
and its legal counsel, King & Spalding. At a meeting held on July 27, 1998, the
Special Committee determined that the Merger, the Merger Agreement, and the
transactions contemplated thereby were fair and in the best interests of the
Public Stockholders of the Company and recommended that the full Board approve
the Merger Agreement. The Special Committee is unaware of any development since
its July 27, 1998 meeting that would affect its July 27, 1998 determination,
and, accordingly, the Special Committee reconfirms, as of the date of this Proxy
Statement, its determination that the Merger, the Merger Agreement, and the
transactions contemplated thereby are fair and in the best interests of the
Public Stockholders of the Company. Based on the foregoing, the Board also
reconfirms, as of the date of this Proxy Statement, its determination that the
Merger, the Merger Agreement, and the transactions contemplated thereby are fair
and in the best interests of the Public Stockholders of the Company.
The material factors the Special Committee evaluated in connection with the
Merger are described below. Except for paragraph (ix) and as otherwise as noted
below, the Special Committee considered the following factors to be positive
factors supporting its determination that the Merger is fair and in the best
interests of the Public Stockholders. In arriving at its decision, the Special
Committee considered:
(i) The Special Committee's view that the Company has experienced
increased competition and aggressive pricing by competitors. As a result,
internal growth has become more difficult to achieve. In addition,
acquisitions have become less attractive because acquisition prices have
increased and the Company's reduced stock price has made acquisitions more
expensive and dilutive to earnings. These factors resulted in a lower
overall growth rate for the Company which had an adverse effect on the
market price of the Common Stock and on management's ability to execute the
Company's business strategy. In this connection, the Special Committee
considered that the Company may be managed more effectively as a private
company not subject to pressures from the Public Stockholders and market
professionals to grow earnings per share consistently and at the Company's
historical double digit rates. In addition, the Committee was concerned
that given the reduced market price of the Common Stock, any additional
equity incentives which the Company might issue to retain key members of
management would have further adverse effects on the market price of the
Common Stock. The Special Committee believes that, as a private company,
the Company would have greater flexibility to consider business strategies
that have long-term benefits (including acquisitions which are often
dilutive in the short-term), but that would adversely impact earnings per
share and the market price of the Common Stock in the short-term if the
Company were public.
(ii) The belief of the Special Committee that the Merger represents a
more desirable alternative than continuing to operate the Company as a
public company. In this connection, the Special Committee gave
consideration to rejecting the Equity Investors' proposal in favor of
maintaining the Company's independence and enabling the Public Stockholders
to share in the Company's future earnings and growth potential. However,
the Special Committee believes that continuing to operate the Company as an
independent entity would subject the Company and its stockholders to delays
in
18
<PAGE> 27
implementation or the risk of execution of the Company's business strategy
as described above. After evaluating such risk (including the factors
described under item (i) above), the Special Committee concluded that,
while the Company's business strategy could ultimately prove successful,
the risk that the Company will continue to experience significant operating
events adversely impacting the performance of the Common Stock justifies a
sale of the Company pursuant to the terms of the Merger Agreement. As
alternatives to the Merger, the Special Committee considered continuing to
operate the Company as an independent entity, and the preliminary proposals
that are described above under " -- Background of the Merger."
(iii) Information with respect to the financial condition, results of
operations, and business of the Company. The Special Committee focused in
particular on projections, which reflected lower revenues and operating
income for future periods than had been anticipated prior to fiscal year
1998.
(iv) The scope of efforts to effect a transaction for the Company,
including the number and identity of potential buyers from which
indications of interest were received. In this connection, the Special
Committee considered that the Company had discussions with the likely
strategic partners for the Company and that none of those discussions led
to a definitive proposal to acquire the Company or reasonable prospects
that a definitive proposal would be forthcoming. The Special Committee
determined that based upon the prior discussions, it was unlikely that
another bidder would make a definitive proposal to acquire the Company, or
that if such a proposal were made, it would result in a transaction that
would provide greater value to the Public Stockholders. In addition, the
Special Committee considered the fact that the Equity Investors would
withdraw their bid if their proposal was used to attempt to generate other
bids from third parties.
(v) Robinson-Humphrey's written opinion delivered to the Special
Committee on July 28, 1998, which has not been withdrawn as of ,
1998, that the $18.00 per share in cash to be received by the Public
Stockholders was fair to such holders from a financial point of view. The
full text of the written opinion of Robinson-Humphrey dated July 28, 1998,
which sets forth assumptions made, matters considered, and limitations on
the review undertaken in connection with its opinion is attached hereto as
Appendix B and is incorporated herein by reference. The Special Committee
and the Board adopted the analyses and findings of Robinson-Humphrey in
their determination that the Merger is fair to the Public Stockholders. The
Company's stockholders are urged to and should read such opinion in its
entirety. See " -- Opinion of Financial Advisor."
(vi) The proposed terms and conditions of the Merger Agreement. In
particular, the Special Committee considered the fact that the Merger
Agreement does not provide for unreasonable termination fees and expense
reimbursement obligations which would have the effect of unreasonably
discouraging competing bids and that, subject to the satisfaction of
certain conditions, the Board would be able to withdraw or modify its
recommendation to the stockholders regarding the Merger and enter into an
agreement with respect to a more favorable transaction with a third party,
if such a transaction becomes available prior to the consummation of the
Merger. See "THE MERGER -- Terms of the Merger Agreement."
(vii) The market price of the Common Stock, which as recently as January
27, 1998 had traded at $9.56 per share, and the premium over such prices
(as well as over the $13.50 per share market price on July 27, 1998)
represented by the $18.00 per share in cash to be received by the Public
Stockholders in the Merger. In addition, the Special Committee considered
Robinson-Humphrey's analyses of the premiums paid in comparable merger
transactions which indicated that the average premiums paid over the target
stock prices one trading day prior to the announcement date, one week prior
to the announcement date, and four weeks prior to the announcement date
were 33.3%, 34.6% and 22.0%, respectively. See " -- Opinion of Financial
Advisor."
(viii) The financial ability and willingness of the Equity Investors
to consummate the Merger. The Merger Agreement conditions the Acquiror's
obligations to consummate the Merger on the Acquiror's having obtained
financing for the Merger on terms satisfactory to the Acquiror. In this
connection, the Special Committee reviewed commitment letters for equity
financing supplied by the Equity Investors
19
<PAGE> 28
and by certain members of the Management Group and for debt financing
supplied by the Investor Group's lenders. In addition, the Special
Committee, through its financial and legal advisors, discussed the proposed
financing with the Investor Group and its lenders. Based on the foregoing,
the Special Committee did not view as substantial the risk that the
financing condition of the Merger Agreement would not be satisfied. For a
discussion of the recent developments regarding the financing, see "THE
MERGER -- Financing of the Merger."
(ix) Actual or potential conflicts of interest to which certain officers
and directors of the Company and their affiliates are subject in connection
with the Merger, as follows:
- The Special Committee considered that members of the Management
Sponsors will own shares of common stock and/or Convertible Preferred
Stock in the Surviving Corporation, representing approximately 3.93%
of the Company's aggregate equity. The Special Committee considered
that certain members of the Other Management Investors will own shares
of common stock of the Surviving Corporation representing an aggregate
equity interest in the Surviving Corporation of approximately 0.28%.
The Special Committee also considered that the Surviving Corporation
will grant options to purchase shares of common stock of the Surviving
Corporation representing approximately % of the common stock on a
fully converted basis and will reserve approximately 3% of the common
stock of the Surviving Corporation on a fully converted basis for the
grant of options to management employees on a prospective basis. The
Special Committee further considered that certain members of the
Management Group will amend their existing employment agreements or
will enter into new employment agreements with the Surviving
Corporation replacing their existing employment agreements with the
Company, and that such new employment agreements will provide for the
payment to them of base salaries, possible annual cash bonuses, and
potential severance benefits.
- The Special Committee considered that the Company has given each of
the Management Sponsors an opportunity to roll over a substantial
portion of his or her equity investment in the Company into an
investment in the Surviving Corporation. The Special Committee
considered that the rollover of a substantial portion of the
Management Sponsor's current equity investment in the Company would
indicate a level of confidence in the Company's prospects that might
be inconsistent with the Special Committee's assessment of the risks
associated with the Company's future.
- The Special Committee considered the foregoing conflicts of interest
in connection with management's preparation of the Company
projections, which reflect a slower rate of growth for the Company and
support a significantly lower value for the Company than previously
anticipated. While the Special Committee recognized that the conflicts
of interest to which the Management Group were subject might be a
basis for doubting the reasonableness of the projections, the Special
Committee concluded, based on its discussions with the Management
Group and other officers and employees of the Company as described
above, that management's assumptions underlying the projections are
reasonable. The Special Committee considered the Management Group's
conflicts of interest in connection with preparation of the
projections.
The Special Committee did not assign relative weights to the factors it
considered, and it did not consider any relative weighting to be necessary in
reaching its fairness determination.
The Special Committee noted that approximately 3.4% of the outstanding
shares of Common Stock are held by persons who have expressed their intention to
vote their shares of Common Stock in favor of the Merger, including all of the
members of the Investor Group, the other executive officers of CompDent, and the
members of the Special Committee, although no written agreement has been entered
into in this regard. The Special Committee also considered that the obligation
of the Company to consummate the Merger is not conditioned upon the favorable
vote of a majority of the Public Stockholders. Notwithstanding the absence of
such a voting requirement, the Special Committee believes that the procedure
that was followed in determining the purchase price to be paid to the
stockholders of the Company was fair to the Public Stockholders. As described
above, the seven person Board of Directors of the Company (a majority of whom
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are members of the Management Group or are affiliated with the Management Group)
appointed as the only members of the Special Committee the three non-employee
directors who were independent of the Management Group and granted the Special
Committee exclusive authority on behalf of the Board to review, evaluate, and
negotiate the transaction proposed by management. The Merger Agreement
negotiated by the Special Committee contains provisions that would enable the
Board to withdraw or modify its recommendation to the stockholders regarding the
Merger and to enter into an agreement with respect to a more favorable
transaction with a third party, and contains provisions (without which the
Special Committee believes the Equity Investors would not have entered into the
Merger Agreement) imposing upon the Company termination fee and expense
reimbursement obligations that, in the view of the Special Committee, are
reasonable and would not have the effect of unreasonably discouraging competing
bids. Further, the stockholders of the Company may dissent from the Merger and
be paid cash for the "fair value" of their shares as determined in accordance
with Delaware law. Thus, although the Merger is not structured to require
approval of a majority of the unaffiliated stockholders, the Special Committee
nevertheless believes, as of the date of this Proxy Statement and for the
reasons set forth above, the Merger is procedurally fair to the Public
Stockholders.
In considering the fairness of the Merger, the Special Committee and the
Board did not consider such factors as the Company's net book value or
liquidation value, which are not believed to be indicative of the value of the
Company as a going concern. The Company's tangible net book value per share and
net book value per share as of June 30, 1998 were ($3.47) and $6.42,
respectively, on a fully diluted basis, both substantially below the $18.00
purchase price per share of Common Stock (the "Cash Merger Consideration") to be
paid by the Acquiror in the Merger. The Special Committee further believes the
Company's liquidation value, which takes into account the appreciated value of
the Company's assets, also would be substantially below $18.00 per share.
Based on the foregoing, the Special Committee unanimously determined that
the Merger, the Merger Agreement, and the transactions contemplated thereby were
fair and in the best interests of the Public Stockholders and recommended to the
Board approval of the Merger Agreement and that it be recommended to the
stockholders of the Company. The Board unanimously approved the Merger on July
28, 1998, and after reviewing an amendment and restatement of the Merger
Agreement dated , 1998 has determined not to withdraw its
recommendation, that the Merger is fair and in the best interests of the Public
Stockholders. THE BOARD RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE MERGER.
OPINION OF FINANCIAL ADVISOR
Pursuant to an engagement letter dated July 14, 1998, the Special Committee
retained Robinson-Humphrey to act as its financial advisor in connection with
the consideration of the possible acquisition by the Acquiror and to render to
the Special Committee an opinion with respect to the fairness, from a financial
point of view, to the Company's stockholders (other than the Acquiror and shares
held by certain members of the Investor Group (the "Recapitalization Shares"))
of the Cash Merger Consideration to be received in the Merger. Robinson-Humphrey
was selected as the Special Committee's fairness advisor because of its previous
association with the Company, its familiarity with the Company, and its
operations and standing as a nationally-recognized investment banking firm which
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate, and other opinions. Based on
these qualifications, the Special Committee selected Robinson-Humphrey as its
financial advisor and determined that it was unnecessary to interview other
investment banking firms.
Robinson-Humphrey delivered its written opinion to the Special Committee to
the effect that the Cash Merger Consideration to be received in the Proposed
Transaction is fair to the stockholders of the Company (other than the Acquiror
and the holders of Recapitalization Shares). On , 1998, Robinson-
Humphrey reconfirmed in writing that its opinion to the Special Committee dated
July 28, 1998 has not been withdrawn.
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The full text of Robinson-Humphrey's opinion dated as of July 28, 1998,
which sets forth the assumptions made, matters considered, and limits on the
review undertaken in connection with the opinion is attached hereto as Appendix
B. The Company's stockholders are urged to carefully read such opinion in its
entirety. Robinson-Humphrey's opinion is addressed to the Special Committee, is
directed only to the fairness of the Cash Merger Consideration to be received in
the Merger by the stockholders of the Company (other than the Acquiror and the
holders of the Recapitalization Shares), and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote in relation to the Merger. The summary of the opinion of
Robinson-Humphrey set forth in this Proxy Statement is qualified in its entirety
by reference to the full text of such opinion.
In arriving at its opinion, Robinson-Humphrey reviewed and analyzed: (i)
the Agreement and Plan of Merger, (ii) publicly available information concerning
the Company which Robinson-Humphrey believed to be relevant to its inquiry,
(iii) financial and operating information with respect to the business,
operations, and prospects of the Company furnished to Robinson-Humphrey by the
Company, (iv) the Dental Health Development Corporation Securities Purchase
Agreement dated September 12, 1997, (v) a trading history of the Company's
Common Stock from May 26, 1995 to July 24, 1998, and a comparison of that
trading history with those of other companies which Robinson-Humphrey deemed
relevant, (vi) a comparison of the historical financial results and present
financial condition of the Company with those of other companies which were
deemed relevant, (vii) a comparison of the financial terms of the Merger with
the financial terms of certain other recent transactions which Robinson-Humphrey
deemed relevant and (viii) certain historical data relating to acquisitions of
publicly traded companies, including percentage premiums and price/earnings
ratios paid in such acquisitions. In addition, Robinson-Humphrey held
discussions with the management of the Company concerning its business,
operations, assets, present condition, and future prospects, and undertook such
other studies, analyses, and investigation as Robinson-Humphrey deemed
appropriate.
Robinson-Humphrey relied upon the accuracy and completeness of the
financial and other information used by Robinson-Humphrey in arriving at its
opinion without independent verification. With respect to the financial
forecasts of the Company, Robinson-Humphrey assumed that such forecasts had been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the Company's management as to the future financial performance
of the Company. Robinson-Humphrey did not conduct a physical inspection of the
properties and facilities of the Company and did not make or obtain any
evaluations or appraisals of the assets or liabilities of the Company. In
addition, Robinson-Humphrey was not authorized to solicit, and did not solicit,
any indications of interest from any third party with respect to the acquisition
of all or any portion of the Company's business.
Robinson-Humphrey's opinion was necessarily based upon market, economic,
and other conditions as they may have existed and could be evaluated as of July
28, 1998. In connection with the preparation of its fairness opinion,
Robinson-Humphrey performed certain financial and comparative analyses, the
material portions of which are summarized below. The summary set forth below
includes the financial analyses used by Robinson-Humphrey and deemed to be
material, but does not purport to be a complete description of the analyses
performed by Robinson-Humphrey in arriving at its opinion. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances, and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In addition,
Robinson-Humphrey believes that its analyses must be considered as an integrated
whole, and that selecting portions of such analyses and the factors considered
by it, without considering all of such analyses and factors, could create a
misleading or an incomplete view of the process underlying its analyses set
forth in the opinion. In performing its analyses, Robinson-Humphrey made
numerous assumptions with respect to industry and economic conditions and other
matters, many of which are beyond the control of the Company. Any estimates
contained in such analyses are not necessarily indicative of actual past or
future results or values, which may be significantly more or less favorable than
as set forth therein. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the price at which such companies may
actually be sold, and such estimates are inherently subject to uncertainty. No
public company utilized as a comparison is identical to the Company and no
merger and acquisition transaction involved companies identical to the Company.
An
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analysis of the results of such comparisons is not mathematical; rather, it
involves complex considerations and judgements concerning differences in
financial and operating characteristics of the comparable companies and
transactions and other factors that could affect the values of companies to
which the Company is being compared.
Certain analyses performed by Robinson-Humphrey utilized financial
forecasts for the Company based upon estimates published by equity research
analysts in the investment community, including Robinson-Humphrey's equity
research analyst.
The following is a summary of the presentation by Robinson-Humphrey to the
Special Committee and Board of Directors on July 27, 1998 in connection with its
July 28, 1998 opinion.
Historical Stock Price Analysis. Robinson-Humphrey analyzed the prices at
which the Common Stock of the Company traded subsequent to the Company's initial
public offering on May 26, 1995 through July 24, 1998. Robinson-Humphrey
observed that the all-time high price for the Common Stock was $51.69 on July 2,
1996, and the all-time low price for the Common Stock was $9.56 on January 27,
1998. During the period from July 24, 1997 through July 24, 1998,
Robinson-Humphrey observed that 18.9% of the total trading in the shares of the
Company were traded in a price range of $9.00 to $12.80 per share, 43.5% of the
shares were traded in a price range of $12.80 to $16.60, 7.9% of the shares were
traded in a price range of $16.60 to $20.40 per share and 29.7% were traded in a
price range of $20.40 to $28.00 per share. During the period from January 2,
1998 to July 24, 1998, Robinson-Humphrey observed that 10.0% of the total
trading in the shares of the Company were traded in a price range of $9.00 to
$11.40 per share, 43.8% of the shares were traded in a price range of $11.40 to
$13.80 per share, 42.5% of the shares were traded in a price range of $13.80 to
$16.20 per share, 3.1% of the shares were traded in a price range of $16.20 to
$18.60 per share, and 0.6% of the shares were traded in a price range of $18.60
to $21.00 per share.
Based on the Cash Merger Consideration of $18.00 per share for the Company,
Robinson-Humphrey calculated per share premiums of 33.3%, 34.6%, and 22.0% to
the Company's closing stock prices at one trading day, one week, and four weeks
prior to the announcement date of the Merger, respectively.
Comparable Public Company Analysis. Robinson-Humphrey reviewed and
compared certain publicly available financial, operating, and market valuation
data for the Company and three groups of publicly traded companies. The "Dental
Managed Care Companies" included in Robinson-Humphrey's comparable public
company analysis were First Commonwealth, Inc., Safeguard Health Enterprises,
Inc., and United Dental Care, Inc. The "Dental Practice Management Companies"
included in Robinson-Humphrey's comparable public company analysis were American
Dental Partners, Inc., Birner Dental Management Services, Inc., Castle Dental
Centers, Inc., Coast Dental Services, Inc., Dental Care Alliance, Inc., Gentle
Dental Services Corporation, Monarch Dental Corporation, and Pentegra Dental
Group, Inc. The "Multi-Market HMO Companies" included in Robinson-Humphrey's
comparable public company analysis were Foundation Health Systems, Inc., Humana,
Inc., Maxicare Health Plans, Inc., Mid-Atlantic Medical Services, Inc., Oxford
Health Plans, Inc., Pacificare Health Systems, Inc., and United Healthcare Corp.
Robinson-Humphrey noted that none of the comparable public companies were
identical to the Company and that, accordingly, the analysis of the comparable
public companies necessarily involves complex considerations and judgements
concerning differences in financial and operating characteristics of the
companies reviewed and other factors that would affect the market values of
comparable companies. Robinson-Humphrey calculated various financial ratios and
multiples based upon the closing prices of the comparable public companies as of
July 24, 1998, the most recent publicly available information for the various
companies, and information concerning the projected financial results of the
various companies, as promulgated by equity research analysts of nationally
recognized investment banking firms. The following valuation ratios were used in
determining ranges of implied equity values per share of the Company: current
market price to (i) latest twelve months ("LTM") earnings per share, (ii)
current earnings per share estimates of research analysts as provided by First
Call Investor Services, (iii) current earnings per share estimates of the
Company's management and (iv) book value, and firm value (defined as equity
value plus debt and preferred stock minus cash and marketable securities) to (a)
LTM revenues, (b) LTM earnings before interest and taxes ("EBIT"), and (c) LTM
earnings before interest, taxes, depreciation, and amortization ("EBITDA").
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Robinson-Humphrey averaged the multiples of the publicly traded comparable
companies in order to apply these multiples to the Company's values. To
accurately reflect average values for statistical purposes, Robinson-Humphrey
excluded certain outlying values that differed from the relative groupings of
the other values. Robinson-Humphrey believed that these outlying values for
certain companies reflect temporary market aberrations that can skew mean
values.
Robinson-Humphrey applied the valuation multiples for the group of Dental
Managed Care Companies to the Company's: (i) LTM earnings per share, (ii)
projected 1998 and 1999 earnings per share as estimated by Robinson-Humphrey's
equity research analyst and other equity research analysts, (iii) projected 1998
and 1999 earnings per share as estimated by the Company's management, (iv) book
value, (v) LTM revenues, (vi) LTM EBIT, and (vii) LTM EBITDA. Based upon the
average valuation multiples for the group of Dental Managed Care Companies,
Robinson-Humphrey calculated a range of implied equity values from $5.23 per
share to $20.22 per share, with an average implied equity value of $13.42 per
share for the Company.
Robinson-Humphrey also calculated a range of implied equity values for the
Company by applying the valuation multiples of the group of Dental Managed Care
Companies to the financial results of the Company's dental managed care business
and by applying the valuation multiples of the group of Dental Practice
Management Companies to the financial results for the Company's dental practice
management business. Robinson-Humphrey then added the valuations derived for
each segment of the Company's business to derive a range of implied equity
values for the Company. Robinson-Humphrey applied the average valuation
multiples for the group of Dental Managed Care Companies to the Company's (i)
projected 1998 and 1999 net income for the dental managed care business as
estimated by the Company's management and (ii) LTM EBITDA for the dental managed
care business, and the average valuation multiples for the group of Dental
Practice Management Companies to the Company's (i) projected 1998 and 1999 net
income for the dental practice management business as estimated by the Company's
management and (ii) LTM EBITDA for the dental practice management business.
Based upon this valuation approach, Robinson-Humphrey calculated a range of
implied equity values from $11.63 per share to $18.83 per share, with an average
implied equity value of $14.84 per share for the Company.
In addition, Robinson-Humphrey applied the valuation multiples for the
group of Multi-Market HMO Companies to the Company's (i) LTM earnings per share,
(ii) projected 1998 and 1999 earnings per share as estimated by
Robinson-Humphrey's equity research analyst and other equity research analysts,
(iii) projected 1998 and 1999 earnings per share as estimated by the Company's
management, (iv) book value, (v) LTM revenues, (vi) LTM EBIT, and (vii) LTM
EBITDA. Based upon the average valuation multiples for the group of Multi-Market
HMO Companies, Robinson-Humphrey calculated a range of implied equity values
from $1.31 per share to $35.24 per share, with an average implied equity value
of $19.66 per share for the Company.
Analysis of Selected Merger and Acquisition Transactions. Robinson-Humphrey
reviewed and analyzed 14 pending and completed merger and acquisition
transactions involving dental managed care companies since December 1994.
Robinson-Humphrey noted that none of the selected transactions reviewed was
identical to the Merger and that, accordingly, the analysis of comparable
transactions necessarily involves complex considerations and judgements
concerning differences in financial and operating characteristics of the
companies reviewed and other factors that would effect the acquisition values of
comparable transactions. For each acquisition, Robinson-Humphrey calculated
purchase price as a multiple of (i) LTM net income and (ii) book value, and
transaction firm value as a multiple of (i) LTM revenues, (ii) LTM EBIT and
(iii) LTM EBITDA. Robinson-Humphrey averaged the multiples for the selected
merger and acquisition transactions involving dental managed care companies in
order to apply these multiples to the Company's values. Based upon the average
multiples from these selected transactions involving dental managed care
companies, Robinson-Humphrey calculated a range of implied equity values from
$12.42 per share to $37.38 per share, with an average implied equity value of
$18.73 per share for the Company.
For the five merger and acquisition transactions involving dental managed
care companies for which projected financial information at the time of the
transaction was available, Robinson-Humphrey calculated
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<PAGE> 33
transaction firm value as a multiple of (i) projected revenues, (ii) projected
EBIT and (iii) projected EBITDA. Robinson-Humphrey averaged the multiples for
these selected merger and acquisition transactions involving dental managed care
companies in order to apply such multiples to the Company's values. Based upon
the average multiples from these selected transactions involving dental managed
care companies, Robinson-Humphrey calculated a range of implied equity values
from $8.85 per share to $12.43 per share, with an average implied equity value
of $11.19 per share for the Company.
Robinson-Humphrey reviewed and analyzed the pending acquisition of United
Dental Care, Inc. ("United Dental Care") by Protective Life Corporation.
Robinson-Humphrey calculated purchase price as a multiple of (i) LTM earnings
per share and (ii) book value, and transaction firm value as a multiple of (i)
LTM revenues, (ii) LTM EBIT, (iii) LTM EBITDA, and (iv) members, and calculated
the transaction premiums one day, one week, and four weeks prior to the
announcement date of the transaction. Based upon the transaction multiples and
premiums paid in the United Dental Care acquisition, Robinson-Humphrey
calculated a range of implied equity values from $9.19 per share to $57.39 per
share, with an average implied equity value of $20.33 per share for the Company.
Robinson-Humphrey also noted that the multiple of firm value to members in the
United Dental Care acquisition implied an equity value of $14.06 per share for
the Company.
For the pending acquisition of United Dental Care, Robinson-Humphrey also
calculated purchase price as a multiple of projected 1998 and 1999 earnings per
share, transaction firm value as a multiple of projected 1998 and 1999 revenues,
EBIT and EBITDA, and calculated the transaction premiums one day, one week, and
four weeks prior to the announcement date of the transaction. Based upon these
transaction multiples and premiums paid in the United Dental Care acquisition,
Robinson-Humphrey calculated a range of implied equity values from $10.35 per
share to $29.37 per share, with an average implied equity value of $20.35 per
share for the Company.
Robinson-Humphrey also calculated a range of implied equity values for the
Company by applying the multiples for transactions involving dental managed care
companies to the financial results for the Company's dental managed care
business and by applying the multiples from 14 transactions involving dental
practice management companies to the financial results for the Company's dental
practice management business. Robinson-Humphrey then added the valuations
derived for each segment of the Company's business to derive a range of implied
equity values for the Company. Robinson-Humphrey applied the average transaction
multiples for the transactions involving dental managed care companies to the
Company's LTM revenues and LTM EBITDA for the dental managed care business and
the average transaction multiples for the transactions involving dental practice
management companies to the Company's LTM revenues and LTM EBITDA for the dental
practice management business. Based upon this valuation approach, Robinson-
Humphrey calculated a range of implied equity values from $11.97 per share to
$22.39 per share, with an average implied equity value of $17.18 per share for
the Company.
In addition, Robinson-Humphrey reviewed and analyzed 34 pending and
completed mergers and acquisitions involving HMO companies since March 1993. For
each transaction, Robinson-Humphrey calculated purchase price as a multiple of
(i) LTM net income and (ii) book value, and transaction firm value as a multiple
of (i) LTM revenues, (ii) LTM EBIT, and (iii) LTM EBITDA. Robinson-Humphrey
averaged the multiples for these selected merger and acquisition transactions
involving HMO companies in order to apply these multiples to the Company's
values. Based upon the multiples from these selected transactions involving HMO
companies, Robinson-Humphrey calculated a range of implied equity values from
$10.93 per share to $30.35 per share, with an average implied equity value of
$24.99 per share for the Company.
For the eight transactions involving HMO companies that were publicly
traded, Robinson-Humphrey calculated purchase price as a multiple of projected
earnings per share, as promulgated by industry analysts of nationally recognized
investment banking firms as of the date most immediately available prior to the
transaction announcement date, and calculated the implied transaction premiums
one day, one week, and four weeks prior to the announcement date.
Robinson-Humphrey averaged the transaction multiples and premiums paid for these
selected transactions in order to apply these multiples to the Company's values.
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Based upon the average transaction multiples and premiums paid in these selected
transactions involving publicly traded HMO companies, Robinson-Humphrey
calculated a range of implied equity values from $16.44 per share to $22.04 per
share, with an average implied equity value of $18.74 per share for the Company.
