NADX National Dentex Corp (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) )
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

NATIONAL DENTEX 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):

o		No fee required.
þ		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 ”)
	(2)		Aggregate number of securities to which transaction applies: 5,913,464 shares of common stock; options to purchase 698,761 shares of common stock; and restricted stock units with respect to 10,762 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): The maximum aggregate value was determined based upon the sum of (A) 5,913,464 shares of common stock multiplied by $17.00 per share; (B) options to purchase 698,761 shares of common stock multiplied by $6.68 (which is the difference between $17.00 and such options’ weighted average exercise price of $10.32 per share); and (C) restricted stock units with respect to 10,762 shares of common stock multiplied by $17.00 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.00007130 by the sum of the numbers in the preceding sentence.
	(4)		Proposed maximum aggregate value of transaction: $105,379,898
	(5)		Total fee paid: $7,513.59

þ		Fee paid previously with preliminary materials:
o		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:

 

 

June 30, 2010

 

National Dentex Corporation

2 Vision Drive

Natick, Massachusetts 01760

(508) 907-7800

 

Dear Shareholders:

 

On April 5, 2010, National Dentex Corporation ( “National Dentex” ) announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement” ), among GDC Holdings, Inc. ( “Parent” ), a Delaware corporation, Royal Acquisition Corp., a Delaware corporation and an indirect wholly owned subsidiary of Parent and a direct wholly owned subsidiary of GeoDigm Corporation, a Minnesota corporation ( “Merger Sub” ) and National Dentex. Pursuant to the Merger Agreement, Merger Sub will be merged with and into National Dentex, with National Dentex being the surviving corporation (the “Merger” ). If the Merger is completed, each share of common stock of National Dentex will be converted into the right to receive $17.00 in cash.

 

Our board of directors has unanimously determined that the Merger is advisable and in the best interest of National Dentex and its shareholders and that the $17.00 per share consideration for outstanding shares of National Dentex common stock is fair to our shareholders and recommends that you vote “FOR” the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

National Dentex will hold a special meeting of its shareholders to consider and vote on a proposal to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger. You will find the notice of this meeting in the attached documents. Your vote is very important . We cannot complete the Merger unless a majority of the outstanding shares of National Dentex common stock entitled to vote on the Merger Agreement and the transactions contemplated thereby, including the Merger, are voted “FOR” the proposal to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger. The failure of any shareholder to vote on the proposal to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger, will have the same effect as a vote against the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy in the accompanying reply envelope. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy card previously submitted.

 

Thank you in advance for your cooperation and continued support.

 

Sincerely,

 

David L. Brown

Chairman and Chief Executive Officer

 

 

 

NATIONAL DENTEX CORPORATION

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON JULY 29, 2010

 

Dear Shareholder:

 

A special meeting of the shareholders of National Dentex Corporation, a Massachusetts corporation ( “National Dentex” ) will be held, unless postponed or adjourned, on July 29, 2010, at 9:00 a.m., local time at the offices of Posternak Blankstein & Lund LLP, at the Prudential Tower, 33 ^rd Floor, 800 Boylston Street, Boston, MA, 02199, for the purpose of considering and voting upon the following matters:

 

 

We have fixed the close of business on June 23, 2010 as the record date for determining those shareholders entitled to notice of and to vote at the special meeting. Only National Dentex shareholders of record at the close of business on that date are entitled to and are being requested to vote at the special meeting. All shareholders of record are cordially invited to attend the special meeting. This proxy statement is first being sent to shareholders on or about June 30, 2010.

 

Please vote as soon as possible. To complete the Merger, the Merger Agreement and the transactions contemplated thereby, including the Merger, must be adopted and approved by the affirmative vote of the holders of a majority of the outstanding shares of National Dentex common stock entitled to vote on such matter. Abstentions and shares that you have not authorized your broker to vote will have the same effect as votes against the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger. Whether or not you intend to attend the special meeting, please vote as promptly as possible by completing, signing and returning the enclosed proxy card in the postage-paid envelope provided. If your shares are held in the name of a broker, bank or other nominee, please follow the instructions on the voting instruction card provided by such person. If you attend the special meeting, you may vote in person if you wish, even if you have previously returned your proxy card. If you wish to attend the special meeting and vote in person and your shares are held in the name of a broker, bank or other nominee, you must bring with you a proxy from the broker, trustee, bank or nominee to confirm your beneficial ownership of the shares.

 

National Dentex’s board of directors, by a unanimous vote, has determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, and in the best interests of National Dentex and our shareholders, that the $17.00 per share Merger consideration for outstanding shares of National Dentex common stock is fair to our shareholders, and recommends that National Dentex shareholders vote “FOR” adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and “FOR” the approval of the adjournment of the special meeting, if

necessary, in order to solicit additional proxies in favor of adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

By Order of the Board of Directors

 

Richard F. Becker, Jr.