Further, Robinson-Humphrey reviewed average and median transaction premiums
and price to earnings multiples paid in corporate acquisitions in general
occurring from 1992 through 1996. From the annual averages, Robinson-Humphrey
calculated five-year average transaction premiums and price to earnings
multiples in order to apply these premiums and multiples to the Company's
values. Based upon these average transaction premiums and price to earnings
multiples, Robinson-Humphrey calculated a range of implied equity values from
$17.47 per share to $27.43 per share, with an average implied equity value of
$21.20 per share for the Company.
Transaction Premiums Analysis. Robinson-Humphrey analyzed the premiums
paid for 141 mergers and acquisitions of publicly traded companies with
transaction values in the range of $100 million to $300 million during the
period from July 24, 1997 to July 24, 1998. The average premiums paid over the
target stock prices one trading day prior to the announcement date, one week
prior to the announcement date, and four weeks prior to the announcement date
were 23.8%, 29.9%, and 37.3%, respectively. Based upon these transaction
premiums, Robinson-Humphrey calculated a range of implied equity values from
$16.40 per share to $20.25 per share, with an average implied equity value of
$18.01 per share for the Company.
Discounted Cash Flow Analysis. Robinson-Humphrey performed a discounted
cash flow analysis using the Company's financial projections for 1999 through
2003 to estimate the net present equity value per share for the Company.
Robinson-Humphrey calculated a range of net present values of the Company's free
cash flows (defined as projected earnings before interest after taxes plus
depreciation and amortization, less capital expenditures and any increase in net
working capital) for 1999 through 2003 using discount rates ranging from 11% to
16%. Robinson-Humphrey calculated a range of net present values of the Company's
terminal values using the same range of discount rates and multiples ranging
from 6.0x to 12.0x projected 2003 EBIT and also using the same range of discount
rates and multiples ranging from 5.0x to 9.0x projected 2003 EBITDA. The present
values of the free cash flows were then added to the corresponding present
values of the terminal values. After adding the Company's cash and cash
equivalents and deducting the Company's debt as of June 30, 1998,
Robinson-Humphrey calculated a range of net present equity values for the
Company of $11.44 per share to $29.22 per share based upon terminal values of
EBIT multiples and a range of net present equity values for the Company of
$10.78 per share to $24.93 per share based upon terminal values of EBITDA
multiples. Using a mid-range discount rate of 13% and terminal value multiples
of 8.0x projected 2003 EBIT and 6.5x projected 2003 EBITDA, Robinson-Humphrey
calculated net present equity values for the Company of $17.84 per share and
$16.44 per share, respectively.
Analysis of Dental Health Development Corporation. On September 12, 1997,
the Company, GTCR, and certain other parties invested in DHDC, a Delaware
corporation which engages in the development of start-up dental facilities.
Robinson-Humphrey analyzed and reviewed certain of the Company's commitments and
options relating to DHDC. The Company has a commitment to provide $10.0 million
of capital equipment funding for DentLease Inc. ("DentLease") over a 42 month
period ending February 28, 2001. As of June 30, 1998, the Company had funded
approximately $6.0 million of the $10.0 million DentLease funding commitment.
The Company also has an option to redeem the outstanding shares of DHDC Series A
Preferred Stock and Class A Common Stock held by GTCR, which would result in the
redemption of certain purchase options that the GTCR Partnership has on 49% of
the Company's 100% equity interest in DHMI and on certain equipment held by
DentLease, which the GTCR Partnership can exercise for nominal consideration
(the "GTCR Option"). In order to redeem the GTCR Option, the Company must redeem
the approximately $10 million of DHDC Series A Preferred Stock and Class A
Common Stock beginning on February 28, 2001, and ending on September 12, 2004,
at a price equal to the principal invested plus all accrued and unpaid
dividends. Dividends on each share of DHDC Series A Preferred Stock accrue at a
compound rate of 31% per annum beginning September 12, 1997, the date of the
initial investment. Robinson-Humphrey estimated the cost to the Company of
extinguishing its capital funding commitment and redeeming the GTCR Option to
range from $0.75 per share to $2.08 per share of Common Stock. Robinson-
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<PAGE> 35
Humphrey believed the cost to extinguish its capital funding commitment and
redeeming the GTCR Option should be added to the Cash Merger Consideration in
order to evaluate the total consideration to be received by the Company's
stockholders in the Merger. Therefore, in assessing the fairness, from a
financial point of view, of the Cash Merger Consideration to be received by the
Company's stockholders in the Merger, Robinson-Humphrey considered the cost to
extinguish its capital funding commitment and redeeming the GTCR Option in
addition to the $18.00 per share in cash to be received by the Company's
stockholders in the Merger.
The summary set forth above does not purport to be a complete description
of the analyses conducted or data presented by Robinson-Humphrey. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Robinson-Humphrey
believes that the summary set forth above and their analyses must be considered
as a whole and that selecting only portions thereof, without considering all of
its analyses, could create an incomplete view of the processes underlying its
analyses and opinion. Robinson-Humphrey based its analyses on assumptions that
it deemed reasonable, including assumptions concerning general business and
economic conditions and industry-specific factors. The preparation of fairness
opinions does not involve a mathematical weighing of the results of the
individual analyses performed, but requires Robinson-Humphrey to exercise its
professional judgement, based on its experience and expertise, in considering a
wide variety of analyses taken as a whole. Each of the analyses conducted by
Robinson-Humphrey was carried out in order to provide a different perspective on
the transaction and to add to the total mix of information available.
Robinson-Humphrey did not form a conclusion as to whether any individual
analysis, considered in isolation, supported or failed to support an opinion as
to fairness. Rather, in reaching its conclusion, Robinson-Humphrey considered
the results of the analyses in light of each other and ultimately reached its
conclusion based on the results of all analyses taken as a whole.
Under the terms of the Company's engagement letter with Robinson-Humphrey,
the Company has paid Robinson-Humphrey a retainer of $50,000 and a fee of
$500,000 for the preparation and delivery of its fairness opinion. If the Merger
is consummated, an additional transaction fee of approximately $588,000 will be
paid to Robinson-Humphrey. The Company has agreed to reimburse Robinson-Humphrey
for its reasonable out-of-pocket expenses, including attorneys' fees, and to
indemnify Robinson-Humphrey against certain liabilities, including certain
liabilities under the federal securities laws. Robinson-Humphrey initially
proposed that the Company pay a certain retainer fee for the preparation and
delivery of its fairness opinion, and an additional transaction fee if the
Merger was consummated. The Special Committee negotiated with Robinson-Humphrey
regarding the total amount to be paid to Robinson-Humphrey and the percentage of
the fee that would be paid if the Merger is consummated.
Robinson-Humphrey was engaged by the Company (i) as a co-managing
underwriter in the Company's August 1995 public offering of Common Stock for
which Robinson-Humphrey received underwriting commissions of approximately
$587,075, (ii) as placement agent for DHDC's September 1997 private placement of
securities for which Robinson-Humphrey received $450,000 in placement fees, and
(iii) as a financial advisor to the Company in connection with four of the
Company's acquisitions since January 1, 1996, for which Robinson-Humphrey
received approximately $795,000 in fees. In the ordinary course of Robinson-
Humphrey's business, Robinson-Humphrey actively trades in the equity securities
of the Company for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or a short position in such securities.
In addition, RH Capital Partners, L.P., an affiliate of Robinson-Humphrey ("RH
Capital"), purchased $500,042 of the Series A Preferred Stock and Class A Common
Stock of DHDC from the GTCR Partnership on October 29, 1997. This represents 5%
of the total outstanding Series A Preferred Stock and Class A Common Stock of
DHDC. RH Capital's investment is passive in nature and RH Capital does not have
the right to nominate any representatives to the DHDC Board of Directors.
Pursuant to the terms of the Series A Preferred Stock, RH Capital has the
contractual right to receive a cumulative preferred return at the compound
annual return of 31% on its investment in the Series A Preferred Stock. RH
Capital has agreed to resell its investment in DHDC to the GTCR Partnership
prior to the Merger for $ , which is equal to the original cost of this
investment plus the accrued dividends thereon. Robinson-Humphrey believes that
the foregoing arrangements do not affect its ability to independently and
27
<PAGE> 36
impartially deliver an opinion to the Special Committee with respect to the
fairness of the Merger from a financial point of view.
PURPOSE AND REASONS OF THE INVESTOR GROUP FOR THE MERGER
The purpose of the Investor Group for engaging in the transactions
contemplated by the Merger Agreement is to acquire 100% ownership of the
Company. The Investor Group believes that as a private company CompDent will
have greater operating flexibility to focus on enhancing value by emphasizing
growth (both internally and through acquisitions) and operating cash flow
without the constraint of the public market's emphasis on quarterly earnings.
This assessment by the Investor Group is based upon publicly available
information regarding the Company, the Investor Group's due diligence
investigation of the Company, and the Investor Group's experience in investing
in companies in the dental managed care industry. The Investor Group determined
that it was an appropriate time to make their proposal to the Company to engage
in the transactions contemplated by the Merger Agreement based on recent
developments in the dental benefits industry and the competitive position of the
Company. While the Investor Group believes that there will be significant
opportunities associated with its investment in the Company, there are also
substantial risks that such opportunities may not be fully realized.
As a result of the Merger, the TA Fund will acquire, for an investment of
up to approximately $40,250,300, approximately 43.96% of the equity interest in
the Company; the GTCR Partnership will acquire, for an investment of up to
approximately $25,830,300 and a contribution of its equity interest in DHDC with
an agreed upon value of $14,420,000, which the Company believes approximates
fair market value, approximately 43.96% of the equity interest in the Company;
the NMS Partnership will acquire, following the exchange of shares of Common
Stock with an agreed total value of $2,683,494 and an investment of up to
approximately $316,506, approximately 3.28% of the equity interest in the
Company; the Management Sponsors will acquire, following the exchange of shares
of Common Stock with an agreed total value of $3.6 million for shares of common
stock and Convertible Preferred Stock of the Surviving Corporation,
approximately 3.93% of the equity interest in the Company, the Other Management
Investors will acquire, for an investment of up to approximately $255,000,
approximately .28% of the equity interest in the Company; and the Other
Investors will acquire, following the exchange of shares of Common Stock with an
agreed total value of $4,199,400 for shares of common stock and Convertible
Preferred Stock of the Surviving Corporation, approximately 4.59% of the equity
interest in the Company. A portion of the Investor Group's investment in the
Acquiror will result from the exchange of CompDent Common Stock for securities
of the Surviving Corporation so that the transaction may be accounted for as a
recapitalization for accounting purposes. Certain members of the Management
Group and the Other Investors will also receive the Cash Merger Consideration
for the remainder of their investment in the Company on the same terms as other
stockholders and will receive a cash payment for the aggregate unrealized value
of their outstanding stock options.
POSITION OF THE INVESTOR GROUP AS TO FAIRNESS OF THE MERGER
Each member of the Investor Group has considered the analyses and findings
of the Special Committee and the Board (described in detail in "-- The Special
Committee's and the Board's Recommendation") with respect to the fairness of the
Merger to the Public Stockholders of the Company. As of the date of this Proxy
Statement, each member of the Investor Group adopts the analyses and findings of
the Special Committee and the Board with respect to the fairness of the Merger
and believes that the Merger, the Merger Agreement, and the transactions
contemplated thereby are fair and in the best interests of the Company's Public
Stockholders; provided that no opinion is expressed as to the fairness to any
stockholder making an investment in the Surviving Corporation. No member of the
Investor Group makes any recommendation as to how the Company's stockholders
should vote on the Merger Agreement. The Equity Investors and the Other
Investors have financial interests in the Merger and the members of the
Management Group have financial and employment interests in the Merger. See
" -- Conflicts of Interest."
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<PAGE> 37
CONFLICTS OF INTEREST
In considering the recommendations of the Board with respect to the Merger,
stockholders should be aware that certain officers and directors of CompDent, as
well as certain investors in CompDent, have interests in connection with the
Merger which may present them with actual or potential conflicts of interest as
summarized below. The Special Committee and the Board were aware of these
interests and considered them among the other matters described under " -- The
Special Committee's and the Board's Recommendation." The Special Committee
considered the Management Group's conflicts of interest to be a negative factor
in its determination that the Merger is fair and in the best interests of the
Public Stockholders, even though the compensation and benefits payable to
members of the Management Group are intended to provide a substantially
equivalent amount of compensation and benefits as they are currently entitled to
receive from the Company.
Post-Merger Ownership and Control of the Surviving Corporation. It is
anticipated that immediately after the Merger the following individuals and
entities will beneficially own the number of shares of common stock and the
number of shares of Convertible Preferred Stock of the Surviving Corporation
shown in the following table.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
NUMBER OF SHARES PERCENTAGE OF CONVERTIBLE CONVERTIBLE
OF COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------ ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Golder, Thoma, Cressey, Rauner
Fund V, L.P................. 3,307,821 39.36% 38,196 44.10%
GTCR Associates V, L.P........ 5,779 0.06 67 0.08
TA/Advent VIII L.P............ 2,667,044 31.73 30,796 35.56
Advent Atlantic and Pacific
III......................... 550,541 6.55 6,357 7.34
TA Executives Fund LLC........ 42,673 0.51 493 0.57
TA Investors LLC.............. 53,342 0.63 616 0.71
NMS Capital, L.P.............. 246,975 2.94 2,852 3.29
David R. Klock................ 344,746 4.10 1,614 1.86
Phyllis A. Klock.............. 330,364 3.93 1,621 1.87
Bruce A. Mitchell............. 100,000 1.19 -- --
Keith J. Yoder................ 110,000 1.31 -- --
William G. Jens, Jr........... 30,000 0.36 -- --
Robert Donegan................
Kenneth Hammer................
Ronald Wood...................
Harrold Evans.................
James Harshaw.................
Kenneth Bohrer................
Wiley Bryant..................
Kenneth MacDougall............
Mitch Spelios.................
James Carpenter...............
Daniel Crowley................
Miquel Montilla...............
Karen Mitchell................
The Kaufman Fund..............
Roger B. Kafker...............
Richard D. Tadler.............
Jane Broderick................
Jonathan Goldstein............
</TABLE>
29
<PAGE> 38
Following consummation of the Merger, the members of the Management Group
will continue as the executive officers of the Surviving Corporation, and David
Klock and Phyllis Klock will serve on the Board of Directors of the Surviving
Corporation. It is anticipated that the Board of Directors of the Surviving
Corporation will consist of seven members and will be comprised of David Klock,
Phyllis Klock, Donald Edwards (as a designee of the GTCR Partnership), Roger
Kafker (as a designee of the TA Fund), and up to three outside directors to be
determined at a later time.
Upon the occurrence of certain events, the holders of Convertible Preferred
Stock will have the right to convert their shares of Convertible Preferred Stock
into shares of Perpetual Preferred Stock, $.01 par value, of the Surviving
Corporation (the "Perpetual Preferred Stock") and common stock of the Surviving
Corporation. For a description of the Convertible Preferred Stock and the
Perpetual Preferred Stock, see "The Merger -- Terms of the Merger
Agreement -- Description of the Convertible Preferred Stock and the Perpetual
Preferred Stock." It is anticipated that the following individuals and entities
would beneficially own the number of shares of common stock and the number of
shares of Perpetual Preferred Stock of the Surviving Corporation shown in the
following table following a conversion of the Convertible Preferred Stock
(assuming that the table above accurately reflects the beneficial ownership of
common stock and Convertible Preferred Stock of the Surviving Corporation by
such individuals and entities on the date of conversion and, in the case of the
percentages provided below, that no additional shares of common stock or
Perpetual Preferred Stock other than those which will be issued upon
consummation of the Merger and that are described herein have been issued at the
time of conversion):
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
NUMBER OF SHARES PERCENTAGE OF PERPETUAL PERPETUAL
OF COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------ ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Golder, Thoma, Cressey, Rauner
Fund V, L.P................. 3,969,386 40.08% 38,196 44.10%
GTCR Associates V............. 6,934 0.07 67 0.08
TA/Advent VIII L.P............ 3,200,453 32.31 30,796 35.56
Advent Atlantic and Pacific
III......................... 660,650 6.67 6,357 7.34
TA Executives Fund LLC........ 51,207 0.52 493 0.57
TA Investors LLC.............. 64,011 0.65 616 0.71
NMS Capital, L.P.............. 296,369 2.99 2,852 3.29
David R. Klock................ 372,696 3.76 1,614 1.86
Phyllis A. Klock.............. 358,437 3.62 1,621 1.87
Bruce A. Mitchell............. 100,000 1.01 -- --
Keith J. Yoder................ 110,000 1.11 -- --
William G. Jens, Jr........... 30,000 0.30 -- --
Robert Donegan................
Kenneth Hammer................
Ronald Wood...................
Harrold Evans.................
James Harshaw.................
Kenneth Bohrer................
Wiley Bryant..................
Kenneth MacDougall............
Mitch Spelios.................
James Carpenter...............
Daniel Crowley................
Miquel Montilla...............
</TABLE>
30
<PAGE> 39
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
NUMBER OF SHARES PERCENTAGE OF PERPETUAL PERPETUAL
OF COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------ ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Karen Mitchell................
The Kaufman Fund..............
Roger B. Kafker...............
Richard D. Tadler.............
Jane Broderick................
Jonathan Goldstein............
</TABLE>
The Management Group. After consummation of the Merger, members of the
Management Group will own shares of Convertible Preferred Stock and/or common
stock of the Surviving Corporation and/or options to purchase shares of common
stock of the Surviving Corporation, representing approximately % of such
shares expected to be then issued and outstanding (assuming exercise of such
options). Certain of these Shares will be subject to vesting restrictions.
Shares of Common Stock held by the Management Group that are not exchanged will
be converted into the right to receive the same Cash Merger Consideration as
shares of Common Stock held by other stockholders of the Company. The Surviving
Corporation will also reserve for issuance, pursuant to future grants of
additional options, shares of common stock of the Surviving Corporation
representing 3% of the common equity of the Surviving Corporation. It is
contemplated that members of the Management Group will receive a substantial
portion of such option grants.
Cash Payments to Management Group and Other Investors. At the closing of
the Merger, all outstanding options to purchase Common Stock which are vested
will be cashed out in accordance with the terms of the Merger Agreement. All
options that are not vested will be canceled in accordance with their terms or
the applicable option plan. See "THE MERGER -- Cash-Out of CompDent Stock
Options." As of , 1998, there were vested options outstanding to
purchase an aggregate of 620,750 shares of Common Stock, of which 442,250 have
an exercise price per share of less than $18.00. The following table sets forth
information as of the date of this Proxy Statement as to the shares of Common
Stock and the options to purchase shares of Common Stock held by members of the
Management Group for which cash payments will be received upon consummation of
the Merger.
<TABLE>
<CAPTION>
AMOUNT OF CASH TO
SHARES NOT BE RECEIVED FOR
INVESTOR GROUP MEMBER EXCHANGED SHARES EXCHANGED
- --------------------- ---------- -----------------
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
TOTAL AMOUNT OF
SHARES CASH TO BE RECEIVED
UNDERLYING UPON CONSUMMATION
INVESTOR GROUP MEMBER STOCK OPTIONS OF THE MERGER
- --------------------- ------------- -------------------
<S> <C> <C>
</TABLE>
Grant of New Options to the Management Group. The Board of Directors of
the Surviving Corporation will reserve shares of common stock representing 2.5%
of the common equity of the Surviving Corporation on a fully converted basis for
the grant of stock options (the "New Options") to certain employees. The New
31
<PAGE> 40
Options are currently expected to either vest in equal portions annually over
five years following the date of grant. The New Options are subject to a number
of other conditions.
The New Options will be granted as follows:
- the Management Group will receive between % and % of the New
Options upon consummation of the Merger;
- other key employees of the Company will receive approximately % of
the remaining New Options upon consummation of the Merger; and
- the approximately % of the remaining New Options will remain
available for grant to future employees of CompDent.
No determination has yet been made as to the number of New Options to be
granted to any individual.
"Change in Control" Payments to the Management Group. The consummation of
the Merger will constitute a "change in control" of the Company triggering
certain continuation bonus payment obligations pursuant to the terms of the
respective employment agreements between the Company and each of David R. Klock
and Phyllis A. Klock. It is proposed that each such individual waive any rights
and forego any continuation bonus payments that such individual may have under
his or her current employment agreement or that he or she might otherwise be
entitled to upon a "change in control" of the Company in consideration of
payments which would be received pursuant to the new employment agreements
described below. If they do not agree to forego such payments, then David R.
Klock and Phyllis A. Klock would be entitled to receive, among other
compensation and benefits, $1,000,000 and $750,000, respectively, under their
current employment agreements upon the occurrence of a "change in control" if
they agree (i) to remain employed by the Company until the first anniversary of
the consummation of the "change in control" and (ii) to be bound for an extended
period of time by certain noncompetition provisions and (iii) provide certain
consulting services to the Company. In addition, certain other members of the
Management Group would be entitled to severance payments pursuant to the their
respective employment agreements with the Company upon an involuntary
termination of employment following a "change in control". Because the Merger
will constitute a "change in control," it is proposed that each of these members
agree to amend their employment agreements to remove their respective "change in
control" provisions.
New Employment Agreements with the Management Sponsors. It has been
proposed that the employment agreements that the Management Sponsors currently
have with the Company be terminated upon consummation of the Merger, at which
time, the Management Sponsors would enter into new employment agreements with
the Surviving Corporation. The principal such proposed new employment agreements
are as follows:
- each agreement would have a term of three years, unless terminated or
not renewed in accordance with the agreement's terms;
- each agreement would provide for compensation consisting of base
salary and a potential annual cash bonus (the eligibility formula for
which is intended to be determined in accordance with any bonus plan
in effect for executives of the Surviving Corporation of equivalent
position and title); and
- each agreement would provide for a severance payment in the event of
termination by the Company without cause or resignation by the
employee for good reason, consisting of (i) payment of base salary and
continuation of normal health and life insurance, retirement, and
other benefits until the later of the third anniversary of the date of
the employment agreement and the first anniversary of the date of the
employee's termination or resignation and (ii) payment of one year's
bonus equal in amount to the average bonus received by the employee
for the three previous fiscal years.
It is proposed that the initial base salaries for David R. Klock and
Phyllis A. Klock pursuant to their new employment agreements with the Surviving
Corporation would be $250,000 and $215,000 respectively. The
32
<PAGE> 41
potential annual cash bonuses for each of the Management Sponsors pursuant
to each of their employment agreements would be at the discretion of the
Compensation Committee of the Board of Directors.
Interests in Dental Health Development Corporation. Phyllis Klock and
Bruce Mitchell own 700 and 500 shares of Class B Common Stock of DHDC,
respectively. It is expected that these shares will be exchanged for a nominal
number of shares of common stock and/or Convertible Preferred Stock of the
Surviving Corporation following the closing of the Merger.
Stockholders' Agreement. Members of the Investor Group are expected to
enter into a stockholders' agreement that will restrict the ability of each
member to transfer the shares of capital stock of CompDent to be owned by them
and create certain other rights and obligations with respect to such shares.
Indemnification and Insurance. The Merger Agreement requires that CompDent
provide indemnification, to the full extent permitted by applicable law, to its
current and former officers and directors (including members of the Special
Committee) against liabilities (including reasonable attorneys' fees) relating
to actions or omissions arising out of their being a director, officer,
employee, or agent of the Company at or prior to the closing of the Merger
(including the transactions contemplated by the Merger Agreement). In addition,
CompDent is obligated for a period of six years from the closing of the Merger
to continue in effect directors' and officers' liability insurance with respect
to matters occurring prior to the closing of the Merger, which insurance must
contain terms and conditions no less advantageous than are contained in the
Company's current directors' and officers' liability insurance policy, provided
that the Company is not obligated to expend annually more than 125% of the
current cost of such coverage.
The Other Investors. After consummation of the Merger, the Other Investors
may be deemed to beneficially own approximately 4.59% of the shares of common
stock and Convertible Preferred Stock of the Surviving Corporation expected to
be then issued and outstanding.
Robinson-Humphrey. Robinson-Humphrey was engaged by the Company (i) as a
co-managing underwriter in the Company's August 1995 public offering of Common
Stock for which Robinson-Humphrey received underwriting commissions of
approximately $587,075, (ii) as placement agent for DHDC's September 1997
private placement of securities for which Robinson-Humphrey received $450,000 in
placement fees, and (iii) as a financial advisor to the Company in connection
with four of the Company's acquisitions since January 1, 1996, for which
Robinson-Humphrey received approximately $795,000 in fees. In the ordinary
course of Robinson-Humphrey's business, Robinson-Humphrey actively trades in the
equity securities of the Company for its own account and for the accounts of its
customers and accordingly, may at any time hold a long or a short position in
such securities. In addition, RH Capital, an affiliate of Robinson-Humphrey,
purchased $500,042 of the Series A Preferred Stock and Class A Common Stock of
DHDC from the GTCR Partnership on October 29, 1997. This represents 5% of the
total outstanding Series A Preferred Stock and Class A Common Stock of DHDC. RH
Capital's investment is passive in nature and RH Capital does not have the right
to nominate any representatives to the DHDC Board of Directors. Pursuant to the
terms of the Series A Preferred Stock, RH Capital has the contractual right to
receive a cumulative preferred return at the compound annual return of 31% on
its investment in the Series A Preferred Stock. RH Capital has agreed to resell
its investment in DHDC to the GTCR Partnership prior to the Merger for
$ , which is equal to the original cost of this investment plus the
accrued dividends thereon. Robinson-Humphrey believes that the foregoing
arrangements do not affect its ability to independently and impartially deliver
an opinion to the Special Committee with respect to the fairness of the Merger
from a financial point of view.
Special Committee. The Special Committee, which met eight times from July
1998 through the date of this Proxy Statement, will receive no additional
compensation in connection with these committee meetings. Members of the Special
Committee will be entitled to certain indemnification rights and to directors'
and officers' liability insurance which will be continued by CompDent following
the Merger as provided for by the Merger Agreement for the current and former
officers and directors of the Company. Under the terms of the Merger Agreement,
the options held by the members of the Special Committee will be terminated and
each holder thereof will receive an amount in cash equal to the aggregate
unrealized gain on such options on the same basis as other holders of CompDent
stock options.
33
<PAGE> 42
Mr. Stephenson owns 1,000 shares of Common Stock, Mr. Hertik owns no shares
of Common Stock, and Dr. Scott owns no shares of Common Stock. Upon consummation
of the Merger, these shares will be canceled in exchange for the Cash Merger
Consideration. In addition, each of the Special Committee members owns options
to purchase shares of Common Stock. Accordingly, upon consummation of the
Merger, the members of the Special Committee will receive the following cash
payments: Mr. Stephenson will receive $315,198 for the aggregate unrealized gain
on his stock options and $18,000 for his shares of Common Stock, for a total
cash payment of $333,198. Mr. Hertik will receive $362,198 for the aggregate
unrealized gain on his stock options. Dr. Scott will not receive any cash
payment.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest in the Company will
be owned by the Investor Group. The Public Stockholders will no longer have any
interest in, and will not be stockholders of, CompDent, and therefore, will not
participate in CompDent's future earnings and potential growth. Instead, the
Public Stockholders will have the right to receive $18.00 in cash, without
interest, for each share held (other than shares in respect of which appraisal
rights have been perfected). An equity investment in the Company following the
Merger involves substantial risk resulting from the limited liquidity of any
such investment and the leverage resulting from the future borrowings that will
be required to purchase the Common Stock from the Public Stockholders and to
fund the capital expenditures and acquisitions necessary to execute the
Company's business strategy. Nonetheless, if the Company successfully executes
its business strategy, the value of such an equity investment could be
considerably greater than the original cost thereof. See " -- Conflicts of
Interest" and "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION."
In addition, the Common Stock will no longer be traded on Nasdaq and price
quotations with respect to sales of shares in the public market will no longer
be available. The registration of the Common Stock under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), will terminate; however, American
Prepaid Professional Services, Inc., a wholly owned subsidiary of CompDent,
which will change its name to CompDent Benefit Corporation, Inc. at the closing
of the Merger ("American Prepaid"), may begin to file periodic financial and
other information with the Commission in connection with certain debt securities
which may be issued at the closing of the Merger. See "-- Financing of the
Merger."
FINANCING OF THE MERGER
It is estimated that approximately $266,555,000 will be required to
consummate the Merger and pay related fees and expenses. This sum will be
provided by (i) a cash investment of up to approximately $66,397,106 from
currently available funds by the Equity Investors, (ii) a contribution by the
GTCR Partnership of its equity interest in DHDC for an agreed upon value of
$14,420,000, which the Company believes approximates fair market value, (iii) an
exchange by the NMS Partnership of approximately $2,683,494 in Common Stock,
(iv) an exchange by the Management Sponsors of approximately $3.6 million in
Common Stock, (v) a cash investment of approximately $255,000 by the Other
Management Investors, (vi) an exchange by the Other Investors of approximately
$4,199,400 in Common Stock, (vii) the sale by American Prepaid of $100 million
of senior subordinated notes (the "Senior Subordinated Notes"), (viii) up to $55
million of a $75 million secured credit facility of American Prepaid with senior
lenders (the "American Prepaid Credit Facility"), including a $20 million
revolving credit facility and term loans of $55 million in two separate tranches
($40 million in Tranche A and $15 million in Tranche B), and (ix) a $20 million
credit facility of DHMI with senior lenders (the "DHMI Credit Facility")
consisting solely of a term loan. The Equity Investors have entered into
commitment letters to provide the equity financing to the Acquiror. In addition,
the Equity Investors have received financing letters from NationsBank, N.A.