Executive Vice President, Treasurer, and Assistant

Secretary

 

Natick, Massachusetts

June 30, 2010

TABLE OF CONTENTS

 

 

This summary term sheet highlights selected information from this proxy statement and may not contain all of the information that is important to you. To understand the Merger fully, and for a more complete description of the terms of the Merger, you should carefully read this entire proxy statement and the annexes attached to and other documents incorporated by reference in this proxy statement. We have included page references to direct you to a more complete description of the topics presented in this summary term sheet. In this proxy statement, the terms “National Dentex”, the “Company”, “we”, “us” and “our” refer to National Dentex Corporation, a Massachusetts corporation. In addition we refer to GDC Holdings, Inc. as “Parent”, Royal Acquisition Corp. as “Merger Sub”, GeoDigm Corporation as “GeoDigm”, and Welsh, Carson, Anderson & Stowe XI, L.P. as “Welsh Carson” or “Sponsor”.

 

The Parties to the Merger Agreement

 

National Dentex Corporation, one of the largest owner/operators of dental laboratories in North America, serves an active customer base of over 24,000 dentists through 42 dental laboratories located in 28 states and one Canadian province. National Dentex’s dental laboratories provide a full range of custom-made dental prosthetic appliances, including dentures, crowns, and fixed bridges, and other dental specialties. Upon completion of the Merger, we will be an indirect wholly owned subsidiary of Parent and a direct wholly owned subsidiary of GeoDigm.

 

Parent is a Delaware corporation and is the sole stockholder of GeoDigm. Parent conducts no other business activities other than those relating to owning the stock of GeoDigm. GeoDigm is a Minnesota corporation based in Chanhassen, Minnesota and is a leading innovator in dental and orthodontic imaging and manufacturing technology. GeoDigm deploys its proprietary, digitally-enabled production system exclusively through its laboratories, delivering products and services to its client base of over 5,000 dentists and orthodontists.

 

Merger Sub is a Delaware corporation formed by GeoDigm in anticipation of the Merger. Merger Sub is a direct wholly owned subsidiary of GeoDigm and an indirect wholly owned subsidiary of Parent. Subject to the terms and conditions of the Merger Agreement and in accordance with Massachusetts and Delaware law, at the effective time of the Merger, Merger Sub will merge with and into National Dentex and National Dentex will continue as the surviving corporation. Merger Sub currently has de minimis assets and no operations. The address of Parent and Merger Sub is c/o GeoDigm Corporation, 1630 Lake Drive West, Chanhassen, MN 55317.

 

Welsh Carson is a Delaware limited partnership with capital commitments of approximately $4 billion. Welsh Carson is the controlling investor of the sole stockholder of Parent. Welsh Carson was organized by Welsh, Carson, Anderson & Stowe, one of the largest private equity firms in the United States and the largest private equity firm in the world focused exclusively on investment in the healthcare and information/business services industries. Since its founding in 1979, Welsh, Carson, Anderson & Stowe has organized 15 investment partnerships with total capital of over $20 billion and is currently making investments from Welsh Carson as well as a separate dedicated subordinated debt fund. The address of Welsh Carson is c/o Welsh, Carson, Anderson & Stowe, 320 Park Avenue, Suite 2500, New York, NY 10022.

 

The Merger Proposal (page 48)

 

You are being asked to vote on a proposal to adopt and approve the Agreement and Plan of Merger, dated as of April 2, 2010, among Parent, Merger Sub and National Dentex, and the transactions contemplated thereby, including the Merger. Pursuant to the Merger Agreement, upon completion of the Merger, each outstanding share of our common stock, par value $0.01 per share (other than shares owned by Parent, Merger Sub, National Dentex or any subsidiary of National Dentex and shares held by shareholders who validly perfect appraisal rights in accordance with Massachusetts law, if available), will be converted into the right to receive $17.00 in cash, without interest and less any applicable withholding tax, and Merger Sub will merge with and into National Dentex and National Dentex will become a wholly owned subsidiary of GeoDigm. In the event that there are not sufficient votes properly cast at the time of the special meeting to adopt and

approve the Merger Agreement, our shareholders may also be asked to vote on a proposal to adjourn the special meeting to solicit additional proxies.

 

Reasons for the Merger (page 29)

 

Our board of directors has unanimously determined that the Merger is advisable and in the best interests of National Dentex and our shareholders and that the $17.00 per share Merger consideration for outstanding shares of our common stock is fair to our shareholders. Our board of directors has unanimously adopted the Merger Agreement and unanimously recommends that our shareholders adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger. ACCORDINGLY, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.