("NationsBank") to provide the American Prepaid Credit Facility and the DHMI
Credit Facility, which letters are subject to numerous conditions. In addition,
these financing letters will expire on January 31, 1999 (or March 31, 1999 in
the event that the only unfilled closing condition is the lack of required state
regulatory approvals). These financing letters are filed as exhibits to the
Company's Schedule 13E-3.
34
<PAGE> 43
The GTCR Partnership's equity interest in DHDC consist of 9,500 shares of
Series A Preferred Stock and 79,800 shares of Class A Common Stock of DHDC.
Pursuant to the terms of the Series A Preferred Stock, GTCR has the contractual
right to receive a cumulative preferred return at the compound annual rate of
31% on its investment on the Series A Preferred Stock. The agreed upon value of
GTRC's contribution of its equity interest in DHDC of $14,420,000 is equal to
the original cost of this interest plus the accrued dividends thereon which the
Company believes approximates fair market value.
American Prepaid expects to issue the Senior Subordinated Notes in a
private placement for resale pursuant to Rule 144A under the Securities Act of
1933, as amended. The Senior Subordinated Notes will be unsecured obligations,
will mature on the anniversary of issuance, will bear interest at a fixed
rate to be determined and will be redeemable by American Prepaid commencing in
at a price to be determined. If such notes have not been issued
at the time of the Merger, the Company intends to cause NationsBridge, L.L.C.
("NationsBridge") to make a certain bridge loan (the "Bridge Loan"), and
thereafter utilize the proceeds of a future issuance of such senior subordinated
notes to refinance the Bridge Loan. The Equity Investors have received a
financing letter from NationsBridge to provide the Bridge Loan, which letters
are subject to numerous conditions. The financing letter to provide the Bridge
Loan will expire on January 31, 1999 (or March 31, 1999 in the event that the
only unfilled closing condition is the lack of required state regulatory
approvals). Borrowings under the American Prepaid Credit Facility will be
secured by (i) 100% of the outstanding common stock of American Prepaid and each
of the existing or subsequently acquired or organized subsidiaries of American
Prepaid (except in the case of foreign subsidiaries, where the pledge of such
common stock to be limited to 65%) and (ii) all present and future intercompany
notes evidencing indebtedness between American Prepaid and its subsidiaries. The
American Prepaid Credit Facility will be guaranteed by the Surviving Corporation
and all existing or subsequently acquired or organized domestic subsidiaries of
American Prepaid, except to the extent that (i) issuing any such guarantee by
any such subsidiary is subject to regulatory restriction and approval and (ii)
any such subsidiary is not required to guarantee the Bridge Loan. The DHMI
Credit Facility will be guaranteed by the Equity Investors. The revolving credit
facility under the American Prepaid Credit Facility will terminate five and
one-half years after the closing of the Merger, and the term loans under the
American Prepaid Credit Facility will mature on a non pro-rata basis between the
twelfth and seventy-eighth month following the closing of the Merger, subject to
mandatory amortization prior to maturity from excess cash flow and certain other
sources. The term loans under the DHMI Credit Facility will mature on the third
anniversary of the closing of the Merger, subject to mandatory amortization
prior to maturity from excess cash flow and certain other sources.
Interest on borrowings under the revolving credit facility and the Tranche
A term loans under the American Prepaid Credit Facility will, in the event a
LIBOR pricing option is exercised, range from 1.75% to 2.5% over LIBOR, and, in
the event an alternate base rate pricing option is exercised, range from .75% to
1.5% over the alternate base rate. Interest on borrowings under the Tranche B
term loans under the American Prepaid Credit Facility will, in the event a LIBOR
pricing option is exercised, range from 2.25% to 2.75% over LIBOR, and, in the
event an alternate base rate pricing option is exercised, range from 1.25% to
1.75% over the alternate base rate. Interest on borrowings under the DHMI Credit
Facility will, in the event a LIBOR pricing option is exercised, be LIBOR plus
.75%, and, in the event an alternate base rate pricing option is exercised, be
the alternate base rate plus .25%. Closing of the foregoing financings is
subject to the satisfaction of numerous conditions.
CURRENT STATUS OF FINANCING
The financing letters from NationsBank and NationsBridge are subject to
certain conditions to funding, including certain financial tests and ratios and
other customary conditions. At the time of entering into the Merger Agreement,
the Company expected that it would not significantly exceed the levels required
by these financial tests.
The financing letters contain a requirement that the amount of total debt
not exceed six times trailing twelve months EBITDA. Based on the definition of
EBITDA that NationsBank and NationsBridge have indicated that they will use in
determining the amount of permissible borrowings under the financing letters, it
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appears that the available financing pursuant to these financing letters will be
approximately $7 to $9 million short of the total amount needed to consummate
the Merger.
The Merger Agreement obligates the Acquiror and the Equity Sponsors, in the
event that any portion of the financing under the financing letters becomes
unavailable, to use their reasonable best efforts to arrange alternative
financing on behalf of the Company from other sources on substantially the same
terms and conditions as the existing financing letters. The Acquiror has
indicated, in a letter to the Special Committee dated December 14, 1998, that it
has contacted other lending sources about providing alternative financing for
the transaction. However, the Acquiror indicated that it has not received any
definitive expressions of interest in participating in such financing. In
addition, the Acquiror stated in its December 14 letter that it has requested
NationsBank and NationsBridge to extend the expiration dates of their financing
letters related to the DHMI Credit Facility, the American Prepaid Credit
Facility and the Bridge Loan until June 30, 1999. In a letter dated December 14,
1998, NationsBank and NationsBridge stated that while they were not currently
willing to extend the expiration date of these financing letters, they would
continue to evaluate the status of the transaction through January 31, 1999 and
consider extending the financing letters at that time although they are under no
obligation to do so.
The Special Committee has also been informed that the Acquiror will
continue to seek alternative sources of financing in order to consummate the
Merger, but that it is unlikely that alternative financing will be available to
the Acquiror in amounts necessary to acquire CompDent at an $18.00 per share
price. If the closing of the Merger was scheduled as of the date of this Proxy
Statement, the amount of available financing would be insufficient to consummate
the Merger. However, we are soliciting your proxy in the event that the Acquiror
is successful in obtaining alternative sources of financing prior to the closing
date of the Merger.
CONDUCT OF COMPDENT'S BUSINESS AFTER THE MERGER
The Investor Group is continuing to evaluate CompDent's business,
practices, operations, properties, corporate structure, capitalization,
management, and personnel and will discuss what changes, if any, will be
desirable. Subject to the foregoing, the Investor Group expects that the
day-to-day business and operations of CompDent will be conducted substantially
as they are currently being conducted by CompDent. The Investor Group does not
currently intend to dispose of any assets of CompDent, other than in the
ordinary course of business. Additionally, the Investor Group does not currently
contemplate any material change in the composition of CompDent's current
management or personnel, although after the Merger, the Board will consist of
David Klock, Phyllis Klock, Donald Edwards (as a designee of the GTCR
Partnership), Roger Kafker (as a designee of the TA Fund) and up to three
outside directors to be determined at a later time.
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THE SPECIAL MEETING
DATE, TIME, AND PLACE OF THE SPECIAL MEETING
The Special Meeting of CompDent will be held on January 29, 1999, at 10:00
a.m., local time, at the offices of King & Spalding, located at 191 Peachtree
Street, Atlanta, Georgia.
PROXY SOLICITATION
This Proxy Statement is being solicited by the Company. All expenses
incurred in connection with solicitation of the enclosed proxy will be paid by
the Surviving Corporation. Officers, directors, and regular employees of the
Company, who will receive no additional compensation for their services, may
solicit proxies by telephone or personal call. In addition, the Company has
retained MacKenzie Partners, Inc. to solicit proxies for a fee of $7,500 plus
expenses. The Company has requested brokers and nominees who hold stock in their
names to furnish this proxy material to their customers, and the Company will
reimburse such brokers and nominees for their related out-of-pocket expenses.
This Proxy Statement and the accompanying proxy card are being mailed to
stockholders on or about , 1998.
RECORD DATE AND QUORUM REQUIREMENT
The Common Stock is the only outstanding voting security of the Company.
The Board has fixed the close of business on December 28, 1998 as the Record
Date for the determination of stockholders entitled to notice of, and to vote
at, the Special Meeting and any adjournment or adjournments thereof. Each holder
of record of Common Stock at the close of business on the Record Date is
entitled to one vote for each share then held on each matter submitted to a vote
of stockholders. At the close of business on the Record Date, there were
shares of Common Stock issued and outstanding held by
holders of record and by approximately persons or
entities holding in nominee name.
The holders of a majority of the outstanding shares entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business.
VOTING PROCEDURES
Approval of the Merger Agreement, which is attached as Appendix A hereto,
will require the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Special Meeting. A
failure to vote or a vote to abstain will have the same legal effect as a vote
cast against approval. Brokers and, in many cases, nominees will not have
discretionary power to vote on the proposal to be presented at the Special
Meeting. Accordingly, beneficial owners of shares should instruct their brokers
or nominees how to vote. A broker non-vote will have the same effect as a vote
against the Merger.
If there are insufficient votes to approve the Merger Agreement at the
Special Meeting, proxies voted in favor of the Merger Agreement and proxies as
to which no voting instructions are given may be voted to adjourn the Special
Meeting in order to solicit additional proxies in favor of approval of the
Merger Agreement. If the Special Meeting is adjourned for any purpose, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the meeting (except for any proxies which have been revoked or withdrawn),
notwithstanding that they may have been voted on the same or any other matter at
a previous meeting.
Under Delaware law, holders of Common Stock who do not vote in favor of the
Merger Agreement and who comply with certain notice requirements and other
procedures will have the right to dissent and to be paid cash for the "fair
value" of their shares as finally determined under such procedures, which may be
more or less than the consideration to be received by other stockholders of
CompDent under the terms of the Merger Agreement. Failure to follow such
procedures precisely may result in loss of appraisal rights. See "RIGHTS OF
DISSENTING STOCKHOLDERS."
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VOTING AND REVOCATION OF PROXIES
A stockholder giving a proxy has the power to revoke it at any time before
it is exercised by (i) filing with the Secretary of CompDent an instrument
revoking it, (ii) submitting a duly executed proxy bearing a later date or (iii)
voting in person at the Special Meeting. Subject to such revocation, all shares
represented by each properly executed proxy received by the Secretary of
CompDent will be voted in accordance with the instructions indicated thereon,
and if no instructions are indicated, will be voted to approve the Merger and in
such manner as the persons named on the enclosed proxy card in their discretion
determine upon such other business as may properly come before the Special
Meeting or any adjournment thereof.
The shares represented by the accompanying proxy card and entitled to vote
will be voted if the proxy card is properly signed and received by the Secretary
of the Company prior to the Special Meeting.
EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES
The effective time of the Merger, which shall be the date and time of
filing of Certificate of Merger with the Secretary of State of the State of
Delaware (the "Effective Time"), is currently expected to occur as soon as
practicable after the Special Meeting, subject to approval of the Merger
Agreement at the Special Meeting and satisfaction or waiver of the terms and
conditions of the Merger Agreement. Detailed instructions with regard to the
surrender of Common Stock certificates, together with a letter of transmittal,
will be forwarded to stockholders by the Company's paying agent,
(the "Paying Agent"), promptly following the Effective Time. Stockholders should
not submit their certificates to the Paying Agent until they have received such
materials. The Paying Agent will send payment of the Cash Merger Consideration
to stockholders as promptly as practicable following receipt by the Paying Agent
of their certificates and other required documents. No interest will be paid or
accrued on the cash payable upon the surrender of certificates. Stockholders
should not send any certificates at this time. See "THE MERGER -- Conditions."
OTHER MATTERS TO BE CONSIDERED
The Company's Board of Directors is not aware of any other matters which
will be brought before the Special Meeting. If, however, other matters are
presented, proxies will be voted in accordance with the discretion of the
holders of such proxies.
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THE MERGER
TERMS OF THE MERGER AGREEMENT
General. The Merger Agreement provides that subject to satisfaction of
certain conditions, the Acquiror will be merged with and into CompDent, and that
following the Merger, the separate existence of the Acquiror will cease and
CompDent will continue as the Surviving Corporation. At the Effective Time, and
subject to the terms and conditions set forth in the Merger Agreement, each
share of issued and outstanding Common Stock (other than shares as to which
appraisal rights are properly perfected and not withdrawn, shares held by the
Acquiror, and shares held by certain members of the Management Group (the
"Recapitalization Shares")), will, by virtue of the Merger, be canceled and
converted into the right to receive $18.00 in cash, without interest (the "Cash
Merger Consideration"). As a result of the Merger, the Common Stock will no
longer be publicly traded and the equity of the Surviving Corporation will be
100% owned by the Investor Group.
The terms of and conditions to the Merger are contained in the Merger
Agreement which is included in full as Appendix A to this Proxy Statement and is
incorporated herein by reference. The discussion in this Proxy Statement of the
Merger and the summary description of the principal terms of the Merger
Agreement are subject to and qualified in their entirety by reference to the
more complete information set forth in the Merger Agreement.
Merger Consideration. Upon consummation of the Merger, each share of
Common Stock issued and outstanding immediately prior to the Effective Time
(excluding shares owned by CompDent or any of its subsidiaries or by the
Acquiror and Recapitalization Shares and dissenting shares) will be converted
into the right to receive the Cash Merger Consideration, upon surrender and
exchange of the certificate or certificates which immediately prior to the
Effective Time evidenced Common Stock (the "Certificate(s)"). All such shares of
Common Stock, when converted (the "Shares"), will no longer be outstanding and
will automatically be canceled and retired and will cease to exist, and each
Certificate previously evidencing such Shares will thereafter represent only the
right to receive the Cash Merger Consideration.
As holders of Recapitalization Shares, the Management Sponsors will in the
aggregate have 200,000 shares of Common Stock converted in the Merger into (i)
675,110 shares of common stock of the Surviving Corporation and (ii) 3,235
shares of Convertible Preferred Stock of the Surviving Corporation. In addition,
certain other stockholders of the Company (other than the Equity Sponsors), as
holders of Recapitalization Shares, will in the aggregate have 233,300 shares of
Common Stock converted in the Merger into (i) 318,714 shares of common stock of
the Surviving Corporation and (ii) 3,992 shares of Convertible Preferred Stock
of the Surviving Corporation.
Payments for Shares. As soon as reasonably practicable after the Effective
Time, the Paying Agent will mail to each holder of record of a Certificate
(other than CompDent or the Acquiror) a form of letter of transmittal and
instructions for use in effecting the surrender of the Certificate in exchange
for payment therefor. Upon surrender of a Certificate for cancellation to the
Paying Agent, together with such duly executed letter of transmittal, and any
additional requested items, the holder of such Certificate will be entitled to
receive in exchange therefor cash in an amount equal to the product of (x) the
number of shares of Common Stock represented by such Certificate and (y) the
Cash Merger Consideration.
Cash-Out of CompDent Stock Options. The Merger Agreement provides that, at
the Effective Time, each holder of an outstanding vested option (the "Vested
Options") to purchase shares of Common Stock under any stock option plans or
arrangements will receive cash equal to the excess of the Cash Merger
Consideration over the per share exercise price of such Vested Option (the
"Option Consideration"). Upon receipt of the Option Consideration, each Vested
Option will be canceled in accordance with its terms or the applicable option
plan. All options that are not Vested Options will be canceled in accordance
with their terms or the applicable option plan. The total number of Vested
Options which will be cashed out is 178,500, and other options totaling 442,250
will be canceled. The Merger Agreement provides that CompDent will also suspend,
terminate, or refrain from renewing CompDent's Employee Stock Purchase Plan
until the termination of the Merger Agreement.
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Transfer of Shares. At the Effective Time, the stock transfer books of
CompDent will be closed and there will be no further registration of transfer of
shares of Common Stock thereafter on the records of CompDent. On or after the
Effective Time, any certificates presented to the Surviving Corporation or the
Paying Agent for any reason will be converted into the Cash Merger
Consideration.
Rights Plan. In August 1996, the CompDent Board adopted the Rights
Agreement by and between CompDent and State Street Bank and Trust Company (the
"Rights Agreement"). The CompDent Board has approved and CompDent has entered
into an amendment to the CompDent Rights Agreement to provide that neither the
Acquiror nor its Affiliates and Associates (as such terms are defined in the
Rights Agreement) are deemed "Acquiring Persons" in connection with the Rights
Agreement. The Rights Agreement will be terminated at the closing of the Merger.
Conditions to the Merger. Each party's respective obligation to effect the
Merger is subject to the satisfaction, prior to the Closing Date, of each of the
following conditions: (i) the approval and adoption of the Merger Agreement and
the Merger by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote thereon if such vote is
required by applicable law; (ii) all licenses, permits, consents,
authorizations, approvals, qualifications, and orders of necessary governmental
entities, including, without limitation, the Form A Statements Regarding the
Acquisition of Control of a Domicile Insurer from the Arizona and Texas
Departments of Insurance and any other necessary insurance regulatory approval,
shall have been obtained except where the failure to obtain such licenses,
permits, consents, authorizations, approvals, qualifications, and orders,
individually and in the aggregate, will not have a Material Adverse Effect (as
defined in the Merger Agreement) on CompDent; and (iii) the waiting period (and
any extension thereof) applicable to the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, shall have expired or
terminated.
The obligations of the Acquiror and each of the Equity Investors, who have
agreed, subject to certain limitations, to guarantee certain obligations of the
Acquiror under the Merger Agreement, to effect the Merger are subject to the
satisfaction of the following conditions, unless waived by the Acquiror and the
Equity Investors: (i) there shall not have occurred a Material Adverse Effect on
CompDent prior to the Effective Time; (ii) the representations and warranties of
CompDent in the Merger Agreement shall be true in all material respects as of
the date of the Merger Agreement and (except to the extent such representations
and warranties expressly relate to an earlier date) as of the closing of the
Merger (the "Closing Date") as though made on and as of the Closing Date, except
as otherwise contemplated by the Merger Agreement and except that, with respect
to representations and warranties otherwise qualified by Material Adverse
Effect, such representations and warranties shall be true and correct in all
respects; (iii) CompDent shall have performed in all material respects all
obligations contained in the Merger Agreement required to be performed at or
prior to the Closing Date; (iv) CompDent shall have received sufficient
financing pursuant to its existing bank commitments to consummate the
transactions contemplated by the Merger Agreement, including, without
limitation, amounts sufficient (a) to pay the Cash Merger Consideration, (b) to
refinance existing indebtedness of CompDent, and (c) to pay any fees and
expenses in connection with the transactions contemplated by the Merger
Agreement and the financing thereof; and (v) assuming the Acquiror's compliance
with its obligation under Section 5.5 of the Merger Agreement, there shall have
been no order or injunction entered in any action or proceeding before any
governmental entity or other action taken, nor statute, rule, regulation,
legislation, interpretation, judgment, or order enacted, entered, enforced,
promulgated, amended, issued, or deemed applicable to CompDent, its
subsidiaries, the Merger or the Merger Agreement by any governmental entity that
would have the effect of making illegal, materially delaying, or otherwise
directly or indirectly restraining or prohibiting the Merger or the transactions
contemplated thereby.
The obligations of CompDent to effect the Merger are subject to the
satisfaction of the following conditions, unless waived by CompDent: (i) the
Acquiror and the Equity Investors to the effect that the representations and
warranties of the Acquiror and each of the Equity Investors contained in the
Merger Agreement shall be true in all material respects as of the date of the
Merger Agreement and (except to the extent such representations and warranties
expressly related to an earlier date) as of the Closing Date as though made on
and as of the Closing Date, except as otherwise contemplated by the Merger
Agreement and
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except that, with respect to representations and warranties otherwise
qualified by Material Adverse Effect, such representations and warranties shall
be true and correct in all respects; (ii) the Acquiror and each of the Equity
Investors have performed in all material respects all obligations contained in
the Merger required to be performed at or prior to the Closing Date; and (iii)
assuming CompDent's compliance with its obligations under Section 5.5 of the
Merger Agreement, no court of competent jurisdiction or governmental entity
shall have enacted, issued, promulgated, enforced, or entered any statute, rule,
regulation, judgment, decree, injunction, or other order (whether temporary,
preliminary, or permanent) which is then in effect and has the effect of
preventing or prohibiting the consummation of the transactions contemplated by
this Agreement or the effective operation of the business of CompDent and the
subsidiaries after the Effective Time. Subject to applicable law, the Merger
Agreement may be amended by written agreement of the parties to the Merger
Agreement, provided however, that, after the Merger Agreement is approved by the
CompDent stockholders, no such amendment or modification shall reduce the amount
or change the form of consideration to be received by the CompDent stockholders.
Consequently, if CompDent waives a condition to its obligations to perform under
the Merger Agreement, unless otherwise required by applicable law, CompDent will
only resolicit stockholder approval of the Merger Agreement if such waiver
reduces the amount or changes the form of consideration to be received by the
CompDent stockholders.
EVEN IF THE STOCKHOLDERS APPROVE THE MERGER, THERE CAN BE NO ASSURANCE THAT
THE MERGER WILL BE CONSUMMATED.
Representations and Warranties. CompDent has made representations and
warranties in the Merger Agreement regarding, among other things, its
organization and good standing, authority to enter into the transaction, its
capitalization, its financial statements, the absence of certain changes in the
business of CompDent since March 31, 1998, the content and submission of forms
and reports required to be filed by CompDent with the Commission, requisite
governmental and other consents and approvals, compliance with all applicable
laws, absence of litigation to which CompDent is a party, brokers and finders
fees, requisite tax filings, absence of defaults under material contracts,
employee benefits, and environmental matters.
The Acquiror has made representations and warranties in the Merger
Agreement regarding, among other things, its organization and good standing,
authority to enter into the transaction, the requisite governmental and other
consents and approvals, and accuracy of information supplied by the Acquiror for
submission on forms and reports required to be filed by CompDent with the
Commission.
The Equity Investors have made representations and warranties in the Merger
Agreement regarding, among other things, their organization and good standing,
authority to enter into the transaction, requisite governmental and other
consents and approvals, accuracy of information supplied by the Equity Investors
for submission on forms and reports required to be filed by CompDent with the
Commission, and certain financing commitments.
The representations, warranties, and agreements (other than Sections 5.4
and 5.6) in the Merger Agreement or in any instrument delivered pursuant to the
Merger Agreement will expire at the Effective Time.
Covenants. In the Merger Agreement, CompDent has agreed that prior to the
Effective Time, unless otherwise agreed to in writing by the Acquiror or as
otherwise expressly contemplated or permitted by the Merger Agreement, CompDent
and each of its subsidiaries will, among other things, conduct business only in
the usual, regular, and ordinary course substantially consistent with past
practice, including, without limitation, not declaring any dividend on its
capital stock or issuing any shares of capital stock.
Nonsolicitation Covenant. The Merger Agreement provides that none of
CompDent, including any of its subsidiaries or DHDC, nor any of their respective
officers and directors shall, and CompDent will cause its employees, agents, and
representatives not to, initiate or solicit, directly or indirectly, any
inquiries or the making of any proposal with respect to a merger, consolidation,
sale, or similar transaction involving CompDent or any of its subsidiaries (an
"Acquisition Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to any Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition
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Proposal; provided, however, that the foregoing shall not prohibit the
Special Committee of the Board of Directors of CompDent from furnishing
information to, or entering into discussions or negotiations, or otherwise
facilitating any effort or attempt to make or implement an Acquisition Proposal
if, and to the extent, that the Special Committee determines after consultation
with counsel and in good faith that failing to take such action would be
inconsistent with the Special Committee's fiduciary duty under applicable law.
CompDent will immediately cease and cause to be terminated any existing
activities, discussions, or negotiations with any third parties conducted
heretofore with respect to any of the foregoing. CompDent will notify the
Acquiror immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, CompDent, any of its subsidiaries,
DHDC, or any of their respective officers, directors, or employees, agents, or
representatives.
Indemnification and Insurance. The Merger Agreement provides that the
Company's current and former directors and officers will be indemnified by the
Surviving Corporation, to the fullest extent permitted under the DGCL, against
any costs, expenses, fines, losses, claims, damages, liabilities, or judgments,
or amounts paid in settlement with the approval of the indemnifying party in
connection with any threatened or actual claim, action, suit, proceeding, or
investigation based in whole or in part on, or arising in whole or in part out
of, or pertaining to the fact that such person is or was a director or officer
of CompDent or any of its subsidiaries, whether pertaining to any matter
existing or occurring at or prior to the Effective Time. In addition, the
Surviving Corporation is required to maintain in effect, for a period of six
years after the Effective Time, CompDent's policies of directors' and officers'
liability insurance (provided that the Surviving Corporation may substitute
therefor policies of at least the same amounts and comparable coverage).
However, in no event will the Surviving Corporation be required to pay premiums
for such insurance in excess of 125% of premiums paid by CompDent in the prior
year.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the Merger by the stockholders of CompDent: (a) by mutual written
consent of CompDent (by action of the Special Committee) and the Acquiror (by
action of its Board); (b) by CompDent if there has been a material breach or
failure to perform any representation, warranty, covenant, or agreement on the
part of the Acquiror, which breach or failure to perform has not been cured
within 30 calendar days following receipt by the Acquiror of notice of such
breach or failure; (c) by the Acquiror if there has been a material breach or
failure to perform any representation, warranty, covenant, or agreement on the
part of CompDent, which breach or failure to perform has not been cured within
30 calendar days following receipt by CompDent of notice of such breach or
failure; (d) by the Acquiror or CompDent if any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
Merger shall have become final and nonappealable; (e) the Acquiror or CompDent
if the Merger shall not have been consummated on or before June 30, 1999; (f) by
the Acquiror in the event the Special Committee or the CompDent Board shall have
(i) withdrawn or adversely modified its approval or recommendation of the Merger
or this Agreement, (ii) failed to duly call, give notice of, convene, or hold
the CompDent Stockholders Meeting, in violation of Section 5.1(b) of the Merger
Agreement, and at the time of such failure, an Acquisition Proposal by any
Person (other than the Acquiror or its affiliates) shall have been publicly
announced or provided to CompDent or the Special Committee, (iii) recommended,
approved, or accepted an Acquisition Proposal by any Person (other than the
Acquiror or its affiliates), or (iv) resolved to do any of the foregoing (or
CompDent has agreed to do any of the foregoing); (g) by CompDent if the Special
Committee or the CompDent Board accepts or recommends to the holders of the
shares of Common Stock approval or acceptance of an Acquisition Proposal by any
Person (other than the Acquiror or its affiliates); provided, however that
CompDent shall not terminate the Merger Agreement pursuant to Section 7.1(g) of
the Merger Agreement without providing the Acquiror at least five (5) days prior
written notice, which notice shall include in reasonable detail the terms of the
Acquisition Proposal; or (h) by the Acquiror or CompDent if the Merger and the
Merger Agreement shall have been voted on by the holders of Common Stock, and
the votes shall not have been sufficient to satisfy the condition set forth in
Section 6.1(a) of the Merger Agreement.
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Fees and Expenses. Except as otherwise provided in Section 7.3 of the
Merger Agreement and except with respect to claims for damages incurred as a
result of the breach of the Merger Agreement, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses. CompDent agrees to pay the
Acquiror a fee in immediately available funds equal to $7.0 million (the
"Specified Fee") upon the termination of the Merger Agreement under Sections
7.1(f) or (g) of the Merger Agreement. The Specified Fee shall be paid on the
second business day following such termination. In the event (i) the Merger
Agreement shall be terminated pursuant to Section 7.1(c) of the Merger Agreement
as a result of a willful breach by CompDent or pursuant to Section 7.1(h) of the
Merger Agreement, and (ii) either (A) a transaction with any person (other than
the Acquiror or its affiliates) that is contemplated by the term "Acquisition
Proposal," which is based on an Acquisition Proposal made prior to such
termination of the Merger Agreement, shall be consummated on or before the first
anniversary of the termination of the Merger Agreement, or (B) CompDent shall
enter into an agreement with any person (other than the Acquiror or its
affiliates) on or before the first anniversary of the termination of the Merger
Agreement with respect to an Acquisition Proposal which is made prior to such
termination of the Merger Agreement, and a transaction contemplated by the term
"Acquisition Proposal" shall thereafter be consummated with such person, then
CompDent shall pay to the Acquiror the Specified Fee. Such amount shall be paid
contemporaneously with the consummation of such contemplated transaction.