 

Opinion of Signal Hill (page 31)

 

In connection with the Merger, our board of directors received an opinion from Signal Hill Capital Group LLC ( “Signal Hill” ) as to the fairness, from a financial point of view and as of the date of such opinion, of the $17.00 per share cash Merger consideration to be received by holders of our common stock in accordance with the Merger Agreement. The full text of Signal Hill’s written opinion, dated April 2, 2010, is attached to this proxy statement as Annex B . You are encouraged to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the scope of review undertaken. Signal Hill’s opinion addressed only the fairness of the Merger consideration to our shareholders from a financial point of view as of the date of the opinion and did not address any other aspect of the Merger, including the merits of the underlying decision by us to enter into the Merger Agreement. The opinion was addressed to the board of directors for its information and use, but does not constitute a recommendation as to how any shareholder should vote or act on any matter relating to the proposal to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

The Special Meeting (page 17)

 

The special meeting will be held, unless postponed or adjourned, on July 29, 2010, at 9:00 a.m., local time at the offices of Posternak Blankstein & Lund LLP, at the Prudential Tower, 33 ^rd Floor, 800 Boylston Street, Boston MA, 02199.

 

Record Date and Quorum (page 17)

 

You are entitled to vote at the special meeting if you were the record owner of shares of our common stock at the close of business on June 23, 2010, the record date for the special meeting. You will have one vote for each share of our common stock that you owned on the record date. As of the record date, there were 5,913,464 shares of our common stock entitled to vote at the special meeting. The holders of a majority of the outstanding shares of our common stock at the close of business on the record date represented in person or by proxy will constitute a quorum for purposes of the special meeting.

 

Vote Required for Adoption and Approval (page 17)

 

The adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote thereon. A failure to vote your shares of our common stock or an abstention will have the same effect as voting against the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

Common Stock Ownership of Directors and Executive Officers (page 65)

 

As of the record date, the directors and executive officers of National Dentex held 260,376 shares of our common stock entitled to vote at the special meeting. In the aggregate, these shares represent approximately

4.4% of the voting power necessary to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger, at the special meeting.

 

Required Approvals and Consents (page 43)

 

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act” ), provides that transactions such as the Merger may not be completed until certain information has been submitted to the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice and certain waiting period requirements have been satisfied. National Dentex and Welsh Carson, as the ultimate parent entity under the HSR Act of Parent and Merger Sub, filed notification reports with the Department of Justice and the Federal Trade Commission under the Hart-Scott-Rodino Act on May 18, 2010. The 30 day waiting period under the HSR Act has been satisfied, and no further government approval of the Merger is required under the HSR Act.

 

Appraisal Rights (page 42)

 

We do not believe our shareholders will be entitled to appraisal rights under the Massachusetts Business Corporation Act (the “MBCA” ) in connection with the Merger. Section 13.02(a)(1) of the MBCA generally provides that shareholders of a Massachusetts corporation are entitled to appraisal rights in the event of a Merger. However, an exception to the general rule in Section 13.02(a)(1) of the MBCA provides that shareholders of a Massachusetts corporation are not entitled to appraisal rights in a merger transaction in which the sole consideration they receive consists of cash and so long as no director, officer or controlling shareholder of such corporation has a direct or indirect material financial interest in the merger other than in: (i) his, her or its capacity as a shareholder of the corporation; (ii) his, her or its capacity as a director, officer, employee or consultant of the merging corporation or the surviving corporation or an affiliate of the surviving corporation pursuant to bona fide arrangements with the merging corporation or the surviving corporation or any affiliate thereof; or (iii) any other capacity so long as the shareholder owns less than 5% of the voting securities of the corporation.

 

National Dentex believes that this exception applies to the Merger and that our shareholders will not be entitled to appraisal rights in connection with the Merger. However, the MBCA took effect on July 1, 2004 and Section 13.02 of the MBCA has not yet been the subject of judicial interpretation. Accordingly, it is possible that a court could conclude that this exception is not applicable in the present circumstances and that National Dentex shareholders are entitled to appraisal rights under Massachusetts law.

 

Any shareholder who believes he, she or it is entitled to appraisal rights and who wishes to preserve those rights should carefully review Sections 13.01 through 13.31 of Part 13 of the MBCA, attached as Annex C to this proxy statement, which sets forth the procedures to be complied with in perfecting such appraisal rights, if available. Failure to strictly comply with the procedures specified in Part 13 of the MBCA would result in the loss of any appraisal rights to which such shareholder may be entitled. Please read Part 13 of the MBCA carefully, because exercising appraisal rights involves several procedural steps, and failure to follow appraisal procedures could result in the loss of such rights, if any. Shareholders should consult with their advisors, including legal counsel, in connection with any demand for appraisal.

 

Additionally, since National Dentex does not believe that our shareholders are entitled to appraisal rights in connection with the Merger, National Dentex intends to take the position that any of our shareholders who seek appraisal for their shares of common stock are not entitled to do so under the MBCA and National Dentex does not intend to deliver the appraisal notice and form called for by Section 13.22 of the MBCA to any of our shareholders seeking appraisal.