Notwithstanding the foregoing, such fee shall be reduced by any amounts paid to
the Acquiror pursuant to Section 7.3(d) of the Merger Agreement. The Acquiror
agrees to pay CompDent a fee in immediately available funds equal to the amount
of all CompDent's Designated Expenses (as defined below) upon the termination of
the Merger Agreement under Section 7.1(b). CompDent agrees to pay the Acquiror a
fee in immediately available funds equal to the amount of all the Acquiror's
Designated Expenses upon the termination of this Agreement under Section 7.1(c)
of the Merger Agreement. Such Designated Expenses shall be paid on the second
business day following the submission thereof by the applicable party. The term
"Designated Expenses" shall mean, with respect to a specified person, all
documented, reasonable out-of-pocket fees and expenses (not to exceed $2.0
million) incurred or paid by or on behalf of such specified person and its
affiliates to third parties in connection with the Merger or the consummation of
any of the transactions contemplated by the Merger Agreement, including, without
limitation, all printing costs, and reasonable fees and expenses of counsel,
investment banking firms, brokers, accountants, experts, and consultants.
Amendment. Subject to applicable law, the Merger Agreement may be amended
by the parties to the Merger Agreement; provided, however, that, after the
Merger Agreement is approved by the CompDent stockholders, no such amendment or
modification shall reduce the amount or change the form of consideration to be
received by the CompDent stockholders. Any amendment to the Merger Agreement
must be in writing and signed by the parties to the Merger Agreement.
Terms of the Convertible Preferred Stock and Perpetual Preferred
Stock. The following description of the Convertible Preferred Stock and the
Perpetual Preferred Stock is qualified in its entirety by reference to the
Amended and Restated Certificate of Incorporation of the Company which will be
the Amended and Restated Certificate of Incorporation of the Surviving
Corporation following the consummation of the Merger and which is attached as an
exhibit to the Merger Agreement (the "Certificate of Incorporation").
Convertible Preferred Stock.
Voting. Each share of Convertible Preferred Stock will entitle the holder
thereof to the number of votes equal to the number of shares of common stock of
the Surviving Corporation into which such shares of Convertible Preferred Stock
could be converted (as described below) on the record date for a vote of
stockholders. The holders of Convertible Preferred stock will vote together with
holders of common stock of the Surviving Corporation as a single class upon all
matters submitted to a vote of stockholders, except those matters required to be
submitted to a class or series vote pursuant to the Certificate of Incorporation
or by applicable law.
Dividends. The holders of Convertible Preferred Stock will be entitled to
receive dividends out of funds legally available therefor at such times and in
such amounts as the Board of Directors of the Surviving
43
<PAGE> 52
Corporation may determine in its sole discretion; provided, however, that
no such dividend may be declared or paid on any shares of Convertible Preferred
Stock unless at the same time a dividend is declared or paid on all outstanding
shares of common stock of the Surviving Corporation and vice versa. The holders
of Convertible Preferred Stock and common stock of the Surviving Corporation
shall share in any such dividends as if they constituted a single class of stock
with each holder of shares of Convertible Preferred Stock entitled to receive
such dividends based on the number of shares of common stock of the Surviving
Corporation into which such shares of Convertible Preferred Stock are then
convertible.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
the Surviving Corporation (a "Liquidation Event"), each holder of outstanding
shares of Convertible Preferred Stock shall be entitled to receive out of the
assets of the Surviving Corporation available for distribution to stockholders
and before any amount shall be paid or distributed to the holders of common
stock of the Surviving Corporation or any other stock of the Surviving
Corporation ranking junior to the Convertible Preferred Stock (collectively,
"Junior Stock"), an amount of cash equal to (i) $1,008.66 per share of
Convertible Preferred Stock held by such holder (adjusted appropriately for
stock splits, stock dividends, recapitalizations and similar events with respect
to the Convertible Preferred Stock), (ii) any declared but unpaid dividends to
which such holder of shares of Convertible Preferred Stock is then entitled (the
sum of clauses (i) and (ii) being the "Convertible Preferred Base Liquidation
Amount"), and (iii) any Unredeemed Shares Interest (as defined below) (the sum
of clauses (i), (ii) and (iii) being the "Convertible Preferred Liquidation
Preference Amount"); provided, however, that if, upon any Liquidation Event the
amounts payable with respect to the Convertible Preferred Liquidation Preference
Amount are not paid in full, the holders of the Convertible Preferred Stock
shall share ratably in any distribution of assets in proportion to the full
respective preferential amounts to which they are entitled; provided further,
however, that if upon any Liquidation Event the holders of Convertible Preferred
Stock would receive more than the Convertible Preferred Liquidation Preference
Amount if all of their shares of Convertible Preferred Stock were converted into
shares of Perpetual Preferred Stock and common stock of the Surviving
Corporation upon such Liquidation Event, then each holder of Convertible
Preferred Stock shall receive, in lieu of the Convertible Preferred Liquidation
Preference Amount, an amount equal to such holder's Perpetual Preferred Stock
Liquidation Preference Amount (as defined below) plus any declared but unpaid
dividends and Unredeemed Shares Interest with respect to such holder's
Convertible Preferred Stock before any amount shall be paid or distributed to
the holders of Junior Stock, and thereafter shall share with the holders of
Junior Stock in the assets available for distribution, with such distributions
to be made in cash and as if each share of Convertible Preferred Stock had been
converted into the number of shares of Perpetual Preferred Stock and common
stock of the Surviving Corporation issuable upon the conversion of such holder's
shares of Convertible Preferred Stock immediately prior to any such Liquidation
Event.
Redemption. At any one time on or after the anniversary of the
consummation of the Merger, upon the election of holders of not less than
two-thirds of the voting power of the Convertible Preferred Stock, the Surviving
Corporation shall redeem all of the outstanding shares of the Convertible
Preferred Stock at the Convertible Preferred Redemption Price (as defined
below). In addition, upon the election of the holders of not less than
two-thirds of the voting power of the Convertible Preferred Stock in connection
with any Extraordinary Transaction (as defined in the Certificate of
Incorporation), unless the holders of the Convertible Preferred Stock otherwise
elect to convert their shares of Convertible Preferred Stock into shares of
Perpetual Preferred Stock and common stock of the Surviving Corporation prior to
the effective date of such Extraordinary Transaction, the Surviving Corporation
shall, on the effective date of such Extraordinary Transaction, unless the
Convertible Preferred Stock is acquired in such Extraordinary Transaction on
terms giving effect to the preferential amount to which the Convertible
Preferred Stock would be entitled in connection with a Liquidation Event and
otherwise as agreed to by the holders of two-thirds of the holders thereof, the
Surviving Corporation shall redeem all of the outstanding shares of Convertible
Preferred Stock for an amount equal to the Convertible Preferred Liquidation
Preference Amount, such amount to be payable in cash or, at the election of the
holders of not less than two-thirds of the voting power of the outstanding
Convertible Preferred Stock, in the same form of consideration as is paid to the
holders of Junior Stock in such Extraordinary Transaction, and no payment shall
be made to the holders of Junior Stock unless such amount is paid in full.
Notwithstanding the foregoing, if upon any Extraordinary Transaction the
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<PAGE> 53
holders of the outstanding shares of Convertible Preferred Stock would
receive more than the Convertible Preferred Liquidation Preference Amount in the
event their shares were converted into shares of Perpetual Preferred Stock and
common stock of the Surviving Corporation immediately prior to such
Extraordinary Transaction, then each holder of Convertible Preferred Stock shall
receive with respect to each outstanding share of Convertible Preferred Stock
held by such holder an amount equal to the per share Perpetual Stock Liquidation
Preference Amount plus any declared but unpaid dividends and any Unredeemed
Share Interest with respect to such shares as of the date of such Extraordinary
Transaction before any amount shall be paid or distributed to the holders of
Junior Stock, payable in cash, and thereafter shall share with the holders of
Junior Stock in the proceeds of such Extraordinary Transaction or, as
applicable, shall receive an amount equal to the amount per share that would be
paid if the shares of common stock of the Surviving Corporation receivable upon
conversion of the Convertible Preferred Stock were being acquired in the
Extraordinary Transaction at the same price per share as is paid for common
stock of the Surviving Corporation, which excess amount shall be paid in the
same form of consideration as is paid to holders of common stock of the
Surviving Corporation, as if each share of Convertible Preferred Stock had been
converted into the number of shares of Perpetual Preferred Stock and common
stock of the Surviving Corporation issuable upon the conversion of such share of
Convertible Preferred Stock immediately prior to such Extraordinary Transaction.
The "Convertible Preferred Redemption Price" is equal to the Convertible
Preferred Liquidation Preference Amount or such greater per share amount as may
be payable pursuant to the previous sentence, plus any Unredeemed Shares
Interest.
If the Surviving Corporation is prohibited under the Delaware General
Corporation Law (the "DGCL") from redeeming all the outstanding shares of
Convertible Preferred Stock on the date on which it is required to redeem the
Convertible Preferred Stock, then it shall redeem such shares on a pro-rata
basis among the holders of Convertible Preferred Stock in proportion to the full
respective redemption amounts to which they are entitled to the extent possible
and shall redeem the remaining shares (the "Unredeemed Shares") as soon as the
Surviving Corporation is not prohibited from redeeming some or all of such
shares under the DGCL. Any Unredeemed Shares shall remain outstanding and
entitled to all of the rights and preferences of Convertible Preferred Stock
until they are redeemed. In addition, from the date on which the Surviving
Corporation is first required to redeem the Unredeemed Shares until such shares
are redeemed, the applicable Convertible Preferred Base Liquidation Amount will
bear interest at the lesser of 12% per annum and the maximum permitted rate of
interest under applicable law ("Unredeemed Share Interest"). The holders of
Convertible Preferred Stock will be entitled to certain additional rights with
respect to election of the Board of Directors of the Surviving Corporation if
the Surviving Corporation does not redeem all of the shares of Convertible
Preferred Stock for more than six months after the date on which redemption is
first required. The holders of Unredeemed Stock will continue to be entitled to
receive dividends with respect to the Unredeemed Shares until the date such
shares are redeemed by the Surviving Corporation.
Conversion. The holders of not less than two-thirds of the voting power of
the outstanding shares of the Convertible Preferred Stock may elect to convert
all (but not less than all) of the outstanding shares of the Convertible
Preferred Stock into (i) one share of Perpetual Preferred Stock and (ii) 17.32
shares of common stock of the Surviving Corporation (subject to adjustment)(a)
immediately prior to and subject to the closing of a Liquidation Event or an
Extraordinary Transaction or (b) at any time on or after the sixth anniversary
of the consummation of the Merger. In addition, each share of the Convertible
Preferred Stock will automatically be converted into one share of Perpetual
Preferred Stock and 17.32 shares of common stock of the Surviving Corporation as
of and subject to the closing of a Qualified Public Offering (as defined in the
Certificate of Incorporation). If the holders of shares of Convertible Preferred
Stock elect to convert their shares of Convertible Preferred Stock, or if such
shares are automatically converted, into shares of Perpetual Preferred Stock and
common stock of the Surviving Corporation at a time when there are any declared
but unpaid dividends or other amounts owed on or in respect of such shares, the
Surviving Corporation shall pay such amounts in full in cash in connection with
such conversion.
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<PAGE> 54
Perpetual Preferred Stock
Voting. Each share of Perpetual Preferred Stock will entitle the holder to
one vote on all matters submitted to a vote of stockholders. Holders of
Perpetual Preferred stock will vote together with holders of common stock of the
Surviving Corporation as a single class upon all matters submitted to a vote of
stockholders, except as otherwise provided in the Certificate of Incorporation.
Dividends. The holders of shares of Perpetual Preferred Stock will be
entitled to receive, out of any funds legally available therefor, cumulative
annual cash dividends at the rate of 10% per annum, subject to adjustment.
Liquidation Preference. Upon any Liquidation Event, each holder of
Perpetual Preferred Stock will be entitled to receive, out of the assets of the
Surviving Corporation available for distribution to stockholders and before any
amount shall be paid or distributed to the holders of Junior Stock, an amount of
cash equal to $1,000 per share held by such holder, subject to adjustment, plus
any accumulated but unpaid dividends (the "Perpetual Preferred Stock Liquidation
Amount"). If, upon any Liquidation Event, the amounts payable with respect to
the Perpetual Stock Liquidation Preference Amount are not paid in full, the
holders of the Perpetual Preferred Stock shall share ratably in any distribution
of assets in proportion to the full respective preferential amounts to which
they are entitled.
Conversion. The holders of not less than two-thirds of the voting power of
the outstanding shares of the Perpetual Preferred Stock (or Convertible
Preferred Stock, as applicable, proposing to convert such shares of Convertible
Preferred Stock into shares of Perpetual Preferred Stock in order to effect a
conversion of the Perpetual Preferred Stock received upon such conversion) may
elect to convert all (but not less than all) of the outstanding shares of the
Perpetual Preferred Stock into the number of shares of common stock of the
Surviving Corporation which results from dividing the Perpetual Stock
Liquidation Preference Amount by the fair market value per share of the common
stock of the Surviving Corporation at the time of the conversion immediately
prior to and subject to the closing of a Qualified Public Offering or an
Extraordinary Transaction. In any such case, the holders of shares of common
stock of the Surviving Corporation resulting from such conversion shall be
entitled, upon the election of not less than two-thirds in voting power of such
shares of common stock of the Surviving Corporation, to participate in such
Qualified Public Offering or Extraordinary Transaction on the same basis as the
other holders of common stock of the Surviving Corporation.
ESTIMATED FEES AND EXPENSES OF THE MERGER
Estimated fees and expenses incurred or to be incurred by the Surviving
Corporation are approximately as follows:
<TABLE>
<S> <C>
Advisory fees and expenses(1)............................... $
Lender fees and expenses(2).................................
Legal fees and expenses(3)..................................
Accounting fees and expenses................................
Paying Agent fees and expenses..............................
Proxy solicitation fees and expenses........................
Securities and Exchange Commission filing fee...............
Printing and mailing costs..................................
Miscellaneous expenses......................................
-------
Total............................................. $
</TABLE>
- ---------------
(1) Includes the fees and expenses of Robinson-Humphrey and Morgan Stanley.
(2) Includes the fees and expenses of NationsBank, N.A., and NationsBridge,
L.L.C.
(3) Includes the estimated fees and expenses of counsel for the Company, the
Special Committee, and the Investor Group.
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<PAGE> 55
RIGHTS OF DISSENTING STOCKHOLDERS
Holders of shares of the Company's Common Stock are entitled to appraisal
rights under Section 262 of the DGCL. Section 262 is reprinted in its entirety
as Appendix C to this Proxy Statement. All references in Section 262 and in this
summary to a "stockholder" are to the record holder of the shares of the
Company's Common Stock as to which appraisal rights are asserted. A person
having a beneficial interest in shares of the Company's Common Stock that are
held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to properly follow the steps summarized
below and in a timely manner to perfect whatever appraisal rights the beneficial
owner may have.
The following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Appendix C,
however the following discussion does summarize all of the material terms
relating to appraisal rights. THIS DISCUSSION AND APPENDIX C SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO
WISHES TO PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO COMPLY STRICTLY WITH
THE PROCEDURES SET FORTH HEREIN AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL
RIGHTS.
Each stockholder electing to demand the appraisal of his shares shall
deliver to the Company, before the taking of the vote on the Merger at the
Special Meeting, a written demand for appraisal of his shares of the Company's
Common Stock. The demand must reasonably inform the Company of the identity of
the stockholder and that the stockholder intends thereby to demand the appraisal
of the shares of the Company's Common Stock. This written demand for appraisal
of the shares of the Company's Common Stock must be in addition to and separate
from any proxy or vote against the Merger. Voting against, abstaining from
voting, or failing to vote on the Merger will not constitute a demand for
appraisal within the meaning of Section 262. Any stockholder electing to demand
his appraisal rights will not be granted appraisal rights under Section 262 if
such stockholder has either voted in favor of the Merger or consented thereto in
writing (including by granting the proxy solicited by this Proxy Statement or by
returning a signed proxy without specifying a vote against the Merger or a
direction to abstain from such vote). Additionally, appraisal rights will not be
granted under Section 262 if the stockholder does not continuously hold through
the Effective Time his shares of the Company's Common Stock with respect to
which he demands appraisal.
A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on the
certificate or certificates representing shares of the Company's Common Stock.
If the shares of the Company's Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian, or custodian, such demand must be
executed by the fiduciary. If the shares of the Company's Common Stock are owned
of record by more than one person, as in a joint tenancy or tenancy in common,
such demand must be executed by all joint owners. An authorized agent, including
an agent for two or more joint owners, may execute the demand for appraisal for
a stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner.
A record owner, such as a broker, who holds shares of the Company's Common
Stock as a nominee for others, may exercise appraisal rights with respect to the
shares of the Company's Common Stock held for all or less than all beneficial
owners of shares of the Company's Common Stock as to which such person is the
record owner. In such case, the written demand must set forth the number of
shares of the Company's Common Stock covered by such demand. Where the number of
shares of the Company's Common Stock is not expressly stated, the demand will be
presumed to cover all shares of the Company's Common Stock outstanding in the
name of such record owner. Beneficial owners who are not record owners and who
intend to exercise appraisal rights should instruct the record owner to comply
strictly with the statutory requirements with respect to the exercise of
appraisal rights before the date of the Special Meeting.
A stockholder who elects to exercise appraisal rights must mail or deliver
his or her written demand to the Secretary of the Company at 100 Mansell Court
East, Suite 400, Roswell, Georgia 30076. The written demand for appraisal must
specify the stockholder's name and mailing address, the number of shares of the
Company's Common Stock owned, and that the stockholder is thereby demanding
appraisal of his or her
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<PAGE> 56
shares. Within ten days after the Effective Time, the Company must provide
notice of the Effective Time to all stockholders who have complied with Section
262 and have not voted for or consented to adoption of the Merger Agreement.
Within 120 days after the Effective Time, either the Company or any
stockholder who has complied with the required conditions of Section 262 may
file a petition in the Delaware Court of Chancery (the "Delaware Chancery
Court") demanding a determination of the value of the shares of the Company's
Common Stock of the dissenting stockholders. If a petition for an appraisal is
timely filed, after a hearing on such petition, the Delaware Chancery Court will
determine which stockholders are entitled to appraisal rights and will appraise
the shares of the Company's Common Stock owned by such stockholders, determining
the fair value of such shares of the Company's Common Stock, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest to be paid, if any, upon the amount
determined to be the fair value. In determining such fair value, the Delaware
Chancery Court is to take into account all relevant factors.
Stockholders considering seeking appraisal should have in mind that the
"fair value" of their shares of the Company's Common Stock determined under
Section 262 could be more than, the same as, or less than the Cash Merger
Consideration to be received by the Company's stockholders in the Merger, and
that the opinion of Robinson-Humphrey as to fairness, from a financial point of
view, is not an opinion as to fair value under Section 262. The cost of the
appraisal proceeding may be determined by the Delaware Chancery Court and taxed
against the parties as the Delaware Chancery Court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the Delaware
Chancery Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of the Company's
Common Stock entitled to appraisal.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, from and after the Effective Time, be entitled to vote for any
purpose the shares of the Company's Common Stock subject to such demand or to
receive payment of dividends or other distributions on such shares of the
Company's Common Stock, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Merger; after this period, the stockholder may withdraw his
or her demand for appraisal only with the consent of the Company. If no petition
for appraisal is filed with the Delaware Chancery Court within 120 days after
the Effective Time, stockholders' rights to appraisal shall cease, and all
holders of shares of the Company's Common Stock shall be entitled to receive the
Cash Merger Consideration as provided for in the Merger Agreement. Inasmuch as
the Company has no obligation to file such a petition, and has no present
intention to do so, any stockholder who desires such a petition to be filed is
advised to file it on a timely basis. However, no petition timely filed in the
Delaware Chancery Court demanding appraisal shall be dismissed as to any
stockholder without the approval of the Delaware Chancery Court, and such
approval may be conditioned upon such terms as the Delaware Chancery Court deems
just.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to holders
of Common Stock. This discussion is based on currently existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury Regulations thereunder, and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences to the holders of
Common Stock as described herein. Special tax consequences not described below
may be applicable to particular classes of taxpayers, including financial
institutions, broker-dealers, persons who are not citizens or residents of the
United States or who are foreign corporations, foreign partnerships, or foreign
estates or trusts as to the United States, persons who will own stock of
CompDent (actually or
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<PAGE> 57
constructively, under certain constructive ownership rules in the Internal
Revenue Code) after the Merger, and holders who acquired their stock through the
exercise of an employee stock option or otherwise as compensation.
The receipt of the Cash Merger Consideration in the Merger by holders of
Common Stock will be a taxable transaction for federal income tax purposes. Each
holder's gain or loss per share of Common Stock will be equal to the difference
between $18.00 and the holder's basis in that particular share of the Common
Stock. Such gain or loss generally will be a capital gain or loss. In the case
of individuals, trusts, and estates, such capital gain will be subject to a
maximum federal income tax rate of 20% for shares of Common Stock held for more
than 12 months prior to the date of disposition.
A holder of Common Stock may be subject to backup withholding at the rate
of 31% with respect to Cash Merger Consideration received pursuant to the
Merger, unless the holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (b) provides a
correct taxpayer identification number ("TIN"), certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. To prevent the possibility of
backup federal income tax withholding on payments made with respect to shares of
Common Stock pursuant to the Merger, each holder must provide the Paying Agent
with his correct TIN by completing a Form W-9 or Substitute Form W-9. A holder
of Common Stock who does not provide CompDent with his or her correct TIN may be
subject to penalties imposed by the Internal Revenue Service (the "IRS"), as
well as backup withholding. Any amount withheld under these rules will be
creditable against the holder's federal income tax liability. CompDent (or its
agent) will report to the holders of Common Stock and the IRS the amount of any
"reportable payments," as defined in Section 3406 of the Code, and the amount of
tax, if any, withheld with respect thereto.
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS BASED UPON PRESENT LAW. THE FOREGOING DISCUSSION DOES NOT DISCUSS TAX
CONSEQUENCES UNDER THE LAWS OF STATES OR LOCAL GOVERNMENTS OR OF ANY OTHER
JURISDICTION OR TAX CONSEQUENCES TO CATEGORIES OF STOCKHOLDERS THAT MAY BE
SUBJECT TO SPECIAL RULES, SUCH AS FOREIGN PERSONS, TAX-EXEMPT ENTITIES,
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, AND DEALERS IN STOCKS AND
SECURITIES. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO A STOCKHOLDER WHO
ACQUIRED HIS OR HER SHARES OF THE COMPANY'S COMMON STOCK PURSUANT TO THE
EXERCISE OF STOCK OPTIONS OR OTHERWISE AS COMPENSATION. EACH HOLDER OF COMMON
STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT
OF FEDERAL, STATE, LOCAL, AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES
IN SUCH TAX LAWS.
49
<PAGE> 58
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF
MANAGEMENT AND OTHERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of , 1998 by: (i) each
person known to the Company to beneficially own more than 5% of the Common
Stock, (ii) each director of the Company, (iii) each of the Equity Investors,
(iv) each pension or profit sharing plan of the Company, (v) the Chief Executive
Officer and the three other most highly compensated executive officers, and (vi)
all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND NATURE COMMON
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP STOCK
------------------------ ----------------------- -------------
<S> <C> <C>
</TABLE>
50
<PAGE> 59
CERTAIN INFORMATION CONCERNING THE ACQUIROR
AND THE INVESTOR GROUP
The Acquiror. The Acquiror is a newly formed Delaware corporation
organized at the direction of the Equity Investors, each of which is a private
investment partnership or an affiliate thereof. It is anticipated that the
Acquiror will not have any significant assets or liabilities prior to the
Effective Time nor engage in any activities other than those involving the
Merger. The principal executive offices of the Acquiror are located at c/o TA
Associates, Inc., 125 High Street, Suite 2500, Boston, Massachusetts 02110.
GTCR Partnership. Golder, Thoma, Cressey, Rauner Fund V, L.P., a Delaware
limited partnership, and GTCR Associates V, a Delaware general partnership, are
principally engaged in the business of investing in other companies. The sole
general partner of Golder, Thoma, Cressey, Rauner Fund V, L.P., is GTCR V, L.P.,
a Delaware limited partnership. The sole general partner of GTCR V, L.P. and the
managing general partner of GTCR Associates V is Golder, Thoma, Cressey, Rauner,
Inc., a Delaware corporation ("GTCR, Inc.").
Set forth below is the name of each director and executive officer of GTCR,
Inc. and the present principal occupation or employment of each such person and
a brief description of his principal occupation and business experience during
at least the last five years. Each person listed below is a citizen of the
United States.
Carl D. Thoma. Mr. Thoma has served as a Director of GTCR, Inc. since
1993 and as a Principal of GTCR, Inc. or its predecessor since 1980.
Bryan C. Cressey. Mr. Cressey has served as a Director of GTCR, Inc.
since 1993 and as a Principal of GTCR, Inc. or its predecessor since 1980.
Bruce V. Rauner. Mr. Rauner has served as a Director of GTCR, Inc.
since 1993 and as a Principal or Associate of GTCR, Inc. or its predecessor
since 1981.
David A. Donnini. Mr. Donnini has served as a Principal of GTCR, Inc.
since 1993.
Donald J. Edwards. Mr. Edwards has served as a Principal of GTCR, Inc.
since 1994. From 1988 to 1992, Mr. Edwards served as an Associate at Lazard
Freres & Co. LLC, a nationally recognized investment banking firm.
Lee M. Mitchell. Mr. Mitchell has served as a Principal of GTCR, Inc.
since 1994.
Joseph P. Nolan. Mr. Nolan has served as a Principal of GTCR, Inc.
since 1994. Mr. Nolan served as a Vice President of Dean Witter Reynolds, a
nationally recognized investment banking firm, from 1990 to 1994.
Philip A. Canfield. Mr. Canfield has served as either an Associate or
Principal of GTCR, Inc. or its predecessor since 1992.
William C. Kessinger. Mr. Kessinger has served as a Principal of GTCR,
Inc. since 1995. Mr. Kessinger was a Principal of the Parthenon Group, a
strategic consulting firm, from 1990 to 1995.
Stephen I. Ross. Mr. Ross has served as Chief Financial Officer of
GTCR, Inc. since 1997. Mr. Ross previously served as Chief Financial
Officer of Marquette Venture Partners, a venture capital firm, and as
Accounting Manager of Kemper Financial Services, a financial services firm,
from 1986 to 1994.
The principal executive offices of GTCR, Inc. and all related entities and
the business address for the individuals listed above is 6100 Sears Tower,
Chicago, Illinois 60606.
TA Fund. TA/Advent VIII L.P., a Delaware limited partnership, Advent
Atlantic and Pacific III L.P., a Delaware limited partnership, TA Executives
Fund LLC, a Delaware LLC, TA Investors LLC, a Delaware LLC, Advent VII L.P., a
Delaware limited partnership, and Advent New York L.P., a Delaware limited
partnership, are principally engaged in the business of investing in other
companies. The sole general partner of TA/Advent VIII L.P. is TA Associates VIII
LLC, a Delaware LLC. The sole general partner of Advent
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<PAGE> 60
Atlantic and Pacific III L.P. is TA Associates AAP III L.P., a Delaware
limited partnership. The sole general partner of Advent VII L.P. is TA
Associates VII L.P. The sole general partner of Advent New York L.P. is TA
Associates VI L.P. The sole general partner of TA Associates AAP III L.P.,
Advent VII L.P. and Advent New York L.P. and the manager of TA Associates VIII
LLC, TA Executives Fund LLC, and TA Investors LLC is TA Associates, Inc., a
Delaware corporation.
Set forth below is the name of each director and executive officer of TA
Associates, Inc. and the present principal occupation or employment of each such
person and a brief description of his principal occupation and business
experience during at least the last five years. Each person listed below is a
citizen of the United States.
C. Kevin Landry. Mr. Landry has been the President, a Managing Director
and Chairman of the Board of Directors of TA Associates, Inc. since January
1, 1994.
P. Andrews McLane. Mr. McLane has been the Senior Managing Director of
TA Associates, Inc. since January 1, 1997. From January 1, 1994 to January
1, 1997, Mr. McLane was a Managing Director of TA Associates, Inc.
Jeffrey T. Chambers. Mr. Chambers has been a Managing Director of TA
Associates, Inc. since January 1, 1994.
Jacqueline C. Morby. Ms. Morby has been a Managing Director of TA
Associates, Inc. since January 1, 1994.
Katherine S. Cromwell. Ms. Cromwell has been a Managing Director and
the Chief Financial Officer, Treasurer and Secretary of TA Associates, Inc.
since January 1, 1994.
The principal executive offices of TA Associates, Inc. and all related
entities and the business address for each of the individuals listed above is
125 High Street, Suite 2500, Boston, Massachusetts 02110.
NMS Partnership. NMS Capital, L.P., a Delaware limited partnership, is
principally engaged in the business of investing in other companies. Its
principal executive offices are located at 9 West 57th Street, 48th Floor, New
York, New York 10019. The sole general partner of NMS Capital, L.P. is NMS
Capital Management LLC, a Delaware limited liability company principally engaged
in the business of investing through partnerships in other companies. The
Managing Member of NMS Capital Management LLC is Gerald Rosenfeld who has held
that position since April 1, 1998. Prior to becoming the Managing Member of NMS
Capital Management LLC, Mr. Rosenfeld was employed by Lazard Freres & Co. LLC,
as a Senior Generalist Merger Advisor from 1992 through 1997 and as the Head of
Investment Banking from 1997 through April 1, 1998. The principal executive
offices of NMS Capital, L.P. and NMS Capital Management LLC and the business
address of Mr. Rosenfeld is 9 West 57th Street, 48th Floor, New York, New York
10019. The sole limited partner of NMS Capital, L.P. is NB Equity Holdings,
Inc., a North Carolina corporation and wholly owned subsidiary of BankAmerica
Corporation.
Management Group. The members of the Management Group are the following
executive officers of CompDent:
David R. Klock. Mr. Klock has served as Chairman and Chief Executive
Officer of the Company and all of its subsidiaries, except DHMI and
DentLease, since September 1995. Mr. Klock also served as Chairman of DHMI
and DentLease since January 1997, and as President of DHMI and DentLease
since July 1998. The principal business address of both DHMI and DentLease
is 2630 Elm Hill Pike, Suite 200, Nashville, Tennessee 37214-3108. In
addition, Mr. Klock served as President and as a director of American
Prepaid since 1991. American Prepaid's principal business address is 100
Mansell Court East, Suite 400, Roswell, Georgia 30076.
Phyllis A. Klock. Ms. Klock has served as the President and Chief
Operating Officer of the Company and all of its subsidiaries, except DHMI
and DentLease, since February 1998. Ms. Klock also served as President of
the Company and all of its subsidiaries, except DHMI and DentLease, since
January 1997, and as Executive Vice President and Corporate Secretary from
September 1995 through
52
<PAGE> 61
December 1996. In addition, Ms. Klock served as Senior Vice President,
Chief Administrative Officer and Corporate Secretary of American Prepaid
from 1993 through August 1995.
Bruce A. Mitchell. Mr. Mitchell has served as Executive Vice President,
General Counsel and Corporate Secretary of the Company, and as Vice
President of all of the Company's subsidiaries, except DHMI, since February
1996. Mr. Mitchell also served as Interim Chief Financial Officer and
Treasurer of the Company and all of its subsidiaries, except DHMI and
DentLease, from August 1997 through December 1997. In addition, Mr.
Mitchell served as a partner in the law firm of Reinman, Harrell, Mitchell
& Wattwood, P.A. ("Reinman, Harrell") from 1985 until January 1996. Reinman
Harrell's principal business address is 1825 S. Riverview Drive, Melbourne,
Florida 32901.
Keith J. Yoder. Mr. Yoder has served as Executive Vice President, Chief
Financial Officer and Treasurer of the Company since January 1998. From
July 1997 to November 1997, Mr. Yoder served as Chief Financial Officer of
GranCare, Inc., ("GranCare") and as Senior Vice President, Controller and
Treasurer of GranCare from July 1995 to June 1997. Prior to the merger of
Evergreen Healthcare, Inc. ("Evergreen") with GranCare in July 1995, Mr.
Yoder served as Vice President and Chief Financial Officer of Evergreen
since January 1992 and as Treasurer of Evergreen since December 1993. From
December 1992 to June 1993, Mr. Yoder served as Vice President of National
Heritage, Inc. ("NHI") and as the Chief Financial Officer and Secretary of
NHI from January 1993 to June 1993.
The business address for each member of the Management Group is the
principal executive offices of CompDent, 100 Mansell Court East, Suite 400,
Roswell, Georgia 30076. Each member of the Management Group is a citizen of the
United States.
Other Management Investors. One of the Other Management Investors is
William G. Jens, Jr., CPA, Ph.D. Dr. Jens has been a director of the Company
since 1998 and served as Senior Vice President of Finance of Company from July
1997 through January 1998. Dr. Jens is currently an Executive Vice President of
the Company. Dr. Jens served as a consultant to the Company from 1993 through
1997. Dr. Jens is Chairman of the account department at Stetson University and
Director of the M.E. Rinker, Sr., Institute of Tax and Accountancy. Dr. Jens'
business address is the principal executive offices of CompDent, 100 Mansell
Court East, Suite 400, Roswell, Georgia 30076. Dr. Jens is a citizen of the
United States.
53
<PAGE> 62
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS
The following table sets forth certain information concerning purchases of
Common Stock since January 1, 1996 by the Company and members of the Investor
Group.
<TABLE>
<CAPTION>
NUMBER OF WHERE AND HOW
NAME DATE SHARES PURCHASED PRICE PER SHARE TRANSACTION EFFECTED
- ---- ----------------- ---------------- --------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
EXPERTS
The consolidated balance sheets as of December 31, 1997 and December 31,
1996, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three fiscal years in the period ended December
31, 1997, incorporated by reference in this Proxy Statement, have been audited
by PricewaterhouseCoopers LLP, independent auditors, as stated in their report.
A representative of PricewaterhouseCoopers LLP will be at the Special Meeting to
answer appropriate questions from stockholders and will have the opportunity to
make a statement, if so desired.
WHERE YOU CAN FIND MORE INFORMATION
CompDent files annual, quarterly, and current reports, proxy statements,
and other information with the Commission. You may read and copy any reports,
statements, or other information that CompDent files at the Commission's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. CompDent public filings are also available to the public
from commercial document retrieval services and at the Internet World Wide Web
site maintained by the Commission at http://www.sec.gov. Reports, proxy
statements, and other information concerning CompDent also may be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Commission allows CompDent to "incorporate by reference" information
into this document, which means that CompDent can disclose important information
to you by referring you to another document filed separately with the
Commission. The information incorporated by reference is deemed to be a part of
this document, except for any information superseded by information contained
directly in this document. This document incorporates by reference certain
documents that CompDent has previously filed with the Commission. These
documents contain important business information about CompDent and its
financial condition.
CompDent may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through CompDent or the Commission or
the Commission's Internet World Wide Web site described above. Documents
incorporated by reference are available from CompDent without charge, excluding
all exhibits unless specifically incorporated by reference as an exhibit to this
document. Stockhold-
54
<PAGE> 63
ers may obtain documents incorporated by reference in this document by
requesting them in writing or by telephone at the following address:
COMPDENT CORPORATION
100 Mansell Court East, Suite 400
Roswell, Georgia 30076
Telephone: (770) 998-8936
Attention: Keith J. Yoder -- Executive Vice President,
Chief Financial Officer and Treasurer
You should note that Keith Yoder, as well as the other executive officers
of CompDent, are participants in the Merger.
The Company, the Acquiror, the Equity Investors, and the Management
Sponsors have filed a Schedule 13E-3 with the Commission with respect to the
Merger. As permitted by the Commission, this Proxy Statement omits certain
information contained in the Schedule 13E-3. The Schedule 13E-3, including any
amendments and exhibits filed or incorporated by reference as a part thereof, is
available for inspection or copying as set forth above. Statements contained in
this Proxy Statement or in any document incorporated herein by reference as to
the contents of any contract or other document referred to herein or therein are
not necessarily complete and in each instance reference is made to such contract
or other document filed as an exhibit to the Schedule 13E-3 or such other
document, and each such statement shall be deemed qualified in its entirety by
such reference.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM COMPDENT, PLEASE DO SO AT LEAST
FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING IN ORDER TO RECEIVE
TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the Special Meeting. CompDent
has not authorized anyone to provide you with information that is different from
what is contained in this document. This document is dated , 1998.
You should not assume that the information contained in this document is
accurate as of any date other than that date, and the mailing of this document
to stockholders does not create any implication to the contrary. This Proxy
Statement does not constitute a solicitation of a proxy in any jurisdiction
where, or to or from any person to whom, it is unlawful to make such proxy
solicitation in such jurisdiction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by CompDent
(SEC File No. 0-26090) are incorporated by reference in this Proxy Statement:
(i) CompDent's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(ii) CompDent's Quarterly Report on Form 10-Q for quarter ended March
31, 1998;
(iii) CompDent's Quarterly Report on Form 10-Q for quarter ended June
30, 1998;
(iv) CompDent's Quarterly Report on Form 10-Q for quarter ended
September 30, 1998; and
(v) CompDent's Current Report on Form 8-K filed on August 12, 1998.
All documents filed by CompDent with the Commission pursuant to Sections
13(a), 13(c), 14, and 15(d) of the Exchange Act after the date hereof and prior
to the date of the Special Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents. Any statements contained in a document incorporated by reference
herein or contained in this Proxy Statement shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated by
reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except as
so modified or superseded.
55
<PAGE> 64
STOCKHOLDER PROPOSALS
If the Merger is not consummated for any reason, proposals of stockholders
intended to be presented at the 1999 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices on or prior to
, 1998 to be eligible for inclusion in the Company's Proxy Statement
and form of proxy relating to that meeting.
OTHER MATTERS
Management knows of no other business to be presented at the Special
Meeting. If other matters do properly come before the meeting, or any
adjournment or adjournments thereof, it is the intention of the persons named in
the proxy to vote on such matters according to their best judgment unless the
authority to do so is withheld in such proxy.
56
<PAGE> 65
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
COMPDENT CORPORATION,
TAGTCR ACQUISITION, INC.
AND THE GUARANTORS DESCRIBED HEREIN
DATED AS OF JULY 28, 1998
<PAGE> 66
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C> <C>
ARTICLE I THE MERGER...................................................... A-1
1.1 The Merger....................................................... A-1
1.2 Closing.......................................................... A-1
1.3 Effective Time of the Merger..................................... A-1
1.4 Effects of the Merger............................................ A-1
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES......................... A-2
2.1 Effect on Capital Stock.......................................... A-2
(a) Capital Stock of TAGTCR..................................... A-2
(b) Cancellation of Treasury Stock and TAGTCR-Owned Stock....... A-2
2.2 Conversion of Securities......................................... A-2
2.3 Payment for Shares............................................... A-3
(a) Paying Agent................................................ A-3
(b) Payment Procedures.......................................... A-3
(c) Termination of Payment Fund; Interest....................... A-4
(d) No Liability................................................ A-4
(e) Withholding Rights.......................................... A-4
2.4 Stock Transfer Books............................................. A-4
2.5 Stock Options.................................................... A-4
2.6 Dissenting Shares................................................ A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES................................ A-5
3.1 Representations and Warranties of the Company.................... A-5
(a) Organization, Standing and Power............................ A-5
(b) Capital Structure........................................... A-6
(c) Authority; No Violations; Consents and Approvals............ A-7
(d) SEC Documents............................................... A-8
(e) Information Supplied........................................ A-8
(f) Regulated Subsidiaries...................................... A-9
(g) Compliance with Applicable Laws............................. A-9
(h) Litigation.................................................. A-9
(i) Taxes....................................................... A-10
(j) Pension and Benefit Plans; ERISA............................ A-11
(k) Absence of Certain Changes or Events........................ A-12
(l) No Undisclosed Material Liabilities......................... A-12
(m) Vote Required............................................... A-12
(n) Labor Matters............................................... A-12
(o) Intellectual Property....................................... A-13
(p) Environmental Matters....................................... A-13
(q) Insurance................................................... A-15
(r) DHDC Financial Statements................................... A-15
(s) Board of Directors Recommendation........................... A-15
(t) Material Contracts.......................................... A-15
(u) Fairness Opinion............................................ A-16
(v) Regulatory Filings.......................................... A-16
(w) State Takeover Laws......................................... A-16
3.2 Representations and Warranties of TAGTCR......................... A-16
(a) Organization, Standing and Power............................ A-16
(b) Authority; No Violations; Consents and Approvals............ A-16
(c) Information Supplied........................................ A-17
</TABLE>
(i)
<PAGE> 67
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C> <C>
(d) Board of Directors Recommendation........................... A-17
(e) Delaware Law................................................ A-17
3.3 Representations and Warranties of the Guarantors................. A-17
(a) Organization, Standing and Power............................ A-17
(b) Authority; No Violations; Consents and Approvals............ A-18
(c) Information Supplied........................................ A-18
(d) Bridge Loan and Financing Commitment........................ A-19
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS...................... A-19
4.1 Covenants of the Company......................................... A-19
(a) Ordinary Course............................................. A-19
(b) Dividends; Changes in Stock................................. A-19
(c) Issuance of Securities...................................... A-20
(d) Governing Documents......................................... A-20
(e) No Solicitation............................................. A-20
(f) No Acquisitions............................................. A-20
(g) No Dispositions............................................. A-20
(h) Governmental Filings........................................ A-20
(i) No Dissolution, Etc......................................... A-20
(j) Other Actions............................................... A-21
(k) Certain Employee Matters.................................... A-21
(l) Indebtedness; Agreements.................................... A-21
(m) Accounting.................................................. A-21
(n) Capital Expenditures........................................ A-21
(o) Insurance................................................... A-21
(p) Hedging..................................................... A-22
(q) Transfer of Interest in DHDC and DHMI....................... A-22
4.2 Covenants of TAGTCR and the Guarantors........................... A-22
ARTICLE V ADDITIONAL AGREEMENTS........................................... A-22
5.1 Preparation of the Proxy Statement; Company Stockholders
Meeting.......................................................... A-22
5.2 Access to Information............................................ A-23
5.3 Broker and Finders............................................... A-23
5.4 Indemnification; Directors' and Officers' Insurance.............. A-23
5.5 Efforts and Actions.............................................. A-24
5.6 Publicity........................................................ A-25
5.7 Notice of Certain Events......................................... A-25
5.8 State Takeover Laws.............................................. A-25
ARTICLE VI CONDITIONS PRECEDENT........................................... A-25
6.1 Conditions to Each Party's Obligation to Effect the Merger....... A-25
(a) Stockholder Approval........................................ A-25
(b) HSR Act..................................................... A-25
(c) Governmental Consents....................................... A-25
6.2 Conditions of Obligations of TAGTCR and the Guarantors........... A-25
(a) No Material Adverse Effect.................................. A-25
(b) Representations and Warranties.............................. A-25
(c) Performance of Obligations of the Company................... A-26
(d) Financing................................................... A-26
(e) No Injunctions or Restraints................................ A-26
6.3 Conditions of Obligations of the Company......................... A-26
(a) Representations and Warranties of TAGTCR.................... A-26
(b) Representations and Warranties of the Guarantors............ A-26
(c) Performance of Obligations of TAGTCR........................ A-26
</TABLE>
(ii)
<PAGE> 68
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C> <C>
(d) Performance of Obligations of the Guarantors................ A-27
(e) No Injunctions or Restraints................................ A-27
ARTICLE VII TERMINATION AND AMENDMENT..................................... A-27
7.1 Termination...................................................... A-27
7.2 Effect of Termination............................................ A-28
7.3 Payment of Fees and Expenses..................................... A-28
ARTICLE VIII GENERAL PROVISIONS........................................... A-28
8.1 Nonsurvival of Representations, Warranties and Agreements........ A-28
8.2 Notices.......................................................... A-28
8.3 Interpretation................................................... A-30
8.4 Counterparts..................................................... A-30
8.5 Entire Agreement; Third Party Beneficiaries...................... A-30
8.6 GOVERNING LAW.................................................... A-30
8.7 Assignment....................................................... A-30
8.8 Amendment........................................................ A-30
8.9 Extension; Waiver................................................ A-30
Severability.....................................................
8.10 A-30
Enforcement of Agreement.........................................
8.11 A-31
Guarantors.......................................................
8.12 A-31
Disclosure Letters...............................................
8.13 A-31
</TABLE>
(iii)
<PAGE> 69
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of July 28, 1998 (this
"Agreement"), is made and entered into by and among TAGTCR Acquisition, Inc., a
Delaware corporation ("TAGTCR"), NMS Capital, L.P. ("NMS"), Golder, Thoma,
Cressey, Rauner Fund V, L.P. ("GTCR"), TA/Advent VIII L.P. ("TA" and together
with NMS and GTCR, herein referred to as the "Guarantors"), and CompDent
Corporation, a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of TAGTCR and the Company have
approved the merger of TAGTCR with and into the Company (the "Merger"), upon the
terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Merger and this Agreement require the vote of a majority of
the issued and outstanding shares of common stock, par value $.01 per share of
the Company (the "Company Common Stock");
WHEREAS, TAGTCR and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the consummation thereof;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law, as
amended (the "DGCL"), TAGTCR shall be merged with and into the Company at the
Effective Time as set forth in Section 1.3. At the Effective Time, the separate
corporate existence of TAGTCR shall cease, and the Company shall continue as the
surviving corporation (the "Surviving Corporation"), and shall continue under
the name "CompDent Corporation."
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") shall take place at 10:00
a.m., Eastern time, on the thirtieth business day after satisfaction and/or
waiver of all of the conditions set forth in Article VI (the "Closing Date"), at
the offices of McDermott, Will & Emery, New York, New York, unless another date,
time or place is agreed to in writing by the parties hereto.
1.3 Effective Time of the Merger. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
a duly executed certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, as provided in the DGCL, on the
Closing Date, and the parties shall take such other and further actions as may
be required by law to make the Merger effective. The Merger shall become
effective as of the time of the filing of the Certificate of Merger (the
"Effective Time").
1.4 Effects of the Merger. (a) The Merger shall have the effects as set
forth in the applicable provisions of the DGCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers, and franchises of the Company and TAGTCR
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and TAGTCR shall become the debts, liabilities and duties of the
Surviving Corporation.
(b) The directors of TAGTCR and the officers of the Company immediately
prior to the Effective Time shall, from and after the Effective Time, be the
initial directors and officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified, or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws and the DGCL.
A-1
<PAGE> 70
(c) The Certificate of Incorporation of the Company shall be amended and
restated in its entirety as set forth in an exhibit to be provided by TAGTCR to
the Company at least one (1) business day prior to the mailing of the Proxy
Statement (as defined below) and such exhibit shall be deemed an amendment to
this Agreement and incorporated herein, and, from and after the Effective Time,
such amended and restated Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the DGCL; provided, however, that if such exhibit is
not provided on a timely basis, the Certificate of Incorporation of the Company
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by applicable law.
(d) The Bylaws of the Company shall be amended and restated in their
entirety as set forth in an exhibit to be provided by TAGTCR to the Company at
least one (1) day prior to the mailing of the Proxy Statement (as defined below)
and such exhibit shall be deemed an amendment to this Agreement and incorporated
herein, and, from and after the Effective Time, such amended and restated Bylaws
shall be the Bylaws of the Surviving Corporation until thereafter amended as
provided by applicable law, the Certificate of Incorporation or the Bylaws;
provided, however, that if such exhibit is not provided on a timely basis, the
Bylaws of the Company shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by applicable law.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of TAGTCR:
(a) Capital Stock of TAGTCR. Each share of the common stock of TAGTCR
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of Common
Stock, par value $0.01 per share, of the Surviving Corporation and each
share of Class A Preferred Stock of TAGTCR issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one share of Class A Preferred Stock of the Surviving Corporation with all
of the rights and privileges set forth in the Certificate of Incorporation
of Surviving Corporation in accordance with Section 1.4(c).
(b) Cancellation of Treasury Stock and TAGTCR-Owned Stock. Each
share of Company Common Stock and all other shares of capital stock of the
Company that are owned by the Company or any of its Subsidiaries (as
defined below) and all shares of Company Common Stock and other shares of
capital stock of the Company owned by TAGTCR shall be cancelled and retired
and shall cease to exist and no consideration shall be delivered or
deliverable in exchange therefor.
2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of TAGTCR, the Company or the holders
of any of the shares thereof:
(a)(i) Subject to the other provisions of this Section 2.2, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (excluding shares owned by the Company or any of its
Subsidiaries (as defined below) or by TAGTCR and Recapitalization Shares
(as defined below) and Dissenting Shares (as defined in Section 2.6)) shall
be converted into the right to receive $18.00 per share, net to the seller
in cash, payable to the holder thereof, without any interest thereon (the
"Merger Consideration"), upon surrender and exchange of the Certificate (as
defined in Section 2.3(b)) representing such share of Company Common Stock.
(ii) All such shares of Company Common Stock, when converted as
provided in Section 2.2(a)(i) (the "Shares"), no longer shall be
outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each Certificate previously evidencing such Shares
shall thereafter represent only the right to receive the Merger
Consideration. The holders of Certificates previously evidencing Shares
A-2
<PAGE> 71
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to the Company Common Stock except as otherwise
provided herein or by law and, upon the surrender of Certificates in
accordance with the provisions of Section 2.3, shall only represent the
right to receive for their Shares, the Merger Consideration, without any
interest thereon.
(iii) Each share of Company Common Stock identified on Schedule
2.2(a)(iii) (a "2.2(a)(iii) Recapitalization Share"), as supplemented from
time to time at least one (1) business day prior to the mailing of the
Proxy Statement by TAGTCR, shall be converted into 1.975 fully paid and
nonassessable shares of Common Stock, par value $0.01 per share, of the
Surviving Corporation and a fully paid and nonassessable fraction of a
share of Class A Preferred Stock equal to $17.0125 divided by the stated
value of each share of Class A Preferred Stock.
(iv) Each share of Company Common Stock identified on Schedule
2.2(a)(iv) (a "2.2(a)(iv) Recapitalization Share" and together with the
2.2(a)(iii) Recapitalization Shares, the "Recapitalization Shares"), as
supplemented from time to time at least one (1) business day prior to the
mailing of the Proxy Statement by TAGTCR, shall be converted into a fully
paid and nonassessable fraction of a share of Class A Preferred Stock equal
to $18.00 divided by the stated value of each share of Class A Preferred
Stock.
2.3 Payment for Shares. (a) Paying Agent. Prior to the Effective Time,
TAGTCR shall appoint a bank or trust company reasonably acceptable to the
Company to act as paying agent (the "Paying Agent") for the payment of the
Merger Consideration, and TAGTCR shall deposit or shall cause to be deposited
with the Paying Agent in a separate fund established for the benefit of the
holders of shares of Company Common Stock, for payment in accordance with this
Article II, through the Paying Agent (the "Payment Fund"), immediately available
funds in amounts necessary to make the payments pursuant to Section 2.2(a)(i)
and this Section 2.3 to holders of shares of Company Common Stock (other than
the Company or TAGTCR or holders of Dissenting Shares). The Paying Agent shall,
pursuant to irrevocable instructions, pay the Merger Consideration out of the
Payment Fund.
The Paying Agent shall invest portions of the Payment Fund as TAGTCR
directs in obligations of or guaranteed by the United States of America, in
commercial paper obligations receiving the highest investment grade rating from
both Moody's Investors Services, Inc. and Standard & Poor's Corporation, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1,000,000,000 (collectively, "Permitted
Investments"); provided, however, that the maturities of Permitted Investments
shall be such as to permit the Paying Agent to make prompt payment to former
holders of Company Common Stock entitled thereto as contemplated by this Section
2.3. The Surviving Corporation shall cause the Payment Fund to be promptly
replenished to the extent of any losses incurred as a result of Permitted
Investments. All earnings on Permitted Investments shall be paid to the
Surviving Corporation. If for any reason (including losses) the Payment Fund is
inadequate to pay the amounts to which holders of shares of Company Common Stock
shall be entitled under this Section 2.3, the Surviving Corporation shall in any
event be liable for payment thereof. The Payment Fund shall not be used for any
purpose except as expressly provided in this Agreement.
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall instruct the Paying Agent to
mail to each holder of record (other than the Company or TAGTCR) of a
certificate or certificates which, immediately prior to the Effective Time,
evidenced outstanding shares of Company Common Stock (the "Certificates"), (i) a
form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Paying Agent, and shall be in such
form and have such other provisions as the Surviving Corporation reasonably may
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment therefor. Upon surrender of a Certificate
for cancellation to the Paying Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in respect thereof cash in an amount equal to the product of (x) the number of
shares of Company Common Stock represented by such Certificate and (y) the
Merger Consideration, and the Certificate so
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surrendered shall forthwith be cancelled. No interest shall be paid or accrued
on the Merger Consideration payable upon the surrender of any Certificate. If
payment is to be made to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the surrendered Certificate or established to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this Section
2.3(b), each Certificate (other than Certificates representing Shares owned by
the Company or TAGTCR or the Dissenting Shares), shall represent for all
purposes only the right to receive the Merger Consideration. In the event that
any Certificate shall have been lost, stolen or destroyed, the Paying Agent will
pay in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof pursuant to this Agreement upon the
delivery of a duly executed affidavit of that fact by the holder claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, reasonable indemnification against any claim that may be made
against the Surviving Corporation with respect to such Certificate.
(c) Termination of Payment Fund; Interest. Any portion of the Payment Fund
which remains undistributed to the holders of Company Common Stock for six
months after the Effective Time shall be delivered to the Surviving Corporation
upon demand, and any holders of Company Common Stock who have not theretofore
complied with this Article II and the instructions set forth in the letter of
transmittal mailed to such holder after the Effective Time shall thereafter look
only to the Surviving Corporation for payment of the Merger Consideration to
which they are entitled. All interest accrued in respect of the Payment Fund
shall inure to the benefit of and be paid to the Surviving Corporation.
(d) No Liability. Neither the Surviving Corporation nor the Paying Agent
shall be liable to any holder of shares of Company Common Stock for any cash
from the Payment Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(e) Withholding Rights. The Surviving Corporation shall be entitled to
deduct and withhold from the corporation otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts as the
Surviving Corporation is required to deduct and withhold with respect to the
making of such payment under the Internal Revenue Code of 1986, as amended (the
"Code"), or any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by the Surviving Corporation, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Company Common Stock in respect of which such deduction
and withholding was made by the Surviving Corporation.
2.4 Stock Transfer Books. At the Effective Time, the stock transfer books
of the Company shall be closed and there shall be no further registration of
transfer of shares of Company Common Stock thereafter on the records of the
Company. On or after the Effective Time, any certificates presented to the
Surviving Corporation or the Paying Agent for any reason shall be converted into
the Merger Consideration.
2.5 Stock Options. At the Effective Time, each holder of a then
outstanding option to purchase shares of Company Common Stock under any
outstanding stock option plan or arrangement, including any outstanding stock
option plan or arrangement which immediately prior to the Effective Time is then
exercisable (a "Vested Option"), including the Company's Directors' Stock Option
Plan, 1994 Stock Option and Grant Plan, as amended, 1997 Stock Option Plan
(collectively, the "Option Plans") and those certain stock option agreements
described in the Disclosure Schedule (as defined in Section 3.1, each an
"Option" and collectively, the "Options"), but excluding those certain other
stock option agreements described in the Disclosure Schedule (the "Excluded
Options"), shall, in settlement thereof, receive for each share of Company
Common Stock subject to such Option an amount (subject to any applicable
withholding tax) in cash equal to the excess of the Merger Consideration over
the per share exercise price of such Option to the extent such difference is a
positive number (such amount being hereinafter referred to as the "Option
Consideration"). Upon receipt of the Option Consideration, each Option shall be
cancelled in accordance with its terms or the terms of the applicable Option
Plan. All Options which are not Vested Options shall be
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cancelled in accordance with their terms or the applicable Option Plan. The
surrender of an Option to the Company in exchange for the Option Consideration
shall be deemed a release of any and all rights the holder had or may have had
in respect of such Option. Prior the Effective Time, the Company shall use its
reasonable best efforts to obtain all necessary consents or releases from
holders of Options and take all such other lawful action as may be necessary to
give effect to the transactions contemplated by this Section 2.5. All Option
Plans and option agreements executed pursuant thereto, other than the Excluded
Options (an "Option Agreement"), shall terminate as of the Effective Time and
the provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any Subsidiary thereof shall be cancelled as of the Effective Time.
The Company shall use its reasonable best efforts to ensure that following the
Effective Time no participant in or under any Option Agreement, Option Plan or
other plans, programs or arrangements shall have any right thereunder to acquire
equity securities of the Company, the Surviving Corporation or any Subsidiary
thereof and to terminate all such Option Agreements, Option Plans and other
plans, programs and arrangements. Upon the execution and delivery of this
Agreement, the Company will suspend, terminate, or refrain from renewing the
Company's Employee Stock Purchase Plan ("ESPP") until the termination of this
Agreement.