 

Financing and Equity Commitment Letter (page 58)

 

Parent and Merger Sub estimate that the total amount of funds necessary to consummate the Merger and related transactions will be approximately $139,000,000 (including the pay off of net debt and payment of fees), which Parent and Merger Sub expect will be funded by equity financing, debt financing, if available at the time of closing, and, to the extent available at the time of closing, cash of National Dentex. Notwithstanding any debt financing that Parent may seek to have in place at the closing, Parent’s and Merger Sub’s obligations to consummate the Merger are not subject to any financing conditions (although funding of the

equity financing is subject to the satisfaction of the closing conditions set forth in the Merger Agreement). Parent, Merger Sub and National Dentex are a party to an equity commitment letter with Welsh Carson (the “Equity Commitment Letter” ), pursuant to which, Welsh Carson has agreed to provide up to a maximum of $139,000,000 of equity financing to finance the Merger and other transactions contemplated by the Merger Agreement. Funding under the Equity Commitment Letter is subject to the satisfaction of the conditions set forth in the Equity Commitment Letter, which are limited to the satisfaction of the closing conditions set forth in the Merger Agreement or a final non-appealable judgment or settlement related to the Merger Agreement being entered into or awarded in favor of us. In the event of a breach of the Equity Commitment Letter by Welsh Carson, our sole remedy is to seek specific performance (or, if the court declines to award specific performance, to seek to recover money damages consistent with the Merger Agreement), against Welsh Carson in order to enforce Welsh Carson’s obligations under the Equity Commitment Letter, including its commitment to provide the cash contributions to Parent to consummate the Merger, or satisfy Parent’s or Merger Sub’s damages liability for any breaches by them of the Merger Agreement, in all events not to exceed $139,000,000 in the aggregate.

 

The Merger is not subject to any financing condition. To verify that Parent would have sufficient funds at closing to consummate the transactions contemplated by the Merger Agreement, we required Parent to make a representation and warranty in the Merger Agreement that it would have available to it at the closing of the Merger all funds necessary to consummate the Merger. In addition, we reviewed its financial statements. We also reviewed and discussed Welsh Carson’s fund history, reputation, and public statements as to its size and its uncommitted capital.

 

Treatment of Stock Options and Other Stock-Based Awards (page 48)

 

Stock Options.   Immediately prior to the effective time of the Merger, each then outstanding option to acquire common stock of National Dentex shall become vested in full and exercisable for shares of common stock of National Dentex. If not exercised at or prior to the effective time of the Merger, each such outstanding option shall be terminated and converted into the right to receive an amount, if any, equal to (i) the excess, if any, of (A) $17.00 over (B) the exercise price per share of the applicable option, multiplied by (ii) the number of shares of common stock subject to such option.

 

ESPP.   Our Employee Stock Purchase Plan ( “ESPP” ) will terminate as of the effective time of the Merger. All ESPP deductions made in the current plan year beginning April 1, 2010 will be refunded after the Merger is completed.

 

Restricted Stock.   Shares of common stock awarded pursuant to our equity incentive plans and subject to vesting or other lapse restrictions (restricted stock) that are outstanding immediately prior to the effective time of the Merger shall vest in full and become free of applicable lapse restrictions as of the effective time of the Merger. As a result, if the Merger is completed, the holder thereof shall be entitled to receive $17.00 per share with respect to each share of restricted stock. There are currently no shares of restricted stock outstanding as the remaining restricted stock vested in accordance with its terms on May 13, 2010.

 

Restricted Stock Units.   Each award of a right to shares of common stock pursuant to our equity incentive plans that is subject to vesting or other lapse restrictions ( “RSUs” ) that is outstanding immediately prior to the effective time of the Merger shall vest in full and become free of applicable lapse restrictions as of the effective time of the Merger. Such RSUs shall be canceled and extinguished as of the consummation of the Merger, and the holder thereof shall be entitled to receive from National Dentex an amount in cash equal to $17.00 per share with respect to each share previously subject to such RSU and not previously delivered pursuant to such RSU.

 

Anticipated Closing of the Merger

 

We expect the Merger to be completed in our fiscal quarter ending September 30, 2010. However, the timing of the completion of the Merger depends upon the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, by our shareholders, among other conditions.

Interests of Directors and Executive Officers in the Merger (page 43)

 

In considering the information contained in this proxy statement, you should be aware that National Dentex’s executive officers and directors have financial interests in the Merger that may be different from, or in addition to, the interests of other National Dentex shareholders. These additional or differing interests of National Dentex’s executive officers and directors may create potential conflicts of interest and may cause these persons to view the proposed transaction differently than you may view it as a shareholder. National Dentex’s board of directors was aware of these interests and took them into account in its decision to declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger. For information concerning these interests, please see the discussion under “The Merger — Interests of Directors and Executive Officers in the Merger ,” beginning on page 43.

 

 

 

Alternative Acquisition Proposals by Third Parties (Page 54)

 

The Merger Agreement provides that, until 11:59 p.m., Eastern Standard Time, on May 12, 2010, we were permitted to:

 

 

 

From and after 11:59 p.m., Eastern Standard Time, on May 12, 2010, we have agreed not to:

 

 

Notwithstanding these restrictions, at all times during the period commencing as of 11:59 p.m., Eastern Standard Time, on May 12, 2010 and until the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, by our shareholders, we may furnish information about National Dentex to and participate in discussions or negotiations with:

 

 

 

Conditions to the Merger (page 59)

 

The completion of the Merger depends on the satisfaction of the following conditions:

 

 

A material adverse effect on National Dentex as set forth above and elsewhere in the Merger Agreement is defined in the Merger Agreement as any effect, change, event, occurrence, circumstance or development that (i) has, or would be reasonably expected to have, a material adverse effect on the business, results of operations, properties or financial condition of National Dentex and its subsidiaries, taken as a whole, or (ii) prevents, materially delays or materially affects, or would reasonably be expected to prevent, materially

delay or materially affect, the ability of National Dentex to consummate the transactions contemplated by, or to perform its obligations under, the Merger Agreement, subject to a number of customary exceptions.

 

Termination (page 61)

 

National Dentex and Parent may agree by mutual written consent at any time prior to the effective time of the Merger to terminate the Merger Agreement and abandon the Merger, whether before or after the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, by our shareholders.

 

National Dentex and Parent can decide individually, without the consent of the other, not to complete the Merger in the following situations:

 

 

In addition, Parent may terminate the Merger Agreement without our consent if:

 

 

We may terminate the Merger Agreement, prior to our shareholders’ adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, without Parent or Merger Sub’s consent:

 

 

Termination Fee and Expenses (page 63)

 

If the Merger Agreement is terminated:

 

 

then we would be required to reimburse Parent for its out-of-pocket expenses incurred in connection with the transactions contemplated by the Merger Agreement, up to a maximum of $2,000,000. The amount of Parent’s expenses paid by us will be credited against any termination fee that becomes payable by us in the future.

 

We are required to pay a termination fee of $4,150,000, less any amount we have previously paid for Parent’s transaction expenses, if:

 

 

provided, however , that the termination fee would have been $3,150,000, less any amount we have previously paid for Parent’s transaction expenses, if the alternative acquisition proposal leading to termination was entered into with a party from which we received an alternative acquisition proposal on or before May 12, 2010 and with whom we were having ongoing discussions as of May 12, 2010 and who remained a Continuing Party (as defined in the Merger Agreement) under the Merger Agreement. As of May 12, 2010, there were no Continuing Parties. Parent is only entitled to the termination fee following termination for failure to consummate the Merger by 5:00 p.m., Eastern Standard Time, on September 15, 2010, failure to obtain the required shareholder vote, or our breach of the Merger Agreement, if, following such termination, we enter into a definitive agreement with respect to an alternative acquisition proposal or consummate an alternative acquisition proposal within one year of termination, in each case for more than 50% of the equity or assets of National Dentex.

Remedies; Specific Performance (page 64)

 

In the event of a breach of the Merger Agreement by Parent or Merger Sub, or the Equity Commitment Letter by Sponsor, our sole remedy is to seek specific performance (or, if the court declines to award specific performance, to seek to recover money damages consistent with the Merger Agreement) against Parent in order to enforce Parent’s obligations under the Merger Agreement, including to consummate the Merger, and against Sponsor in order to enforce Sponsor’s obligations under the Equity Commitment Letter, including Sponsor’s commitment to provide the cash contributions to Parent to consummate the Merger or satisfy Parent’s or Merger Sub’s damages liability for any breaches by them of the Merger Agreement, in all events not to exceed $139,000,000, which is the maximum aggregate amount that is estimated to be necessary to consummate the Merger and related transactions. If a final, non-appealable damages judgment is entered against Parent and/or Sponsor, we may not enforce such judgment if Parent and Merger Sub irrevocably commit in writing to us to consummate the Merger in accordance with the Merger Agreement, Sponsor irrevocably commits to us in writing to consummate the transactions contemplated by the Equity Commitment Letter in accordance with its terms, within ten days of such judgment and the Merger is consummated within 15 days of such irrevocable commitment.

 

Accounting Treatment of the Merger

 

The Merger will be treated as a “business combination” using the acquisition method of accounting with GeoDigm treated as the acquirer under generally accepted accounting principles, or GAAP.

 

Material United States Federal Income Tax Consequences of the Merger (page 45)

 

For U.S. federal income tax purposes, the disposition of our common stock pursuant to the Merger generally will be treated as a sale of the shares of our common stock for cash by each of our shareholders. As a result, in general, each shareholder will recognize gain or loss equal to the difference, if any, between the amount of cash received by such shareholder in the Merger and such shareholder’s adjusted tax basis in the shares surrendered. Such gain or loss will be capital gain or loss if the shares of common stock surrendered are held as capital assets in the hands of the shareholder, and will be long-term capital gain or loss if the shares of common stock have a holding period of more than one year at the effective time of the Merger. In certain circumstances, all or a portion of any loss realized upon the disposition of shares will be disallowed if other shares of our common stock are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. Shareholders may be subject to state, local, or foreign tax laws that are not disclosed in this proxy statement. We recommend that our shareholders consult their own tax advisors as to the particular tax consequences to them of the Merger.