2.6 Dissenting Shares. Notwithstanding any other provisions of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL (collectively, the "Dissenting Shares")
shall not be converted into or represent the right to receive the Merger
Consideration. Such stockholders instead shall be entitled to receive payment of
the appraised value of such shares of Company Common Stock held by them in
accordance with the provisions of such Section 262, except that all Dissenting
Shares held by stockholders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to appraisal of such shares of Company
Common Stock under such Section 262 shall thereupon be deemed to have been
converted into and to have become exchangeable, as of the Effective Time, for
the right to receive, without any interest thereon, the Merger Consideration
upon surrender in the manner provided in Section 2.3 of the Certificate or
Certificates that, immediately prior to the Effective Time, evidenced such
shares of Company Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. With such exceptions as
are specifically set forth in a letter (the "Disclosure Schedule") delivered by
the Company to TAGTCR prior to the date of this Agreement, the Company
represents and warrants to TAGTCR as follows:
(a) Organization, Standing and Power. Each of the Company, its
Subsidiaries, and Dental Health Development Corporation, a Delaware
corporation ("DHDC"), is a corporation duly organized, validly existing,
and in good standing under the laws of its respective jurisdiction of
incorporation, has all requisite corporate power and authority to own,
lease, and operate its properties and to carry on its business as now being
conducted, and is duly qualified or licensed to do business as a foreign
corporation and in good standing to conduct business in each jurisdiction
in which the conduct of its business, or the operation, ownership or
leasing of its properties, makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to so qualify or become
so licensed will not have, individually or in the aggregate, a Material
Adverse Effect (as described below) on the Company. The Company has
heretofore made available to TAGTCR true and complete copies of its, its
Subsidiaries' and DHDC's respective Certificates of Incorporation and
Bylaws or comparable organizational documents. DHDC and all Subsidiaries of
the Company and their respective jurisdictions of incorporation or
organization are identified in Section 3.1(a) of the Disclosure Schedule
which is attached hereto and incorporated herein. As used in this
Agreement, the term "Material Adverse Effect" shall mean, with respect to a
specified Person, the result of one or more events, changes or effects
which, individually or in the aggregate, would have a material adverse
effect on the business, results of operations, assets, liabilities (fixed
or
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contingent), or financial condition of such Person and its Subsidiaries,
taken as a whole. As used in this Agreement, the word "Subsidiary", with
respect to any party, means any corporation, partnership, joint venture or
other organization, whether incorporated or unincorporated, of which: (i)
such party or any other Subsidiary of such party is a general partner; (ii)
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation, partnership,
joint venture or other organization is held by such party or by any one or
more of its Subsidiaries, or by such party and any one or more of its
Subsidiaries; or (iii) at least 25% of the equity, other securities or
other interests is, directly or indirectly, owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and any
one or more of its Subsidiaries. As used in this Agreement, "Person" means
any individual, corporation, partnership, joint venture, association, trust
or unincorporated organization.
(b) Capital Structure. As of the date hereof, the authorized capital
stock of the Company consists of 50,000,000 shares of Company Common Stock
and 2,000,000 shares of preferred stock, $0.01 par value ("Preferred
Stock"). At the close of business on the date of this Agreement: (i)
10,112,629 shares of Company Common Stock were issued and outstanding; (ii)
no shares of Preferred Stock were issued and outstanding; (iii) 2,000,000
shares of Preferred Stock were reserved for issuance under the Shareholder
Rights Agreement between the Company and State Street Bank and Trust
Company (the "Rights Agreement"); (iv) 960,000 shares of Company Common
Stock were reserved for issuance pursuant to the Option Plans of which
694,500 shares of Company Common Stock are subject to outstanding Options;
(v) 438,500 shares of Company Common Stock were reserved for issuance
pursuant to Option Agreements (other than Option Agreements under Option
Plans); (vii) except for the issuance of shares of Company Common Stock
pursuant to the exercise of the Options and agreements relating to the
initial capitalization of DHDC, there are no employment, executive
termination or other agreements providing for the issuance of shares of
Company Common Stock; (vii) no shares of Company Common Stock were held by
the Company; and (ix) no bonds, debentures, notes or other instruments or
evidence of indebtedness having the right to vote (or convertible into, or
exercisable or exchangeable for, securities having the right to vote) on
any matters on which the Company's stockholders may vote ("Company Voting
Debt") were issued or outstanding. All outstanding shares of Company Common
Stock are duly authorized, validly issued, fully paid, and nonassessable
and are not subject to preemptive or other similar rights. No shares of
Company Common Stock are owned by DHDC or any Subsidiary of the Company.
All outstanding shares of capital stock of DHDC and the Subsidiaries of the
Company are duly authorized, validly issued, fully paid and nonassessable
and (excluding the capital stock of DHDC) are owned by the Company or a
direct or indirect Subsidiary free and clear of all liens, charges, claims
or encumbrances of any nature ("Liens"). At the close of business on the
date of this Agreement, DHDC had (i) 84,000 shares of Class A Common Stock
outstanding, (ii) 13,000 shares of Class B Common Stock outstanding, (iii)
10,000 shares of Class A Preferred Stock outstanding, and (iv) 150 shares
of Class B Preferred Stock outstanding, of which the Company owns
beneficially and of record 150 shares of Series B Preferred Stock. Except
(i) as set forth in this Section 3.1(b), (ii) for the rights under the
Rights Agreement, (iii) for the issuance of shares of Company Common Stock
under the ESPP with respect to purchase requests made prior to the date
hereof, (iv) for the agreements entered into in connection with the initial
capitalization of DHDC, and (v) for changes resulting from the exercise of
Options or as contemplated by this Agreement, there are outstanding: (A) no
shares of capital stock, Company Voting Debt or other voting securities of
the Company, (B) no securities of the Company, DHDC or any Subsidiary of
the Company convertible into, or exchangeable or exercisable for shares of
capital stock, Company Voting Debt or other voting securities of the
Company, DHDC, or any Subsidiary of the Company, and (C) no options,
warrants, calls, subscriptions, or other rights, (including preemptive
rights), commitments or agreements to which the Company, DHDC or any
Subsidiary of the Company is a party or by which it is bound, to issue,
deliver, sell, purchase, redeem or acquire, or cause to be issued,
delivered, sold, purchased, redeemed or acquired, additional shares of
capital stock or any Company Voting Debt or other voting securities of the
Company, DHDC or any Subsidiary of the Company, or obligating the Company,
DHDC or any Subsidiary of the Company to grant, extend, or enter into any
such option, warrant, call, subscription, or
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other right, commitment or agreement. Set forth in Section 3.1(b) of the
Disclosure Schedule is a true and complete list of all outstanding options,
warrants and rights to purchase shares of Company Common Stock and the
exercise prices relating thereto. There are not as of the date hereof and
there will not be at the Effective Time any stockholder agreements, voting
trusts, or other agreements to which the Company is a party or by which it
is bound relating to the voting of any shares of the capital stock of the
Company which will limit in any way the solicitation of proxies by or on
behalf of the Company from, or the casting of votes by, the stockholders of
the Company with respect to the Merger. The Company is not a party to any
agreement that restricts the Company's voting of the stock of any of its
Subsidiaries.
(c) Authority; No Violations; Consents and Approvals. (i) The Company
has all requisite corporate power and authority to enter into this
Agreement and, subject to the approval of this Agreement and the Merger by
the holders of a majority of the outstanding shares of Company Common Stock
(the "Company Stockholder Approval"), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by the Company's Board of Directors and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than the
Company Stockholder Approval). This Agreement has been duly executed and
delivered by the Company and, subject to the Company Stockholder Approval
and (assuming that this Agreement is duly executed and delivered by TAGTCR)
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms except that the enforcement hereof may be limited
by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law
or in equity).
(ii) The execution and delivery of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby by the
Company, following the satisfaction or waiver of the conditions set forth
in Article VI, will not: (A) violate any provision of the Certificate of
Incorporation or Bylaws of the Company, any of its Subsidiaries or DHDC,
(B) conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under; give rise to a right of
termination, cancellation or acceleration (including pursuant to any put
right) of any obligation; or result in the creation of a Lien or right of
first refusal with respect to any asset or property (any such conflict,
violation, default, right of termination, cancellation or acceleration,
loss, creation or right of first refusal, a "Violation") pursuant to any
loan or credit agreement, note, mortgage, deed of trust, indenture, lease,
Company Employee Benefit Plan (as defined in Section 3.1(j)), Company
Permit (as defined in Section 3.1(g)), or any other agreement, obligation,
instrument, concession, franchise or license, or (C) any judgment, order,
decree, law, statute, rule or regulation of any public body or authority
applicable to the Company or any of its Subsidiaries, or DHDC, or their
respective properties or assets; provided, however, that no representation
or warranty is made in the foregoing clauses (B) and (C) with respect to
matters that, individually or in the aggregate, will not have a Material
Adverse Effect on the Company or materially delay the ability of such
Person to consummate the transactions contemplated by this Agreement. The
Board of Directors of the Company has taken all actions necessary under the
DGCL, including approving the transactions contemplated by this Agreement,
to ensure that Section 203 of the DGCL does not, and will not, apply to the
transactions contemplated in this Agreement.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to or permit from any
court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign (a "Governmental Entity") is
required by or with respect to the Company or any of its Subsidiaries or
DHDC in connection with the execution and delivery of this Agreement by the
Company or the consummation by the Company of the Merger and the other
transactions contemplated hereby the failure to obtain which will,
individually or in the aggregate, have a Material Adverse Effect on the
Company or materially delay the ability of such Person to consummate the
transactions contemplated by this Agreement, except for: (A) the filing of
a pre-merger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
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amended (the "HSR Act"), and the expiration or termination of the
applicable waiting period thereunder; (B) the filing with the Securities
and Exchange Commission (the "SEC") of (x) a proxy statement in definitive
form relating to a meeting of the holders of Company Common Stock to
approve this Agreement and the Merger (such proxy statement as amended or
supplemented from time to time being hereinafter referred to as the "Proxy
Statement"), and (y) such reports under and such other compliance with the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations thereunder as may be required in connection with this
Agreement and the transactions contemplated hereby; (C) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware;
(D) such filings and approvals as may be required by any applicable state
securities, "blue sky" or takeover laws; (E) the filing of a Form A
Statement Regarding the Acquisition of Control of a Domestic Insurer with
the Arizona and Texas Departments of Insurance and the approval thereof by
the Arizona and Texas Directors of Insurance, (F) the approval of this
Agreement and the Merger pursuant to applicable laws governing dental
referral plans, dental service corporations, health insurance
organizations, life, accident, health and/or disability insurance
organizations, limited service health maintenance organizations, prepaid
dental plans, preferred provider administrators, third party
administrators, health maintenance organizations, limited health service
organizations, insurance holding companies and other product, program or
service of the Company and its Subsidiaries (collectively "Dental
Products") that is subject to regulation under the insurance laws of any
state in which the Company or its Subsidiaries do business; (G) approval of
transfer of ownership of any Dental Product of the Company and its
Subsidiaries by the applicable Governmental Entity in any state in which
such approval is required in connection with the performance of this
Agreement; and (H) the filing of any notice of transfer of ownership or
other notice relating to any Dental Product of the Company and its
Subsidiaries, in compliance with the laws of any state in which any such
filing is prepared, in connection with the performance of this Agreement.
(iv) The Board of Directors of the Company has taken such action to
amend the Rights Agreement so that neither TAGTCR nor its Affiliates and
Associates (as such terms are defined in the Rights Agreement) are deemed
"Acquiring Persons" in connection with the Rights Agreement.
(d) SEC Documents. Since May 1, 1995, the Company has filed all
forms, reports, schedules, registration statements, proxy statements and
documents with the SEC required to be filed by it pursuant to the
Securities Act of 1933, as amended (the "Securities Act") and the Exchange
Act and the SEC rules and regulations promulgated thereunder (all such
documents filed through the date hereof collectively, the "Company SEC
Documents"). The Company has made available to TAGTCR the Company SEC
Documents. As of their respective dates, the Company SEC Documents complied
in all material respects with the requirements of the Securities Act, or
the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such Company SEC Documents, and
none of the Company SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Documents complied as
to form in all material respects with the rules and regulations of the SEC
with respect thereto, were prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC) and fairly present in all material respects in
accordance with applicable requirements of GAAP (subject, in the case of
the unaudited statements, to normal, recurring adjustments) the
consolidated financial position of the Company and its consolidated
Subsidiaries as of their respective dates and the consolidated results of
operations and the consolidated cash flows of the Company and its
consolidated Subsidiaries for the periods presented therein.
(e) Information Supplied. (i) None of the information supplied or to
be supplied by the Company for inclusion or incorporated by reference in
the Proxy Statement will, on the date it is first mailed to the holders of
the Company Common Stock or at the time of the Company's Stockholders
Meeting (as
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hereinafter defined) contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Proxy Statement, insofar as
it relates to the Company or its Subsidiaries or other information supplied
by the Company for inclusion therein will comply as to form, in all
material respects, with the provisions of the Exchange Act or the rules and
regulations thereunder.
(ii) None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in the Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3") will on the date filed
with the SEC or at the time of the Company's Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Schedule 13E-3, insofar as it relates to the Company or its
Subsidiaries or other information supplied by the Company for inclusion
therein, will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
(f) Regulated Subsidiaries. (i) The Company has previously made
available to TAGTCR true and complete copies of the following statutory
financial statements for each Subsidiary of the Company that is required to
prepare and file statutory financial statements;
(A) the annual statutory statements for each such Subsidiary for
each of the years ended December 31, 1996 and 1997; and
(B) the quarterly statutory statements for each such Subsidiary for
the quarter ended March 31, 1998.
Each such statement was prepared in accordance with the accounting practices
required or permitted by the insurance regulatory authority in the applicable
state, consistently applied.
(ii) All Dental Products of the Company and each Subsidiary that are
regulated by insurance or health care laws are, to the extent required by
applicable law, on forms and at rates approved by the regulatory authority
in the jurisdictions where issued (or have been filed with and not objected
to by such regulatory authority within the period provided for objection),
except where the failure be on such forms or at such rates will not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
(g) Compliance with Applicable Laws. The Company, its Subsidiaries
and DHDC hold all permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities necessary to enable
them to conduct their respective businesses as they are now being conducted
other than those which the failure to hold does not have a Material Adverse
Effect on the Company (the "Company Permits"); a list of Company Permits is
set forth in Section 3.1(g) of the Disclosure Schedule. The Company, its
Subsidiaries and DHDC are in compliance with the terms of the Company
Permits, except for such noncompliance that will not, individually or in
the aggregate, have a Material Adverse Effect on the Company. Except as
disclosed in the Company SEC Documents, the Company, its Subsidiaries and
DHDC are in compliance in all material respects with applicable laws,
except for such noncompliance that will not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(h) Litigation. Except as disclosed in the Company SEC Documents,
there is no suit, claim, investigation, action or proceeding pending or, to
the knowledge of the Company, threatened against the Company, DHDC or any
Subsidiary of the Company or any of their respective assets or properties,
individually or in the aggregate, which will have a Material Adverse Effect
on the Company ("Company Litigation"). There is no judgment, writ, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company, DHDC or any Subsidiary of the Company
which, individually or in the aggregate, will have a Material Adverse
Effect on the Company ("Company Order").
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(i) Taxes. (i) All Tax Returns (as defined herein) required to be
filed by or with respect to the Company, each of its Subsidiaries and DHDC
have been duly and timely filed, and all such Tax Returns are true, correct
and complete in all material respects except where the failure to file
would not have a Material Adverse Effect on the Company. The Company, each
of its Subsidiaries and DHDC has duly and timely paid (or there has been
paid on its behalf) all Taxes (as defined herein) that are due, or claimed
or asserted by any taxing authority to be due, from or with respect to it,
except for Taxes the liability for which is being contested in good faith
or the nonpayment of which will not have a Material Adverse Effect on the
Company. With respect to any period for which Taxes are not yet due with
respect to the Company or any Subsidiary, each of the Company and its
Subsidiaries has made due and sufficient current accruals for such Taxes in
accordance with GAAP in the most recent financial statements contained in
the Company SEC Documents. The Company and each of its Subsidiaries has
made (or there has been made on its behalf) all required estimated tax
payments sufficient to avoid any material underpayment penalties. Each of
the Company, its Subsidiaries and DHDC has withheld and paid all Taxes
required by all applicable laws to be withheld or paid in connection with
any material amounts paid or owing to any employee, creditor, independent
contractor or other third party.
(ii) There are no outstanding agreements, waivers or arrangements
extending the statutory period of limitation applicable to any claim for,
or the period for the collection or assessment of, Taxes due from or with
respect to the Company, any of its Subsidiaries or DHDC for any taxable
period. No audit or other proceeding by any court, governmental or
regulatory authority is pending or, to the knowledge of the Company,
threatened in regard to any Taxes due from or with respect to the Company,
any of its Subsidiaries or DHDC or any Tax Return filed by or with respect
to the Company, any Subsidiaries or DHDC. No material assessment of Taxes
is proposed against the Company, any of its Subsidiaries or DHDC or any of
their assets.
(iii) No election under Section 338 of the Internal Revenue Code of
1986, as amended (the "Code") has been made or filed by or with respect to
the Company, any of its Subsidiaries or DHDC. No closing agreement pursuant
to Section 7121 of the Code (or any predecessor provision) or any similar
provision of state, local or foreign law has been entered into by or with
respect to the Company, any of its Subsidiaries or DHDC. No consent to the
application of Section 341(f)(2) of the Code (or any predecessor provision)
has been made or filed by or with respect to the Company, any of its
Subsidiaries or DHDC or any of their assets. None of the Company, any of
its Subsidiaries or DHDC is or has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code. None of the Company, any of its Subsidiaries or DHDC has agreed to
make any adjustment pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method,
and there is no application pending with any taxing authority requesting
permission for any changes in any accounting method of the Company, any of
its Subsidiaries or DHDC. The Internal Revenue Service has not proposed any
such adjustment or change in accounting method. None of the assets of the
Company, any of its Subsidiaries or DHDC is or will be required to be
treated as being owned by any Person (other than the Company or its
Subsidiaries) pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately before
the enactment of the Tax Reform Act of 1986.
(iv) None of the Company, any of its Subsidiaries or DHDC is a party
to, is bound by, or has any obligation under, any Tax sharing agreement,
Tax allocation agreement, Tax indemnity agreements or similar contract.
(v) The Company and each of its Subsidiaries are members of the
affiliated group, within the meaning of Section 1504(a) of the Code, of
which the Company is the common parent, and such affiliated group files a
consolidated federal income Tax Return.
(vi) The Company has previously made available to TAGTCR true and
complete copies of each of (a) any written audit reports issued by any
representative of a taxing authority within the last three years relating
to the United States federal, state, local or foreign Taxes due from or
with respect to the
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Company, its Subsidiaries and DHDC; and (b) the United States federal,
state, local and foreign Tax Returns, for each of the last three taxable
years, filed by or with respect to the Company, its Subsidiaries and DHDC.
(vii) "Code" shall mean the Internal Revenue Code of 1986, as amended.
"Taxes" shall mean all taxes, charges, fees, levies, or other assessments
or liabilities, including without limitation (a) income, gross receipts, ad
valorem, premium, excise, real property, personal property, sales, use,
transfer, withholding, employment, payroll, and franchise taxes, license,
severance, stamp, occupation, windfall profits, environmental, customs
duties, capital stock, unemployment, disability, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind, whether
disputed or not, imposed by the United States of America, or by any state,
local, or foreign government, or any subdivision or agency of the United
States or any such government, and (b) any interest, fines, penalties,
assessments, or additions to taxes resulting from, attributable to, or
incurred in connection with any Tax or any contest, dispute, or refund
thereof, including any obligations under any agreements with respect to any
of the foregoing. "Tax Returns" shall mean any report, return, or statement
required to be supplied to a taxing authority in connection with Taxes.
(j) Pension and Benefit Plans; ERISA. (i) Section 3.1(j)(i) of the
Disclosure Schedule sets forth a true and complete list of:
(A) all "employee benefit plans," as defined in Section 3(3) of
ERISA, which the Company, any of its Subsidiaries or DHDC has any
obligation or liability, contingent or otherwise ("Benefit Plans"); and
(B) all employment or consulting agreements, bonus or other
incentive compensation, deferred compensation, salary continuation
during any absence from active employment for disability or other
reasons, severance, sick days, stock award, stock option, stock purchase
or other equity-based plan or program, tuition assistance, club
membership, employee discount, employee loan, or vacation pay
agreements, policies or arrangements which the Company, any of its
Subsidiaries or DHDC maintains or has any obligation or liability
(contingent or otherwise) with respect to any current or former officer,
director or employee of the Company, any of its Subsidiaries or DHDC
(the "Employee Arrangements").
(ii) With respect to each Benefit Plan and Employee Arrangement, a
true and complete copy of each of the following documents (if applicable)
has been made available to TAGTCR: (A) the most recent plan and related
trust documents, and all amendments thereto (or, in the case of an
unwritten Employment Arrangement, a description thereof); (B) the most
recent summary plan description, and all related summaries of material
modifications thereto; (C) the most recent Form 5500 (including schedules
and attachments); (D) the most recent Internal Revenue Service
determination letter; (E) the most recent actuarial reports (including for
purposes of Financial Accounting Standards Board report no. 87, 88, 106,
112 and 132) and (F) each written employment, consulting or individual
severance or other compensation agreement, and all amendments thereto.
(iii) The Company, its Subsidiaries and DHDC have not during the
preceding six years had any obligation or liability (contingent or
otherwise) with respect to a Benefit Plan which is described in Section
3(37); 4(b)(4), 4063 or 4064 of ERISA or which is subject to Section 412 of
the Code or Title IV of ERISA.
(iv) The Benefit Plans and their related trusts intended to qualify
under Section 401 and to be tax-exempt under Section 501(a) of the Code
have received favorable determination letters from the Internal Revenue
Service. The Company is not aware of any event or circumstance that could
result in the failure of such Benefit Plans to be so qualified or tax
exempt. Any voluntary employee benefit association which provides benefits
to current or former employees of the Company and its Subsidiaries, or
their beneficiaries, which is intended to be qualified and is tax-exempt
under Section 501(c)(9) of the Code has received a favorable determination
letter from the Internal Revenue Service.
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(v) All contributions or other payments required to have been made by
the Company, its Subsidiaries and DHDC to or under any Benefit Plan or
Employee Arrangements by applicable law or the terms of such Benefit Plan
or Employee Arrangement (or any agreement relating thereto) have been
timely and properly made, except for the failure to make such contribution
or payment as will not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
(vi) The Benefit Plans and Employee Arrangements comply in all
material respects with applicable laws and have been maintained and
administered in all material respects in accordance with their terms and
applicable laws.
(vii) There are no pending or, to the knowledge of Company, threatened
actions, claims or proceedings against or relating to any Benefit Plan or
Employee Arrangement other than routine benefit claims by Persons entitled
to benefits thereunder and those actions, claims and proceedings that will
not have a Material Adverse Effect on the Company.
(viii) The Company, its Subsidiaries and DHDC do not maintain or have
an obligation to contribute to retiree life or retiree health plans which
provide for continuing benefits or coverage for current or former officers,
directors or employees of the Company or any of its Subsidiaries except (A)
as may be required under part 6 of Title I of ERISA or applicable state law
(after a termination of employment or service as a director for which
coverage of the participant or the participant's beneficiary is charged at
the maximum possible premium) or (B) a medical expense reimbursement
account plan pursuant to Section 125 of the Code.
(ix) None of the assets of any Benefit Plan is stock of the Company,
any of its affiliates or DHDC, or property leased to or jointly owned by
the Company, any of its affiliates or DHDC.
(x) The Company, its Subsidiaries and DHDC have no liability
(contingent or otherwise) under Section 4069 of ERISA by reason of a
transfer of an underfunded pension plan.
(k) Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents filed after March 31, 1998, since March 31, 1998, the
business of the Company and its Subsidiaries has been carried on only in
the ordinary and usual course and in a manner which, if it had been carried
on after execution of this Agreement, would have been in compliance with
Section 4.1 hereof and no event or events has or have occurred that (either
individually or in the aggregate) has had or will have a Material Adverse
Effect on the Company.
(l) No Undisclosed Material Liabilities. There are no liabilities of
the Company or any of its Subsidiaries of any kind whatsoever, whether
accrued, contingent, unmatured, absolute, determined, determinable or
otherwise, that are required to be reflected on a balance sheet prepared in
accordance with GAAP other than: (i) liabilities reflected on the
Consolidated Balance Sheet of the Company and its Subsidiaries contained in
the Quarterly Report on Form 10-Q or the notes thereto for the quarter
ended March 31, 1998 (the "March 31 Balance Sheet"), (ii) liabilities under
this Agreement, (iii) liabilities with respect to the Company's investment
in DHDC and (iv) liabilities incurred in the ordinary course of business
and consistent with past practices, none of which individually or in the
aggregate, has had or will have a Material Adverse Effect on the Company.
(m) Vote Required. The Company Stockholder Approval is the only vote
of the holders of any class or series of the Company's capital stock
necessary to approve the Merger and this Agreement and the transactions
contemplated hereby under any applicable law, rule or regulation or
pursuant to the requirements of the Company's Certificate of Incorporation
and Bylaws.
(n) Labor Matters. (i) Neither the Company, any of its Subsidiaries
nor DHDC is a party to any labor or collective bargaining agreement, and no
employees of Company, any of its Subsidiaries or DHDC are represented by
any labor organization. Within the preceding three years, there have been
no representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the knowledge of the Company,
threatened in writing to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority. Within
the preceding three years, to the
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knowledge of Company, there have been no organizing activities involving
the Company, its Subsidiaries or DHDC with respect to any group of
employees of the Company, any of its Subsidiaries or DHDC.
(ii) There are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor
disputes pending or, to the Company's knowledge, threatened in writing
against or involving Company, any of its Subsidiaries or DHDC. There are no
unfair labor practice charges, grievances or complaints pending or, to the
knowledge of the Company, threatened in writing by or on behalf of any
employees or group of employees of the Company, any of its Subsidiaries or
DHDC, which have or will have a Material Adverse Effect on the Company.
(iii) There are no complaints, charges or claims against the Company,
any of its Subsidiaries or DHDC pending or, to the knowledge of the
Company, threatened to be brought or filed with any governmental authority,
arbitrator or court based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment of any
individual by the Company, any of its Subsidiaries or DHDC, which have or
will have a Material Adverse Effect on the Company.
(iv) there has been no "mass layoff" or "plant closing" (as defined by
WARN) with respect to the Company, its Subsidiaries or DHDC within the six
months prior to Closing.
(o) Intellectual Property. (i) Section 3.1(o) of the Disclosure
Schedule sets forth a true and complete list of each material trademark,
trade name, patent, service mark, brand mark, brand name, industrial
design, and copyright owned or used by the Company or its Subsidiaries on a
regular basis in connection with the operation of the businesses of each of
the Company, its Subsidiaries and DHDC as well as a true and complete list
of all registrations thereof and pending applications therefor, and each
license or other contract relating thereto (collectively, the "Company
Intellectual Property"). All of the Company Intellectual Property is owned
by the Company, its Subsidiaries or DHDC free and clear of any and all
Liens, except where the failure to so own will not, individually or in the
aggregate, have a Material Adverse Effect on the Company. To the Company's
knowledge, the use of the Company Intellectual Property by the Company, its
Subsidiaries or DHDC does not, in any material respect, conflict with,
infringe upon, violate or interfere with or constitute an appropriation of
any right, title, interest or goodwill, including, without limitation, any
intellectual property right, trademark, trade name, patent, service mark,
brand mark, brand name, industrial design, copyright or any pending
application therefor of any other Person and neither the Company, any of
its Subsidiaries nor DHDC has received any notice of any claim or otherwise
knows that any of the Company Intellectual Property is invalid or conflicts
with the asserted rights of any other Person except where such invalidity
or conflict will not have a Material Adverse Effect on the Company.
(ii) Each of the Company, its Subsidiaries and DHDC owns or has a
right to use all Company Intellectual Property necessary for the operation
of its respective business, except where the failure to so own or have a
right to use will not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
(iii) Each of the licenses or other contracts pursuant to which the
Company, its Subsidiaries or DHDC has rights to Company Intellectual
property is in full force and effect and is valid and enforceable in
accordance with its terms, and there is no material default under any such
license or contract either by the Company, any of its Subsidiaries or DHDC
or, to the knowledge of the Company, by any other party thereto, except
where such failure or default will not, individually or in the aggregate,
have a Material Adverse Effect on the Company.
(p) Environmental Matters. (i) For purposes of this Agreement:
(A) "Environmental Costs and Liabilities" means any and all losses,
liabilities, obligations, damages, fines, penalties, judgments, actions,
claims, costs and expenses (including, without limitation, fees,
disbursements and expenses of legal counsel, experts, engineers and
consultants and the costs of investigation and feasibility studies and
clean up, remove, treat, or in any other way address any Hazardous
Materials) arising from or under any Environmental Law.