 

The following are some questions that you, as a shareholder of National Dentex, may have regarding the Merger and the special meeting of National Dentex shareholders, and brief answers to such questions. We urge you to read carefully this entire proxy statement, because the information in this section does not provide all the information that may be important to you with respect to the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger. Additional important information is also contained in the appendices to and documents incorporated by reference into this proxy statement.

 

What is the proposed transaction?

 

The proposed transaction is the merger of Merger Sub, an indirect wholly owned subsidiary of Parent and direct wholly owned subsidiary of GeoDigm, with and into National Dentex pursuant to the Merger Agreement. National Dentex will be the surviving corporation in the Merger and will become a direct wholly owned subsidiary of GeoDigm and an indirect wholly owned subsidiary of Parent.

 

What matters will be voted on at the special meeting?

 

You will be asked to consider and vote on proposals to do the following:

 

 

As a National Dentex shareholder, what will I receive upon completion of the Merger?

 

If the Merger is completed, you will receive $17.00 in cash for each share of our common stock that you own immediately prior to the effective time of the Merger, unless you exercise and perfect your appraisal rights under Massachusetts law, if available.

 

What do I need to do now?

 

After you carefully read this proxy statement in its entirety, including its appendices, consider how the Merger would affect you and then vote or provide voting instructions as described in this proxy statement.

 

Who can vote and attend the special meeting?

 

All shareholders of record as of the close of business on June 23, 2010, the record date for the special meeting, are entitled to receive notice of and to attend and vote at the special meeting, or any postponement or adjournment thereof. If you want to attend the special meeting and your shares are held in an account at a brokerage firm, bank or other nominee, you must bring to the special meeting a proxy from the record holder (your broker, bank or nominee) of the shares authorizing you to vote at the special meeting.

 

When and where is the special meeting?

 

The special meeting of shareholders of National Dentex will be held, unless adjourned or postponed, on July 29, 2010, starting at 9.00 a.m. local time, at the offices of Posternak Blankstein & Lund LLP, at the Prudential Tower, 33rd Floor, 800 Boylston Street, Boston MA, 02199.

 

How many votes are required to adopt and approve Merger Agreement?

 

In order to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger, our shareholders holding a majority of the outstanding shares of National Dentex common stock entitled to vote on the Merger Agreement on the record date must vote “FOR” the Merger Agreement and the

transactions contemplated thereby, including the Merger. In order to adjourn the special meeting, if necessary, to solicit additional proxies to vote in favor of the Merger Agreement and the transactions contemplated thereby, including the Merger, the holders of shares of National Dentex common stock representing a majority of the votes cast on the proposal to adjourn the special meeting must vote “FOR” the adjournment of the special meeting.

 

How does the National Dentex board of directors recommend I vote?

 

At a meeting held on April 2, 2010, the National Dentex board of directors, by unanimous vote, (i) determined and declared that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and in the best interests of National Dentex and its shareholders; (ii) adopted the Merger Agreement; (iii) directed that the Merger Agreement be submitted to shareholders of National Dentex for their adoption and approval; (iv) determined the $17.00 per share cash price for outstanding common stock was fair to our shareholders; and (v) resolved to recommend that its shareholders adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger. Accordingly, the board of directors of National Dentex unanimously recommends that you vote “FOR” the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate to solicit additional proxies, if there are not sufficient votes in favor of adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

How do I vote?

 

Whether you plan to attend the special meeting or not, we urge you to vote by proxy. Voting by proxy will not affect your right to attend or vote at the special meeting. Unless otherwise provided, the following instructions assume that your shares are registered directly in your name through our stock transfer agent, Registrar & Transfer Company, or you have stock certificates.

 

You may vote by mail.   You do this by completing and signing your proxy card and mailing it in the enclosed, prepaid and addressed envelope. If you mark your voting instructions on the proxy card, your shares will be voted as you instruct. If you return a signed card but do not provide voting instructions, your shares will be voted “FOR” the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary or appropriate to solicit additional proxies, if there are insufficient votes at the time of the special meeting to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger. The failure to attend the special meeting in person or by proxy will count as a vote against the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and will not affect the outcome of any proposal by our board of directors to adjourn the special meeting, but will reduce the number of votes required to approve the adjournment. If your shares are held in “street name” (held in the name of a bank, broker or other nominee), you must provide your bank, broker or other nominee with instructions regarding how to vote your shares, and receive directions from your bank, broker or other nominee explaining how to provide such nominee with your voting instructions.

 

You may vote via telephone or the Internet.   If your shares are held in street name, you must follow the instructions you receive from your bank, broker or other nominee to vote via telephone or the Internet.

 

You may vote in person at the special meeting.   Written ballots will be passed out to anyone who attends and wants to vote at the special meeting. If you hold your shares in street name, you must request a legal proxy from your broker or other nominee and bring it to the special meeting in order to vote at the special meeting. You will not be able to vote at the special meeting unless you have a legal proxy from your broker.

 

What does it mean if I receive more than one proxy card?

 

It means that you have multiple accounts at the transfer agent and/or with brokers. Please vote in the manner described above under “How do I vote?” for each account to ensure that all of your shares are voted.

What if I change my mind after I return my proxy?

 

You may revoke your proxy and change your vote at any time before the polls close at the special meeting. You may do this by:

 

 

Will my shares be voted if I do not sign and return my proxy card?

 

No. If your shares are registered in your name or if you have stock certificates, they will not be voted if you do not sign and return your proxy card by mail, or vote via telephone or the Internet or in person as described above under “How do I vote?”

 

If your shares are held in “street name”, your broker, bank or nominee will not be able to vote your shares without instructions from you. Therefore, you should instruct your broker, bank or nominee to vote your shares following the procedure provided by your broker, bank or nominee. Under the rules of NASDAQ Global Market ( “Nasdaq” ), brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to approving non-routine matters, which includes the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and the proposal to adjourn the special meeting and, as a result, absent specific instructions from a beneficial owner of shares, brokers are not empowered to vote those shares.

 

If you fail to submit a proxy or vote in person at the special meeting, or do not provide your broker with instructions, as applicable, your shares of National Dentex common stock will not be voted. This will have the same effect as a vote against the proposal to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and will have no effect on the proposal to adjourn the special meeting.

 

Is the Merger expected to be taxable to me for U.S. federal income tax purposes?

 

Generally, yes. The receipt of cash for each share of our common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. For U.S. federal income tax purposes, generally you will recognize gain or loss as a result of the Merger measured by the difference, if any, between the Merger consideration received for each share and your adjusted tax basis in that share. Gain or loss will be determined separately for each block of shares (that is, shares acquired at the same cost in a single transaction).

 

You should read the section titled “Material United States Federal Income Tax Consequences” beginning on page 45 for a more complete discussion of the U.S. federal income tax consequences of the Merger. Tax matters can be complicated, and the tax consequences of the Merger to you will depend on the facts of your own situation. In addition, shareholders may be subject to state, local, or foreign tax laws that are not disclosed in this proxy statement. You should consult your own tax advisor as to the tax consequences of the Merger to you.

 

Should I send in my National Dentex stock certificates now?

 

No. Promptly after the Merger is completed, each holder of record immediately prior to the effective time of the Merger will be sent a letter of transmittal and written instructions for exchanging share certificates for

the cash Merger consideration. These instructions will tell you how and where to send in your certificates or how to transfer ownership of book-entry shares, as applicable, for the cash Merger consideration. You will receive your cash payment after the paying agent receives your stock certificates or a confirmation of a book-entry transfer by Registrar & Transfer Company, as applicable, and any other documents requested in the instructions. If your shares are held in “street name” by your brokerage firm, bank, trust or other nominee, you will receive instructions from your brokerage firm, bank, trust or other nominee as to how to effect the surrender of your “street name” shares in exchange for the Merger consideration. PLEASE DO NOT SEND YOUR CERTIFICATES IN NOW.

 

When can I expect to receive the Merger consideration for my shares?

 

Once the Merger is completed, you will be sent a letter of transmittal with instructions informing you how to send your stock certificates or what to do if you hold shares in book-entry form in order to receive the Merger consideration. Once you have submitted your properly completed letter of transmittal, National Dentex stock certificates and other required documents to the paying agent, the paying agent will send you the Merger consideration payable with respect to your shares. If your shares are held in “street name” by your broker, bank or other nominee, your broker, bank or other nominee will handle the exchange for the Merger consideration.

 

I do not know where my stock certificate is; how will I get cash?

 

The materials the paying agent will send you after completion of the Merger will include the procedures that you must follow if you cannot locate your stock certificates. This will include an affidavit and indemnity agreement that you will need to sign attesting to the loss of your certificate. You may also be required to provide a bond to us in order to cover any potential loss.

 

What happens if I sell my shares before the special meeting?

 

The record date for the special meeting is earlier than the special meeting and the date that the Merger is expected to be completed. If you transfer your shares of National Dentex’s common stock after the record date but before the special meeting, you will retain your right to vote at the special meeting, but will have transferred the right to receive $17.00 per share in cash to be received by our shareholders in the Merger. In order to receive the $17.00 per share, you must hold your shares through completion of the Merger.

 

When do you expect the Merger to be completed?

 

We are working toward completing the Merger promptly. We currently expect the Merger to be completed in our fiscal quarter ending September 30, 2010, subject to obtaining shareholder approval and satisfying all the other closing conditions contained in the Merger Agreement.

 

Am I entitled to appraisal rights?