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(B) "Environmental Law" means any applicable law regulating or
prohibiting Releases of Hazardous Materials into any part of the natural
environment, or pertaining to the protection of natural resources, the
environment and public and employee health and safety including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") (42 U.S.C. sec. 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. sec. 1801 et, seq.), the
Resource Conservation and Recovery Act (42 U.S.C. sec. 6901 et, seq.),
The Clean Water Act (33 U.S.C. sec. 1251 et, seq.), the Clean Air Act
(33 U.S.C. sec. 7401 et, seq.), the Toxic Substances Control Act (15
U.S.C. sec. 7401 et, seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. sec. 136 et, seq.), and the Occupational
Safety and Health Act (29 U.S.C. sec. 651 et, seq.) ("OSHA") and the
regulations promulgated pursuant thereto, and any such applicable state
or local statutes, including, without limitation, the Industrial Site
Recovery Act ("IRSA"), and the regulations promulgated pursuant thereto,
as such laws have been and may be amended or supplemented through the
Closing Date;
(C) "Hazardous Material" means any substance, material or waste
which is regulated by any public or governmental authority in the
jurisdictions in which the applicable party or its Subsidiaries conducts
business, or the United States, including, without limitation, any
material or substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste"
or "restricted hazardous waste," "contaminant," "toxic waste" or "toxic
substance" under any provision of Environmental Law and shall also
include, without limitation, petroleum, petroleum products, asbestos,
polychlorinated biphenyls and radioactive materials;
(D) "Release" means any release, spill, effluent, emission,
leaking, pumping, injection, deposit, disposal, discharge, disposal,
leaching, or migration into the environment, including any property
owned by the Company, its Subsidiaries or DHDC or into or out of any
property; and
(E) "Remedial Action" means all actions, including, without
limitation, any capital expenditures, required by a governmental entity
or required under any Environmental Law by the Company, its Subsidiaries
or DHDC, or voluntarily undertaken by the Company, its Subsidiaries or
DHDC to (I) clean up, remove, treated, or in any other way ameliorate or
address any Hazardous Materials or other substance in the indoor or
outdoor environment, (II) prevent the Release or threatened of Release,
or minimize the further Release of any Hazardous Material so it does not
endanger or threaten to endanger the public health or welfare of the
indoor or outdoor environment, (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining or
relating to a Release, or (IV) bring the applicable party into
compliance with any Environmental Law.
(ii) Except as set forth in Company SEC Documents or Section 3.1(q) of
the Disclosure Schedule:
(A) The operations of the Company, its Subsidiaries and DHDC have
been and, as of the Closing Date, will be, in compliance with all
Environmental Laws, except where the failure to be in compliance will
not have a Material Adverse Effect on the Company;
(B) The Company, its Subsidiaries and DHDC have obtained and will,
as of the Closing Date, maintain all permits required under applicable
Environmental Laws for the continued operations of their respective
businesses, except such permits the lack of which would not have a
Material Adverse Effect on the Company;
(C) The Company, its Subsidiaries and DHDC are not subject to any
outstanding written orders from, or written agreements with, any
Governmental Entity or other Person respecting (1) Environmental Laws,
(2) Remedial Action, or (3) any Release or threatened Release of a
Hazardous Material;
(D) The Company, its Subsidiaries and DHDC have not received any
written communication alleging, with respect to any such party, the
violation of or liability under any Environmental Law, which violation
or liability is outstanding;
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(E) To the knowledge of the Company, neither the Company, any of
its Subsidiaries or DHDC has any contingent liability in connection with
the Release of any Hazardous Material into the indoor or outdoor
environment (whether on-site or off-site) which will have a Material
Adverse Effect on the Company;
(F) Except for de minimis amounts which are regulated as
conditionally exempt small quantity generators, the operations of the
Company, its Subsidiaries and DHDC do not involve the transportation,
treatment, storage, or disposal of hazardous waste for purposes of the
requirements set forth under, 40 C.F.R. Parts 260-270 or any state
equivalent;
(G) There is not now, nor to the knowledge of the Company has there
been in the past, on or in any property owned by the Company, its
Subsidiaries or DHDC any of the following: (1) any underground storage
tanks or surface impoundments, (2) any asbestos-containing materials, or
(3) any polychlorinated biphenyls;
(H) No judicial or administrative proceedings are pending or, to
the knowledge of the Company, threatened against the Company, its
Subsidiaries or DHDC alleging the violation of or seeking to impose
liability pursuant to any Environmental Law and there are no
investigations pending or, to the knowledge of the Company, threatened
against the Company, any of its Subsidiaries or DHDC under Environmental
Laws, in each case which will have a Material Adverse Effect on the
Company; and
(I) The Company and its Subsidiaries have made available to TAGTCR
true and complete copies of all environmentally related audits,
assessments, studies, reports, analyses, and results of investigations
prepared within the past five years of any real property currently or
formerly owned, operated or leased by the Company, its Subsidiaries or
DHDC that are in the possession, custody or control of the Company, any
of its Subsidiaries or DHDC.
(q) Insurance. Set forth on Section 3.1(q) of the Disclosure Schedule
is a true and complete list and description of insurance policies
(including information on the premiums payable in connection therewith, the
scope and amount of the coverage and deductibles provided thereunder and
all claims against such policies) maintained by the Company, any of its
Subsidiaries and DHDC.
(r) DHDC Financial Statements. The Company has made available to
TAGTCR the operating statement for DHDC for the period commencing January
1, 1998 until March 31, 1998 (the "DHDC Financial Statements"). The DHDC
Financial Statements were prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present in all material respects in accordance with applicable
requirements of GAAP (subject, in the case of the unaudited statements, to
normal, recurring adjustments) the results of operations of DHDC for the
periods presented therein.
(s) Board of Directors Recommendation. The Board of Directors of the
Company, based upon the unanimous recommendation of a Special Committee
consisting of only non-employee directors of the Company, at a meeting duly
called and held, has by the vote of those directors present (i) determined
that this Agreement, the Merger and the transactions contemplated hereby
are fair to and in the best interests of the stockholders of the Company
(other than TAGTCR and the holders of Recapitalization Shares) and has
approved the same, and (ii) resolved to recommend that the holders of the
shares of Company Common Stock approve and adopt this Agreement, the Merger
and the transactions contemplated hereby.
(t) Material Contracts. Except as set forth in the Company SEC
Reports, neither the execution and delivery of this Agreement nor the
consummation of the Merger or the other transactions contemplated hereby
will result in, cause the accelerated vesting or delivery of, or increase
the amount or value of, any payment or benefit to any director, officer or
employee of the Company, and, without limiting the generality of the
foregoing, no amount paid or payable by the Company in connection with the
Merger with the other transactions contemplated hereby will be an "excess
parachute payment" within the meaning of Section 280G of the Code. Each
contract, agreement or other document or
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instrument ("Material Contract") to which the Company or any of its
Subsidiaries is a party that was required to be filed as an exhibit to the
Company's annual report on Form 10-K for the year ended December 31, 1997
was so filed. None of the Company or its Subsidiaries is (with or without
lapse of time or giving notice, or both) in material breach or default in
any respect under any Material Contract. Except for the Rights Agreement,
the Company is not a party to or subject to any "poison pill", shareholders
rights plan, rights agreement or similar agreement, instrument or plan.
(u) Fairness Opinion. The Company has received the opinion of The
Robinson-Humphrey Company, LLC, financial advisor to the Company (the
"Financial Advisor"), to the effect that, as of the date hereof, the Merger
Consideration to be received by the stockholders of the Company in the
Merger is fair, from a financial point of view, to the stockholders of the
Company.
(v) Regulatory Filings. The Company has made available for inspection
by TAGTCR complete copies of all material registrations, filings and
submissions made since January 1, 1996 by the Company or any Subsidiary
with any Governmental Entity and any reports of examinations issued since
January 1, 1996 by any such Governmental Entity that relate to the Company
or any Subsidiary. The Company and each Subsidiary has filed all reports,
statements, documents, registrations, filings or submissions required to be
filed by any of them with any Governmental Entity, except where the failure
to file, in the aggregate, will not have a Material Adverse Effect on the
Company; and, to the knowledge of the Company, all such reports,
statements, documents, registrations, filings or submissions were in all
material respects true, and complete and accurate when filed, except where
such incompleteness or inaccuracy individually, or in the aggregate, will
not have a Material Adverse Effect on the Company.
(w) State Takeover Laws. The Company's Board of Directors has taken
such action so that no takeover statute or similar statute or regulation of
the State of Delaware or the State of Georgia (and, to the knowledge of the
Company after due inquiry, of any other state or jurisdiction) applies to
this Agreement, the Merger, or any of the other transactions contemplated
hereby.
3.2 Representations and Warranties of TAGTCR. TAGTCR represents and
warrants to the Company as follows:
(a) Organization, Standing and Power. TAGTCR is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware, has all requisite corporate power and authority to own,
lease, and operate its properties and to carry on its business as now being
conducted, and is duly qualified or licensed to do business as a foreign
corporation and in good standing to conduct business in each jurisdiction
in which the conduct of its business, or the operation, ownership or
leasing of its properties, makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to so qualify or to
become so licensed does not have or could not reasonably be expected to
have a Material Adverse Effect on TAGTCR.
(b) Authority; No Violations; Consents and Approvals. (i) TAGTCR has
all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of TAGTCR. This Agreement has been duly executed and
delivered by TAGTCR and (assuming this Agreement is duly executed and
delivered by the Company) constitutes a valid and binding obligation of
TAGTCR enforceable in accordance with its terms and conditions except that
the enforcement hereof may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(ii) The execution and delivery of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby by TAGTCR,
following the satisfaction or waiver of the conditions set forth in Article
VI, will not: (A) violate any provision of the Certificate of Incorporation
or Bylaws of TAGTCR, (B) conflict with, or result in any violation of, or
default (with or without notice or
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lapse of time, or both) under; give rise to a right of termination,
cancellation or acceleration (including pursuant to any put right) of any
obligation; or result in the creation of a Lien or right of first refusal
with respect to any asset or property (any such conflict, violation,
default, right of termination, cancellation or acceleration, loss, creation
or right of first refusal, a "Violation") pursuant to any loan or credit
agreement, note, mortgage, deed of trust, indenture, lease or other
agreement, obligation, instrument, concession, franchise or license of
TAGTCR or (C) any law applicable to TAGTCR or its respective property or
assets; provided, however, that no representation or warranty is made in
the foregoing clauses (B) and (C) with respect to matters that,
individually or in the aggregate, will not have a Material Adverse Effect
on TAGTCR.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
Governmental Entity, is required by or with respect to TAGTCR in connection
with the execution and delivery of this Agreement by TAGTCR or the
consummation by TAGTCR of the transactions contemplated hereby, except for
(A) filings under the HSR Act, (B) the filing with the SEC of such reports
under and such other compliance with the Exchange Act and the rules and
regulations thereunder, as may be required in connection with this
Agreement and the transactions contemplated hereby, (C) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware,
(D) such filings and approvals as may be required by any applicable state
securities, "blue sky" or takeover laws, (E) the approval of this Agreement
and the Merger pursuant to applicable laws governing health maintenance
organizations, limited service health organizations, and insurance holding
companies set forth in the Disclosure Schedule, and (F) the filing of a
Form A Statement Regarding the Acquisition of Control of a Domestic Insurer
with the Arizona and Texas Departments of Insurance and the approval
thereof by the Arizona and Texas Directors of Insurance.
(c) Information Supplied. None of the information supplied or to be
supplied by TAGTCR for inclusion or incorporation by reference in the Proxy
Statement will, at the date it is first mailed to the Company's
stockholders or at the time of the Company Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by TAGTCR
for inclusion or incorporation by reference in the Schedule 13E-3 will, on
the date filed with the SEC or at the time of the Company Stockholders
Meeting or the Effective Time, contain any untrue statement of a material
fact or admit to state any material facts required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Schedule
13E-3, insofar as it relates to TAGTCR or other information supplied by
TAGTCR for inclusion therein, will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
(d) Board of Directors Recommendation. The Board of Directors of
TAGTCR, at a meeting duly called and held (or by valid written consent in
lieu thereof), has determined that this Agreement, the Merger and the
transactions contemplated hereby are fair to and in the best interests of
TAGTCR and have approved the same. The Board of Directors of TAGTCR has
approved this Agreement and the Merger at a meeting duly called and held
(or by valid written consent in lieu thereof) and no further approval is
required pursuant to the DGCL, the Certificate of Incorporation or the
Bylaws of TAGTCR.
(e) Delaware Law. TAGTCR was not, immediately prior to the execution
of this Agreement, an "interested stockholder" within the meaning of
Section 203 of the DGCL.
3.3 Representations and Warranties of the Guarantors. Each of the
Guarantors represents and warrants severally with respect to themselves to the
Company as follows:
(a) Organization, Standing and Power. Each of the Guarantors is an
entity duly organized, validly existing, and in good standing under the
laws of its formation, has all requisite corporate or partnership power and
authority to own, lease, and operate its properties and to carry on its
business as now being conducted, and is duly qualified or licensed to do
business as a foreign corporation and in good standing to conduct business
in each jurisdiction in which the conduct of its business, or the
operation, ownership or
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leasing of its properties, makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to so qualify or to
become so licensed does not have or could not reasonably be expected to
have a Material Adverse Effect on each of the Guarantors.
(b) Authority; No Violations; Consents and Approvals. (i) Each of the
Guarantors has all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Guarantors. This Agreement has been duly executed
and delivered by each of the Guarantors and (assuming this Agreement is
duly executed and delivered by the Company) constitutes a valid and binding
obligation of each of the Guarantors enforceable in accordance with its
terms and conditions except that the enforcement hereof may be limited by
(a) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, or other similar laws now or hereafter in effect
relating to creditors' rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding
at law or in equity).
(ii) The execution and delivery of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby by each of the
Guarantors, following the satisfaction or waiver of the conditions set
forth in Article VI, will not: (A) violate any provision of the formation
documents of each of the Guarantors, (B) conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under; give rise to a right of termination, cancellation or acceleration
(including pursuant to any put right) of any obligation; or result in the
creation of a Lien or right of first refusal with respect to any asset or
property (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss, creation or right of first refusal, a
"Violation") pursuant to any loan or credit agreement, note, mortgage, deed
of trust, indenture, lease or other agreement, obligation, instrument,
concession, franchise or license or (C) any law applicable to each of the
Guarantors or its respective property or assets, which has or could
reasonably be expected to have a Material Adverse Effect on each of the
Guarantors; provided, however, that no representation or warranty is made
in the foregoing clauses (B) and (C) with respect to matters that,
individually or in the aggregate, will not have a Material Adverse Effect
on each of the Guarantors.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
Governmental Entity, is required by or with respect to any Guarantor in
connection with the execution and delivery of this Agreement by such
Guarantor or the consummation by such Guarantor of the transactions
contemplated hereby, except for (A) filings under the HSR Act, (B) the
filing with the SEC of such reports under and such other compliance with
the Exchange Act and the rules and regulations thereunder, as may be
required in connection with this Agreement and the transactions
contemplated hereby, (C) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (D) such filings and approvals
as may be required by any applicable state securities, "blue sky" or
takeover laws, (E) the approval of this Agreement and the Merger pursuant
to applicable laws governing health maintenance organizations, limited
service health organizations, and insurance holding companies set forth in
the Disclosure Schedule, and (F) the filing of a Form A Statement Regarding
the Acquisition of Control of a Domestic Insurer with the Texas and Arizona
Departments of Insurance and the approval thereof by the Texas and Arizona
Directors of Insurance.
(c) Information Supplied. None of the information supplied or to be
supplied by any Guarantor for inclusion or incorporation by reference in
the Proxy Statement will, at the date it is first mailed to the Company's
stockholders or at the time of the Company Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by any
Guarantor for inclusion or incorporation by reference in the Schedule 13E-3
will, on the date filed with the SEC or at the time of the Company
Stockholders Meeting, contain any untrue statement of a material fact or
admit to state any material facts required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Schedule
13E-3, insofar as it
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relates to any Guarantor or other information supplied by any Guarantor for
inclusion therein, will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
(d) Bridge Loan and Financing Commitment. TAGTCR or the Guarantors
have received (i) a written commitment (each of which is conditioned upon
the conditions set forth therein) from NationsBridge, L.L.C., NationsBank,
N.A. and NationsBanc Montgomery Securities, LLC (collectively, the "Banks")
for the provision of a guaranteed loan in the amount of $20 million and
senior and subordinated debt financing of approximately $175 million in the
aggregate, (ii) written commitments from the Guarantors to subscribe for an
aggregate of at least $87.7 million (including the DHDC Rollover (as
defined below)), and (iii) a written commitment from certain existing
stockholders of the Company to cause 200,000 shares of Company Common Stock
to be treated as 2.2(a)(iii) Recapitalization Shares (the commitments set
forth in (i), (ii) and (iii) are collectively referred to as the
"Commitments"). The DHDC Rollover shall mean the agreement by GTCR to
contribute its DHDC common stock directly or indirectly into Surviving
Corporation immediately after the Effective Time, which agreement shall be
valued so as to return $10 million and provide a 31% internal rate of
return on GTCR's $10.0 million investment in DHDC from September 12, 1997.
Based upon the representations and warranties set forth in Section 3.1, the
aggregate of $286.3 million of financing contemplated by the Commitments
(the "Financing") will be sufficient (i) to consummate the Merger and pay
the Merger Consideration and the Option Consideration, (ii) to pay all fees
and expenses required to be paid by TAGTCR and the Company in connection
with the Merger and the transactions contemplated thereby, and (iii) to
refinance the existing indebtedness of the Company to financial
institutions. True and correct copies of the Commitments have been provided
to the Company prior to the date hereof. The terms and conditions of the
Class A Preferred Stock to be received by the holders of Recapitalization
Shares will be identical to the Class A Preferred Stock to be received by
the Guarantors. The holders of the Recapitalization Shares that receive
Class A Preferred Stock will pay a per share amount equal to that paid by
the Guarantors.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, the Company agrees that
(except as expressly contemplated or permitted by this Agreement, or to the
extent that TAGTCR shall otherwise consent in writing):
(a) Ordinary Course. Each of the Company and its Subsidiaries shall
conduct its business and operations in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and shall
use all reasonable efforts to preserve intact its present business
organizations, keep available the services of its current officers and
employees and preserve satisfactory relationships with customers,
suppliers, distributors and others having business dealings with it and
will take no action which would adversely affect its ability to consummate
the Merger or the other transactions contemplated hereby.
(b) Dividends; Changes in Stock. The Company shall not, nor shall it
permit any of its Subsidiaries to: (i) declare, set aside, or pay any
dividends on or make other distributions (whether in cash, stock or
property or any combination thereof) in respect of any of its capital stock
(other than dividends or distributions by any Subsidiary to the Company),
(ii) split, combine, or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (iii)
repurchase, redeem, or otherwise acquire, or permit any Subsidiary to
purchase or otherwise acquire, any shares of its capital stock, except as
required by the terms of its securities outstanding on the date hereof, as
contemplated by this Agreement or as contemplated by employee benefit and
dividend reinvestment plans as in effect on the date hereof which terms are
set forth on Section 4.1(b) of the Disclosure Schedule.
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(c) Issuance of Securities. The Company shall not, nor shall it
permit any of its Subsidiaries to (i) grant any options, warrants or
rights, to purchase shares of Company Common Stock, (ii) amend any Option
or Option Plan, (iii) reprice any Option or Option Plans, or (iv) issue,
deliver or sell, or authorize or propose to issue, deliver or sell, any
shares of its capital stock of any class or series, any Company Voting Debt
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, Company Voting Debt or convertible securities,
other than (A) the issuance of shares of Company Common Stock pursuant to
the terms of the ESPP pursuant to purchase requests made prior to the date
hereof, upon the exercise of Options granted under Option Plans which are
outstanding on the date hereof, or in satisfaction of stock grants or stock
based awards made prior to the date hereof pursuant to Option Plans or
pursuant to any individual agreements such as employment agreements,
executive termination agreements (in each such case, as in effect on the
date hereof); and (B) issuances by a wholly-owned Subsidiary of its capital
stock to its parent.
(d) Governing Documents. The Company shall not amend or propose to
amend its Certificate of Incorporation or Bylaws except to give effect to
the Merger.
(e) No Solicitation. None of the Company, any of its Subsidiaries or
DHDC nor any of the respective officers and directors of the Company, any
of its Subsidiaries or DHDC shall, and the Company will cause its
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by the Company, any of
its Subsidiaries or DHDC) not to, initiate or solicit, directly or
indirectly, any inquiries or the making of any proposal with respect to a
merger, consolidation, recapitalization or similar transaction involving,
or any purchase of all or any significant portion of the assets of, or any
equity interest in, the Company, any Subsidiary or DHDC (an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any
person relating to any Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal; provided,
however, that the foregoing shall not prohibit the Special Committee of the
Board of Directors of the Company from furnishing information to, or
entering into discussions or negotiations, or otherwise facilitating any
effort or attempt to make or implement an Acquisition Proposal if, and to
the extent, that the Special Committee determines after consultation with
counsel and in good faith that failing to take such action would be
inconsistent with the Special Committee's fiduciary duty under applicable
law. The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any third parties
conducted heretofore with respect to any of the foregoing. The Company will
notify TAGTCR immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, the Company, any
of its Subsidiaries, DHDC or any of their respective officers, directors,
employees, agents or representatives.
(f) No Acquisitions. The Company shall not, nor shall permit any of
its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof without the prior consent of TAGTCR.
(g) No Dispositions. Other than dispositions in the ordinary course
of business consistent with past practice which are not material,
individually or in the aggregate, to the Company and its Subsidiaries taken
as a whole, the Company shall not, nor shall it permit any of its
Subsidiaries to, sell, transfer, lease (whether such lease is an operating
or capital lease), encumber, agree to sell, transfer, lease or otherwise
dispose of, any of its assets.
(h) Governmental Filings. The Company shall promptly provide TAGTCR
(or its counsel) with copies of all filings made by the Company with the
SEC or any other state or federal Governmental Entity in connection with
this Agreement and the transactions contemplated hereby.
(i) No Dissolution, Etc. Except as otherwise permitted or
contemplated by this Agreement, the Company shall not, nor shall it permit
any of its Subsidiaries to, authorize, recommend, propose or
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announce an intention to adopt or enter into any agreement in principle or
an agreement with respect to, any plan of complete or partial liquidation
or dissolution of the Company or any of its Subsidiaries.
(j) Other Actions. Except as contemplated by this Agreement, the
Company shall not, nor shall it permit any of its Subsidiaries to, take or
agree or commit to take any action that is reasonably likely to result in
any of the Company's representations or warranties hereunder being untrue
in any material respect or in any of the Company's covenants hereunder or
any of the conditions to the Merger not being satisfied in all material
respects.
(k) Certain Employee Matters. The Company shall not, nor shall it
permit any if its Subsidiaries to (i) grant any increase in the base
compensation (excluding bonuses) of any of its directors, officers or key
employees who have base compensation of $100,000 a year or more, (ii) pay
or agree to pay any pension, retirement allowance or other employee benefit
not required or contemplated by any of the existing Company Benefit Plans
or Company Pension Plans as in effect on the date hereof to any such
director, officer or key employee, whether past or present, (iii) enter
into any new, or materially amend any existing, employment or severance or
termination agreement with any such director, officer or key employee, or
(iv) except as may be required to comply with applicable law, become
obligated under any new Company Employee Benefit Plan or Company Pension
Plan, which was not in existence on the date hereof, or amend any such plan
or arrangement in existence on the date hereof if such amendment would have
the effect of materially enhancing any benefits thereunder.
(l) Indebtedness; Agreements. (i) The Company shall not, nor shall
the Company permit any of its Subsidiaries to, assume or incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or warrants or rights to acquire any debt
securities of the Company or any of its Subsidiaries or guarantee any debt
securities of others or create any Liens on the property of the Company or
any of its Subsidiaries in connection with any indebtedness thereof, or
enter into any "keep well" or other agreement or arrangement to maintain
the financial condition of another Person, other than the incurrence of
indebtedness in accordance with the Company's existing line of credit with
First Union National Bank, providing that the proceeds of such indebtedness
are used only in the ordinary course of business and consistent with past
practice (which includes funding acquisitions permitted under this
Agreement).
(ii) The Company shall not, nor shall the Company permit any of its
Subsidiaries to, (a) make any loans, advances or capital contributions to,
or investments in, any other person or (b) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), other than the payment, discharge or satisfaction of
liabilities in the ordinary course of business and consistent with past
practice; provided, that Dent Lease, Inc. may continue to make capital
expenditures that do not exceed $50,000 during any three month period.
(iii) The Company shall not, nor shall the Company permit any of its
Subsidiaries to, enter into, modify, rescind, terminate, waive, release or
otherwise amend in any material respect any of the terms or provisions of
any Material Contract.
(m) Accounting. The Company shall not change, other than in the
ordinary course of business, consistent with past practice or as required
by the SEC or by law, any of its accounting policies, procedures,
practices, books and records.
(n) Capital Expenditures. The Company shall not, nor shall the
Company permit any of its Subsidiaries to, incur any capital expenditures,
that in the aggregate, are in excess of $500,000; provided, that DentLease,
Inc. may continue to make capital expenditures that do not exceed $50,000
during any three month period.
(o) Insurance. Neither the Company nor any Subsidiary shall permit
any insurance policy naming it as a beneficiary or a loss payee to be
cancelled, terminated or materially altered, except in the ordinary course
of business and consistent with past practice and following written notice
to TAGTCR.
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(p) Hedging. Neither the Company nor any Subsidiary shall enter into
any hedging, option, derivative or other similar transaction.
(q) Transfer of Interest in DHDC and DHMI. Prior to the Effective
Time, the Company will cause all equity interests in DHDC and DHMI owned by
it or any of its subsidiaries to be transferred to a newly formed, wholly
owned subsidiary of the Company.
4.2 Covenants of TAGTCR and the Guarantors. (a) TAGTCR and the Guarantors
will use their respective reasonable best efforts to cause the Financing to be
closed on terms consistent with the Commitments; provided that the Guarantors
can reduce the amount of equity they contribute to the extent of
Recapitalization Shares in excess of $3.6 million such that the aggregate amount
of Recapitalization Shares does not exceed $15,000,000. In the event that any
portion of the Financing becomes unavailable, regardless of the reason therefor,
TAGTCR and the Guarantors will use their respective reasonable best efforts to
arrange alternative financing on behalf of the Company from other sources on and
subject to substantially the same terms and conditions as the portion of the
Financing that has become unavailable. TAGTCR and the Guarantors shall use their
respective reasonable best efforts to (i) satisfy on or before the Closing all
requirements of the definitive agreements pursuant to which the Financing will
be obtained (the "Financing Agreements") which are conditions to closing to be
satisfied by TAGTCR with respect to all transactions constituting the Financing
and to drawing down the cash proceeds thereunder; (ii) defend all lawsuits or
other legal proceedings challenging the Financing Agreements or the consummation
of the transactions contemplated thereby; and (iii) lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated thereby. TAGTCR and
the Guarantors shall keep the Company apprised of all material developments
relating to the Financing. Any fees to be paid by the Company or any other
obligations to be incurred by the Company in connection with the Financing shall
be subject to the occurrence of the Closing.
(b) The Guarantors agree that on or prior to the Closing Date they will
purchase or cause to be purchased equity of TAGTCR for a cash purchase price of
at least $87.7 million in the aggregate (including the DHDC Rollover), subject
to the terms and conditions of, and in accordance with the standards set forth
in, the equity commitment letter of Guarantors dated the date hereof; provided
that, the Guarantors can reduce the amount of equity they contribute to the
extent of Recapitalization Shares in excess of $3.6 million such that the
aggregate amount of Recapitalization Shares does not exceed $15,000,000.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of the Proxy Statement; Company Stockholders
Meeting. (a) As soon as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC the Proxy Statement under the
Exchange Act, and shall use its reasonable best efforts to have the Proxy
Statement cleared by the SEC. TAGTCR shall furnish all information about itself,
its business and operations and its owners and all financial information to the
Company as may be reasonably necessary in connection with the preparation of the
Proxy Statement. TAGTCR agrees promptly to correct any information provided by
it for use in the Proxy Statement if and to the extent that such information
shall have become false or misleading in any material respect. The Company shall
notify TAGTCR of the receipt of any comments of the SEC with respect to the
Proxy Statement and shall use its reasonable best efforts to respond to all SEC
comments with respect to the Proxy Statement and to cause the Proxy Statement to
be mailed to the Company's stockholders at the earliest practicable date. The
Company shall give TAGTCR and its counsel the opportunity to review the Proxy
Statement prior to its being filed with the SEC and shall give TAGTCR and its
counsel the opportunity to review all amendments and supplements to the Proxy
Statement and all responses to requests for additional information and replies
to comments prior to their being filed with, or sent to, the SEC. If at any time
prior to the Effective Time, any event with respect to the Company or any of its
Subsidiaries or with respect to other information supplied by the Company or
TAGTCR for inclusion in the Proxy Statement, shall occur which is required to be
described in an amendment or supplement to the Proxy Statement, as the case may
be, such
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event shall be so described, and such amendment or supplement shall be promptly
filed with the SEC and, to the extent required by law, disseminated to the
stockholders of the Company.
(b) The Company will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold the Company Stockholders
Meeting for the purpose of approving this Agreement and the transactions
contemplated hereby. Except if the Special Committee of the Board of Directors
determines in good faith that to do so would be inconsistent with its fiduciary
duties under applicable law, the Company, through its Board of Directors, shall
recommend to its stockholders approval of this Agreement (which recommendation
shall be contained in the Proxy Statement) and shall use all commercially
reasonable efforts to solicit from its stockholders proxies in favor of approval
and adoption of this Agreement.
(c) As soon as practicable following the date of this Agreement, TAGTCR
shall prepare and file with the SEC the Schedule 13E-3. TAGTCR shall use all
reasonable best efforts to have the Schedule 13E-3 cleared by the SEC. The
Company shall furnish all information about itself, its business and operations
and its owners and all financial information to TAGTCR as may be reasonably
necessary in connection with the preparation of Schedule 13E-3. The Company
agrees promptly to correct any information provided by it for use in Schedule
13E-3 if and to the extent that such information shall have become false or
misleading in any material respect. TAGTCR shall notify the Company of the
receipt of any comments of the SEC with respect to Schedule 13E-3. TAGTCR shall
give the Company and its counsel the opportunity to review Schedule 13E-3 prior
to its being filed with the SEC and shall give the Company and its counsel the
opportunity to review all amendments and supplements to Schedule 13E-3 and all
responses to requests for additional information and replies to comments prior
to their being filed with, or sent to, the SEC. If at any time prior to the
Effective Time, any event with respect to TAGTCR or with respect to other
information supplied by TAGTCR or the Company for inclusion in Schedule 13E-3,
shall occur which is required to be described in an amendment or supplement to
Schedule 13E-3, as the case may be, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC.
5.2 Access to Information. Upon reasonable notice, the Company shall, and
shall cause each of its Subsidiaries to, (i) afford to the officers, employees,
accountants, counsel and other representatives of TAGTCR, including financing
sources, access, during normal business hours from the date hereof to the
Effective Time, to all the properties, books, contracts, and commitments, and
(ii) furnish promptly to TAGTCR (a) a copy during such period of all materials
filed pursuant to SEC requirements and (b) all other information concerning its
business, properties and personnel as TAGTCR may reasonably request. The
Confidentiality Agreements between the Company and each of TAGTCR, GTCR
Golder-Rauner, LLC and TA/Advent VIII L.P., dated as of July 14, 1998
(collectively the "Confidentiality Agreement") shall apply with respect to
information furnished thereunder or hereunder and any other activity
contemplated thereby. No investigation pursuant to this Section 5.2 shall affect
any representation or warranty in this Agreement or any party hereto or any
condition to the obligations of the parties hereto.
5.3 Broker and Finders. (a) The Company represents, as to itself, its
Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any broker's
or finders fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except for The
Robinson-Humphrey Company, LLC and Morgan, Stanley & Co. Incorporated, whose
fees and expenses will be paid by the Company in accordance with the Company's
agreements with such firms (copies of which have been delivered by the Company
to TAGTCR prior to the date of this Agreement).
(b) TAGTCR represents, as to itself and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or Person is or will
be entitled to any broker's or finders fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement.
5.4 Indemnification; Directors' and Officers' Insurance. (a) The Company
shall, and from and after the Effective Time, the Surviving Corporation shall,
indemnify, defend and hold harmless the present and former directors, officers,
employees and agents of the Company or any of its Subsidiaries (the "Indemnified
Parties") against all losses, claims, damages, costs, expenses (including
reasonable attorneys' fees and expenses), liabilities or judgments or amounts
that are paid in settlement with the approval of the
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indemnifying party of or in connection with any threatened or actual claim,
action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of or pertaining to the fact that such person is
or was a director or officer of the Company or any of its Subsidiaries whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities"), including all Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, or pertaining to
this Agreement or the transactions contemplated hereby, in each case to the
fullest extent a corporation is permitted under the DGCL as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits broader rights than such law permitted prior
to such amendment and only to the extent such amendment is not retroactively
applicable) to indemnify its own directors or officers, as the case may be.
Without limiting the foregoing, in the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Parties (whether
arising before or after the Effective Time), (i) the Indemnified Parties may
retain counsel satisfactory to them and the Surviving Corporation, and the
Company or the Surviving Corporation shall pay all fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are received
and otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses incurred, in either case to the fullest extent and in the
manner permitted by the DGCL; and (ii) the Company or the Surviving Corporation
will use all reasonable efforts to assist in the vigorous defense of any such
matter, provided that neither the Company nor the Surviving Corporation shall be
liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld). Any Indemnified Party wishing to
claim indemnification under this Section 5.4, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify the Company (or after
the Effective Time, the Surviving Corporation) (but the failure so to notify
shall not relieve a party from any liability which it may have under this
Section 5.4 except to the extent such failure materially prejudices such party),
and shall to the extent required by the DGCL deliver to the Company (or after
the Effective Time, the Surviving Corporation) the undertaking contemplated by
Section 145(c) of the DGCL. The Indemnified Parties as a group may retain only
one law firm to represent them with respect to each such matter unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
The Company and TAGTCR agree that all rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any action or
suit, existing in favor of the Indemnified Parties with respect to matters
occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of not less than six years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Indemnified Liabilities.
(b) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company and its
Subsidiaries (provided that TAGTCR may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions which are no less
advantageous in any material respect to the Indemnified Parties) with respect to
matters arising before the Effective Time; provided, however, that in no event
shall the Surviving Corporation be required to maintain such insurance with
comparable coverage if the cost of such insurance is more than 125% of the cost
of such insurance in the prior year, but in such case, the Surviving Corporation
shall purchase as much coverage as possible for such amount.
5.5 Efforts and Actions. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws to consummate and
make effective the Merger and the other transactions contemplated by this
Agreement, including (a) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from all applicable Governmental Entities and
the making of all necessary registrations and filings, including, without
limitation, filings under the HSR Act and filings with such Governmental
Entities, and the taking of all reasonable steps (including furnishing any
information to any party hereto as such party may reasonably request in
connection with any such filing) as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any such Governmental
Entity, (b) the obtaining of all necessary consents, approvals or waivers from
the third parties,
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(c) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of any of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (d) the execution and delivery of any additional
instruments reasonably necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of this Agreement.
5.6 Publicity. The parties will consult with each other and will mutually
agree upon any press release or public announcement pertaining to this
Agreement, the Merger or any transactions contemplated hereby and shall not
issue any such press release or make any such public announcement prior to such
consultation and agreement, except as may be required by applicable law or by
obligations arising under the Company's listing agreement with NASDAQ, in which
case the party proposing to issue such press release or make such public
announcement shall use reasonable efforts to consult in good faith with the
other party before issuing any such press release or making any such public
announcement.
5.7 Notice of Certain Events. The Company shall give prompt written notice
to TAGTCR, and TAGTCR shall give prompt notice to the Company, of (a) the
occurrence or nonoccurrence of any event that would be reasonably likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any respect at or prior to the Effective Time and (b) any failure
of the Company or TAGTCR, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.7 shall not serve to cure such breach or non-compliance or limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.8 State Takeover Laws. The Company shall, upon the request of TAGTCR,
take all reasonable steps to assist in any challenge by TAGTCR to the validity
or applicability to the transactions contemplated by this Agreement, including
the Merger, of any state takeover law.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote
thereon if such vote is required by applicable law.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) Governmental Consents. All licenses, permits, consents,
authorizations, approvals, qualifications and orders of Governmental
Entities set forth in Section 3.1(c)(iii) of this Agreement shall have been
obtained except where the failure to obtain such licenses, permits,
consents, authorizations, approvals, qualifications and orders,
individually and in the aggregate, will not have a material Adverse Effect
on the Company.
6.2 Conditions of Obligations of TAGTCR and the Guarantors. The
obligations of TAGTCR and each of the Guarantors to effect the Merger are
subject to the satisfaction of the following conditions, any or all of which may
be waived in whole or in part by TAGTCR and each Guarantor respectively:
(a) No Material Adverse Effect. There shall not have occurred a
Material Adverse Effect on the Company from the date hereof to the
Effective Time.
(b) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties expressly relate to an earlier
date) as of the Closing Date as though made on and as of the Closing Date,
except as otherwise contemplated by this Agreement and
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except that, with respect to representations and warranties otherwise
qualified by Material Adverse Effect, for purposes of the satisfaction of
this condition, such representations and warranties shall be true and
correct in all respects. TAGTCR shall have received a certificate signed on
behalf of the Company by the chief executive officer and by the chief
financial officer of the Company to such effect.
(c) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and TAGTCR
shall have received a certificate signed on behalf of the Company by the
chief executive officer and by the chief financial officer of the Company
to such effect.
(d) Financing. The Company shall have received the proceeds of the
Financing or other financings reasonably acceptable to TAGTCR in amounts
sufficient to consummate the transactions contemplated by this Agreement,
including, without limitation, amounts sufficient (i) to pay the Merger
Consideration, (ii) to refinance existing indebtedness of the Company, and
(iii) to pay any fees and expenses in connection with the transactions
contemplated by this Agreement or the financing thereof; provided, however,
that this condition shall be deemed to have been satisfied if TAGTCR and
the Guarantors shall not have complied in all material respects with all of
their respective covenants under Section 4.2.
(e) No Injunctions or Restraints. There shall have been no order or
preliminary or permanent injunction entered in any action or proceeding
before any Governmental Entity or other action taken, nor statute, rule,
regulation, legislation, interpretation, judgment or order enacted,
entered, enforced, promulgated, amended, issued or deemed applicable to the
Company or any of its Subsidiaries or the Merger or this Agreement by any
Governmental Entity which shall have remained in effect, which, or any
suit, claim, action or proceeding before any Governmental Entity, which, if
adversely decided, would have the effect of: making illegal, materially
delaying or otherwise directly or indirectly restraining or prohibiting the
Merger, or the consummation of any of the other transactions contemplated
by this Agreement; provided, however, that TAGTCR shall have complied with
its obligations under Section 5.5.
6.3 Conditions of Obligations of the Company. The obligations of the
Company to affect the Merger are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company.
(a) Representations and Warranties of TAGTCR. The representations and
warranties of TAGTCR set forth in this Agreement shall be true in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties expressly relate to an earlier
date) as of the Closing Date as though made on and as of the Closing Date,
except as otherwise contemplated by this Agreement and except that, with
respect to representations and warranties otherwise qualified by Material
Adverse Effect, for purposes of the satisfaction of this condition, such
representations and warranties shall be true and correct in all respects.
The Company shall have received a certificate signed on behalf of TAGTCR by
an executive officer of TAGTCR to such effect.
(b) Representations and Warranties of the Guarantors. The
representations and warranties of the Guarantors set forth in this
Agreement shall be true in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties
expressly relate to an earlier date) as of the Closing Date as though made
on and as of the Closing Date, except as otherwise contemplated by this
Agreement and except that, with respect to representations and warranties
otherwise qualified by Material Adverse Effect, for purposes of the
satisfaction of this condition, such representations and warranties shall
be true and correct in all respects. The Company shall have received
certificates signed on behalf of each Guarantor by an executive officer of
such Guarantor to such effect.
(c) Performance of Obligations of TAGTCR. TAGTCR shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and the Company shall
have received a certificate signed on behalf of TAGTCR by an executive
officer of TAGTCR to such effect.
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(d) Performance of Obligations of the Guarantors. The Guarantors
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date,
and the Company shall have received certificates signed on behalf of each
Guarantor by an executive officer of such Guarantor to such effect.
(e) No Injunctions or Restraints. No court of competent jurisdiction
or Governmental Entity shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of preventing or prohibiting the consummation of
the transactions contemplated by this Agreement or the effective operation
of the business of the Company and the Subsidiaries after the Effective
Time; provided, however, that the Company shall have complied with its
obligations under Section 5.5.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the Merger by the stockholders of the Company:
(a) by mutual written consent of the Company, by action of the Special
Committee of its Board of Directors, and TAGTCR, by action of its Board of
Directors;
(b) by the Company if there has been a material breach or failure to
perform any representation, warranty, covenant or agreement on the part of
TAGTCR which breach or failure to perform has not been cured within 30
calendar days following receipt by TAGTCR of notice of such breach or
failure;
(c) by TAGTCR if there has been a material breach or failure to
perform any representation, warranty, covenant or agreement on the part of
the Company which breach or failure to perform has not been cured within 30
calendar days following receipt by the Company of notice of such breach or
failure;
(d) by TAGTCR or the Company if any permanent injunction or other
order of a court or other competent authority preventing the consummation
of the Merger shall have become final and nonappealable;
(e) by TAGTCR or the Company if the Merger shall not have been
consummated on or before June 30, 1999;
(f) by TAGTCR in the event the Special Committee of the Board of
Directors or the Board of Directors of the Company shall have (i) withdrawn
or adversely modified its approval or recommendation of the Merger or this
Agreement, (ii) failed to duly call, give notice of, convene or hold the
Company Stockholders Meeting, in violation of Section 5.1(b) and at the
time of such failure an Acquisition Proposal by any Person (other than
TAGTCR or its affiliates) shall have been publicly announced or provided to
the Company or the Special Committee, (iii) recommended, approved, or
accepted an Acquisition Proposal by any Person (other than TAGTCR or its
affiliates), or (iv) resolved to do any of the foregoing (or the Company
has agreed to do any of the foregoing);
(g) by the Company if the Special Committee of the Board of Directors
or the Board of Directors of the Company accepts or recommends to the
holders of the shares of Company Common Stock approval or acceptance of, an
Acquisition Proposal by any Person (other than TAGTCR or its affiliates);
provided, however that the Company shall not terminate this Agreement
pursuant to this Section 7.1(g) without providing TAGTCR at least five (5)
days prior written notice, which notice shall include in reasonable detail
the terms of the Acquisition Proposal; or
(h) by TAGTCR or the Company if the Merger and this Agreement shall
have been voted on by the holders of Company Common Stock, and the votes
shall not have been sufficient to satisfy the condition set forth in
Section 6.1(a).
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7.2 Effect of Termination. In the event of termination of this Agreement
by either the Company or TAGTCR as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of TAGTCR or the Company or their respective affiliates, officers, directors, or
stockholders, except (i) with respect to this Section 7.2, Section 5.2 and
Section 7.3 each of which shall survive such termination, and (ii) for any
breach by a party hereto of any of its representations, warranties, covenants or
agreements contained in this Agreement.
7.3 Payment of Fees and Expenses. (a) Except as otherwise provided in this
Section 7.3 and except with respect to claims for damages incurred as a result
of the breach of this Agreement, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense.
(b) The Company agrees to pay TAGTCR a fee in immediately available funds
equal to $7.0 million (the "Specified Fee") upon the termination of this
Agreement under Sections 7.1(f) or (g). The Specified Fee shall be paid on the
second business day following such termination.
(c) In the event (i) this Agreement shall be terminated pursuant to Section
7.1(c) as a result of a willful breach by the Company or pursuant to Section
7.1(h), and (ii) either (A) a transaction with any person (other than TAGTCR or
its affiliates) that is contemplated by the term "Acquisition Proposal" and
which is based on an Acquisition Proposal made prior to such termination of this
Agreement, shall be consummated on or before the first anniversary of the
termination of this Agreement, or (B) the Company shall enter into an agreement
with any person (other than TAGTCR or its affiliates), on or before the first
anniversary of the termination of this Agreement, with respect to an Acquisition
Proposal which is made prior to such termination of this Agreement, and a
transaction contemplated by the term "Acquisition Proposal" shall thereafter be
consummated with such person, then the Company shall pay to TAGTCR a fee in
immediately available funds equal to the Specified Fee. Such amount shall be
paid contemporaneously with the consummation of such contemplated transaction.
Notwithstanding the foregoing, such fee shall be reduced by any amounts paid to
TAGTCR pursuant to Section 7.3 (d).
(d) TAGTCR agrees to pay the Company a fee in immediately available funds
equal to the amount of all the Company's Designated Expenses upon the
termination of this Agreement under Section 7.1(b). The Company agrees to pay
TAGTCR a fee in immediately available funds equal to the amount of all of
TAGTCR's Designated Expenses upon the termination of this Agreement under
Section 7.1(c). Such Designated Expenses shall be paid on the second business
day following the submission thereof by the applicable party.
(e) For purposes of this Section 7.3, the term "Designated Expenses" shall
mean, with respect to a specified person, all documented, reasonable
out-of-pocket fees and expenses (not to exceed $2.0 million) incurred or paid by
or on behalf of such specified person and its affiliates to third parties in
connection with the Merger or the consummation of any of the transactions
contemplated by this Agreement, including, without limitation, all printing
costs and reasonable fees and expenses of counsel, investment banking firms,
brokers, accountants, experts and consultants.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. None of the
representations or warranties and agreements (other than Sections 5.4 and 5.6)
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Effective Time.
8.2 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telecopied or sent by
certified or registered mail, postage prepaid (and shall be
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deemed to have been duly given upon receipt), to the following address or
telecopy number, or to such other address or addresses or telecopy numbers as
may be subsequently designated by notice given hereunder:
(a) if to TAGTCR, to:
NMS Capital, L.P.
600 Montgomery Street
San Francisco, CA 94111
Attn: William Bunting
Telephone: 415-627-2426
Telecopy: 415-913-5704
Golder, Thoma, Cressey, Rauner Fund V, L.P.
6100 Sears Tower
Chicago, Illinois 60606
Attn: Don Edwards
Telephone: 312-382-2200
Telecopy: 312-382-2201
and
TA/Advent VIII L.P.
High Street Tower
Suite 2500
125 High Street
Boston, Massachusetts 02110
Attn: Roger B. Kafker
Telephone: 617-574-6774
Telecopy: 617-574-6728
with a copy to:
McDermott, Will & Emery
50 Rockefeller Plaza
New York, New York 10020
Attn: Brian Hoffmann, Esq.
Telephone: 212-547-5400
Telecopy: 212-547-5444
(b) if to the Company, to:
Special Committee of the
Board of Directors
c/o CompDent Corporation
100 Mansell Court East
Suite 400
Roswell, Georgia 30076
Attn: Joseph E. Stephenson, Chairman
Telephone: 770-998-8936
Telecopy: 770-992-4349
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: John J. Kelley III, Esq.
Telephone: 404-572-4600
Telecopy: 404-572-5100
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8.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the word "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement (together
with the Confidentiality Agreement and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto. This Agreement is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder,
except that the rights under Section 5.4 shall inure to the benefit of and be
enforceable by the Indemnified Parties.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH OF TAGTCR AND THE COMPANY HEREBY
(A) IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE UNITED STATES OF
AMERICA LOCATED IN THE STATE OF DELAWARE (THE "DELAWARE COURTS") FOR ANY
LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY, (B) AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO
EXCEPT IN SUCH COURTS, (C) WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY
SUCH LITIGATION IN THE DELAWARE COURTS, AND (D) AGREES NOT TO PLEAD OR CLAIM IN
ANY DELAWARE COURT THAT SUCH LITIGATION BROUGHT THEREIN HAS BEEN BROUGHT IN ANY
INCONVENIENT FORUM.
8.7 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
8.8 Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of TAGTCR, the Company and
the Guarantors at any time prior to the Effective Time with respect to any of
the terms contained herein; provided, however, that, after this Agreement is
approved by the Company's stockholders, no such amendment or modification shall
reduce the amount or change the form of consideration to be delivered to the
stockholders of the Company; and provided, further, that the exhibits referred
to in Sections 1.4(c) and (d) shall be deemed amendments hereto.
8.9 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors or Committees thereof, as the case may be, may, to the extent legally
allowed: (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto; and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such rights.
8.10 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting
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the validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
8.11 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions and other equitable remedies to prevent breaches of
this Agreement and to enforce specifically the terms and provisions thereof in
any Delaware Court, this being in addition to any other remedy to which they are
entitled at law or in equity. Any requirements for the securing or positing of
any bond with respect to such remedy are hereby waived by each of the parties
hereto.
8.12 Guarantors. (a) Each Guarantor hereby unconditionally and irrevocably
guarantees severally, but not jointly, to the Company the due and punctual
performance of each of the obligations and the undertakings of TAGTCR under this
Agreement when and to the extent the same are required to be performed and
subject to all of the terms and conditions hereof; provided, however, that
neither TA nor GTCR shall have liability for more than 48.235% of any liability,
and NMS shall not have liability for more than 3.530% of any liability, arising
from a breach by TAGTCR under this Agreement, and provided, further that no
Guarantor shall have any liability whatsoever under this guaranty after the
Closing, whether based upon events occurring prior to or after the Closing. If
TAGTCR shall fail to perform fully and punctually any obligation or undertaking
of TAGTCR under this Agreement when and to the extent the same is required to be
performed, subject to the first sentence of this Section 8.12(a) each Guarantor
will upon written demand from the Company forthwith perform or cause to be
performed such obligation or undertaking, as the case may be. The obligations of
each Guarantor under this guaranty shall constitute an absolute and
unconditional present and continuing guarantee of performance to the extent
provided herein, and shall not be contingent upon any attempt by the Company to
enforce performance by TAGTCR.
(b) Subject to 8.12(a), the obligations of each Guarantor under this
guaranty are absolute and unconditional, are not subject to any counterclaim,
set off, deduction, abatement or defense based upon any claim a Guarantor may
have against the Company (except for any defense TAGTCR may have against the
Company under the terms of this Agreement), and shall remain in full force and
effect without regard to (i) any agreement or modification to any of the terms
of this Agreement or any other agreement which may hereafter be made relating
thereto; (ii) any exercise, non-exercise, or waiver by the Company of any right,
power, privilege or remedy under or in respect of this Agreement; (iii) any
insolvency, bankruptcy, dissolution, liquidation, reorganization or the like of
TAGTCR at or prior to the Closing; (iv) absence of any notice to, or knowledge
by, Guarantor of the existence or occurrence of any of the matters or events set
forth in the foregoing causes (i) through (iii); (v) any transfer of shares of
capital stock of TAGTCR, or any assignment by TAGTCR of its rights and
obligations under this Agreement, to a wholly-owned subsidiary of TAGTCR or a
Guarantor; or (vi) any other circumstance, whether similar or dissimilar to the
foregoing.
(c) Each Guarantor unconditionally waives (i) any and all notice of
default, non-performance or non-payment by TAGTCR under this Agreement, (ii) all
notices which may be required by statute, rule of law or otherwise to preserve
intact any rights of the Company against a Guarantor, including, without
limitation, any demand, presentment or protest, or proof of notice of
non-payment under this Agreement, and (iii) any right to the enforcement,
assertion or exercise by the Company of any right, power, privilege or remedy
conferred in this Agreement or otherwise.
(d) Notwithstanding any provision of this Agreement to the contrary, any
liability arising under this contract or this guaranty shall be limited to $41.0
million, in the case of TA and GTCR, and $3.0 million, in the case of NMS.
8.13 Disclosure Letters. The Disclosure Letter is hereby incorporated into
this Agreement and is hereby made a part hereof as if set out in full in this
Agreement. Certain information set forth in the Disclosure Letter is included
solely for informational purposes and may not be required to be disclosed
pursuant to this Agreement. The disclosure of any information shall not be
deemed to constitute an acknowledgment that such
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information is required to be disclosed in connection with the representations
and warranties made by the Company in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
TAGTCR Acquisition, Inc.
By: /s/ ROGER B. KAFKER
------------------------------------
Name: Roger B. Kafker
Title: President
CompDent Corporation
By: /s/ JOSEPH E. STEPHENSON
------------------------------------
Name: Joseph E. Stephenson
Title: Chairman of the Special
Committee
of the Board of Directors
TA/Advent VIII L.P.
By: TA/ADVENT VIII L.P.,
its general partner
By: /s/ ROGER B. KAFKER
------------------------------------
Name: Roger B. Kafker
Title: President
Golder, Thoma, Cressey, Rauner Fund V,
L.P.
By: /s/ DONALD EDWARDS
------------------------------------
Name: Donald Edwards
Title: Principal
NMS Capital, L.P.
By: NMS CAPITAL MANAGEMENT LLC,
its general partner
By: /s/ WILLIAM B. BUNTING
------------------------------------
Name: William B. Bunting
Title:
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SCHEDULE 2.2(A)(III)
David Klock -- 100,000 shares
Phyllis Klock -- 100,000 shares
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SCHEDULE 2.2(A)(IV)
None
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APPENDIX B
OPINION OF THE ROBINSON-HUMPHREY COMPANY, LLC
July 28, 1998
Special Committee of the Board of Directors
CompDent Corporation
100 Mansell Court East, Suite 400
Roswell, Georgia 30076
Dear Sirs:
We understand that CompDent Corporation (the "Company") intends to enter
into an Agreement and Plan of Merger (the "Merger Agreement") by and among
TAGTCR Acquisition, Inc. ("TAGTCR"), NMS Capital, L.P., Golder, Thoma, Cressey,
Rauner Fund V, L.P. and TA/Advent VIII L.P. We understand that under the Merger
Agreement (the "Proposed Transaction") TAGTCR shall be merged with and into the
Company and each share of Company common stock issued and outstanding
immediately prior to the effective time of the merger (excluding shares owned by
the Company or any of its subsidiaries or by TAGTCR and Recapitalization Shares
(as defined in the Merger Agreement) and dissenting shares) shall be converted
into the right to receive $18.00 per share in cash (the "Merger Consideration").
The terms and conditions of the Proposed Transaction are set forth in more
detail in the Merger Agreement dated July 28, 1998.
We have been requested by the Special Committee of the Board of Directors
of the Company to render our opinion with respect to the fairness, from a
financial point of view, to the Company's stockholders (other than TAGTCR and
the holders of Recapitalization Shares) of the Merger Consideration to be
received in the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement dated July 28, 1998, (2) publicly available information concerning the
Company which we believe to be relevant to our inquiry, (3) financial and
operating information with respect to the business, operations and prospects of
the Company furnished to us by the Company, (4) the Dental Health Development
Corporation Securities Purchase Agreement dated September 12, 1997, (5) a
trading history of the Company's Common Stock from May 26, 1995 to the present
and a comparison of that trading history with those of other companies which we
deemed relevant, (6) a comparison of the historical financial results and
present financial condition of the Company with those of other companies which
we deemed relevant, (7) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other recent transactions which
we deemed relevant and (8) certain historical data relating to acquisitions of
publicly traded companies, including percentage premiums and price/earnings
ratios paid in such acquisitions. In addition, we have had discussions with the
management of the Company concerning its business, operations, assets, present
condition and future prospects and undertook such other studies, analyses and
investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification. With respect to the financial projections provided by
the Company, we have assumed that such projections have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
In arriving at our opinion, we have not conducted a physical inspection of the
properties and facilities of the Company and have not made nor obtained any
evaluations or appraisals of the assets or liabilities of the Company. In
addition, you have not authorized us to solicit, and we have not solicited, any
indications of interest from any third party with respect to the purchase of all
or a part of the Company's business. Our opinion is necessarily based upon
market, economic and other conditions as they exist on, and can be evaluated as
of, the date of this letter.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with the Proposed Transaction and will
receive a fee for our services which is in part contingent upon the consummation
of the Proposed Transaction. In addition, the Company has agreed to indemnify us
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for certain liabilities arising out of the rendering of this opinion. We have
also performed various investment banking services for the Company in the past,
and have received customary fees for such services. In the ordinary course of
our business, we actively trade in the common stock of the Company for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Merger Consideration to be
received in the Proposed Transaction is fair to the stockholders of the Company
(other than TAGTCR and the holders of Recapitalization Shares).
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, LLC
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APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to sec.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
receipt thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
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other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PROXY
COMPDENT CORPORATION
100 MANSELL COURT EAST, SUITE 400
ROSWELL, GEORGIA 30076
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
ON _______, _________, 1998 AT 10:00 A.M.
The undesigned hereby appoints Bruce A. Mitchell and Phyllis A. Klock, and each
of them, proxies, with full power of substitution and resubstitution, for and in
the name of the undersigned, to vote all shares of stock common, par value $.01
per share, of CompDent Corporation, held by the undersigned at the close of
business on ___________, 1998, which the undersigned would be entitled to vote
if personally present at the Special Meeting of Stockholders to be held on
___________, _________, 1998 at 10:00 a.m., local time, at the offices of King &
Spalding, 191 Peachtree Street, Atlanta, Georgia 30303-1763, and at any
adjournment thereof, upon the matters described in the accompanying Notice of
Special Meeting of Stockholders and Proxy Statement, receipt of which is hereby
acknowledged, and upon any other business that may properly come before the
meeting or any adjournment thereof. Said proxies are directed to vote on the
matters described in the Notice of Special Meeting of Stockholders and Proxy
Statement as follows, and otherwise in their discretion upon such other business
as may properly come before the meeting or any adjournment thereof.
PROPOSAL OF THE BOARD OF DIRECTORS TO APPROVE THE AGREEMENT AND PLAN OF MERGER,
DATED AS OF JULY 28, 1998, AS AMENDED ON ______________, 1998, BY AND AMONG
COMPDENT CORPORATION, TAGTCR ACQUISITION, INC., NMS CAPITAL, L.P., GOLDER,
THOMA, CRESSEY, RAUNER FUND V, L.P. AND TA/ADVENT VIII L.P.
[_] FOR [_] AGAINST [_] ABSTAIN
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all that
said proxies, their substitutes, or any of them, may lawfully do by virtue
hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF COMPDENT
CORPORATION.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THE
PROXY WILL BE VOTED FOR THE PROPOSAL LISTED ABOVE.
Dated: ___________, 1998
____________________________________________
Please sign exactly as your name(s)
appear(s) hereon. Where more than one owner
is shown above, each should sign. When
signing in a fiduciary or representative
capacity, please add your full title as
such. If this proxy is submitted by a
corporation, it should be executed in the
full corporate name by a duly authorized
officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND
THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