 

We do not believe that our shareholders will be entitled to appraisal rights under the MBCA in connection with the Merger. The MBCA provides that shareholders of a Massachusetts corporation are not entitled to appraisal rights in a merger transaction in which the sole consideration they receive consists of cash so long as no director, officer or controlling shareholder of such corporation has a direct or indirect material financial interest in the merger other than in: (i) his, her or its capacity as a shareholder of the corporation; (ii) his, her or its capacity as a director, officer, employee or consultant of the merging corporation or the surviving corporation or an affiliate of the surviving corporation pursuant to bona fide arrangements with the merging corporation or the surviving corporation or any affiliate thereof; or (iii) any other capacity so long as the shareholder owns less than 5% of the voting securities of the corporation.

 

National Dentex believes that this exception applies to the Merger and that our shareholders are not entitled to appraisal rights in connection with the Merger. However, the MBCA took effect on July 1, 2004 and Section 13.02 of the MBCA has not yet been the subject of judicial interpretation. Accordingly, it is possible that a court could conclude that this exception is not applicable in the present circumstances and that

National Dentex shareholders are entitled to appraisal rights under Massachusetts law. We intend to take the position that any of our shareholders that seek appraisal for their shares of common stock are not entitled to do so under the MBCA and we do not intend to deliver the appraisal notice and form called for by Section 13.22 of the MBCA to any of our shareholders seeking appraisal. See the section “Appraisal Rights” beginning on page 42.

 

Is my vote confidential?

 

Only the inspectors of election and certain employees of National Dentex will have access to your proxy card. They will tabulate and certify the vote. Management will not know how you voted unless it is necessary under legal requirements. We will, however, forward to management any written comments you make on the proxy card or elsewhere. All comments will remain confidential unless you ask that your name be disclosed.

 

What are the costs of soliciting these proxies?

 

We will split the costs of soliciting these proxies with Parent, unless the Merger Agreement is terminated under certain conditions, in which case we will be solely responsible for the cost of soliciting the proxies. Our directors and employees may solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communications. We will pay these directors and employees no additional compensation for these services. In addition, we have retained Morrow & Co., LLC ( “Morrow” ) to assist in the solicitation. We have agreed to pay Morrow a fee of approximately $6,500 for proxy solicitation services. We will ask banks, brokers and other institutions, nominees and fiduciaries to forward these proxy materials to their principals and to obtain authority to execute proxies. Upon request, we will then reimburse them for their expenses.

 

Who can help answer my questions?

 

If you would like additional copies, without charge, of this proxy statement or if you have questions about the Merger, including the procedures for voting your shares, you should contact:

 

Morrow & Co., LLC
470 West Avenue — 3 ^rd Floor
Stamford, CT 06902
Shareholders may call toll free: (800) 460-1014
Banks and brokers may call toll free: (800) 662-5200

 

This proxy statement, and the other documents to which we refer you in this proxy statement, contain forward-looking statements about National Dentex made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about beliefs and expectations are forward-looking statements. These statements often include the words “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook,” “objectives,” “strategies,” “goals” or similar expressions. You should read statements that contain these words carefully. They discuss our future expectations or state other forward-looking information and may involve risks over which we have no control. These risks include, without limitation:

 

 

We believe that the assumptions on which the forward-looking statements in this proxy statement have been made are reasonable. However, we cannot assure you that the actual results or developments we anticipate will be realized or, if realized, that they will have the expected effects on our business or operations. In light of significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on such statements. We undertake no obligation, and expressly disclaim any obligation to update forward-looking statements in this proxy statement to reflect events or circumstances after the date of this proxy statement or to update reasons why actual results could differ from those anticipated in forward-looking statements in this proxy statement. All subsequent written and oral forward-looking statements concerning the Merger Agreement, the Merger or other matters addressed in this proxy statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Forward-looking statements speak only as of the date of this proxy statement. Except as required by applicable law or regulation, we do not undertake to update these forward-looking statements to reflect future events or circumstances.

 

This proxy statement is being furnished to our shareholders as part of the solicitation of proxies by our board of directors for use at the special meeting to be held, unless adjourned or postponed, on July 29, 2010, starting at 9.00 a.m. local time, at the offices of Posternak Blankstein & Lund LLP, at the Prudential Tower, 33rd Floor, 800 Boylston Street, Boston MA, 02199 or at any postponement or adjournment thereof. The purpose of the special meeting is for our shareholders to consider and vote upon the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and any proposal to adjourn the special meeting, if necessary or appropriate to solicit additional proxies to vote in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger. Our shareholders must adopt and approve the Merger Agreement in order for the Merger to occur. If we do not receive the requisite vote of our shareholders to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A . This proxy statement and the enclosed form of proxy card are first being mailed to our shareholders on June 30, 2010.

 

We have fixed the close of business on June 23, 2010 as the record date for the special meeting, and only holders of record of National Dentex’s common stock on the record date are entitled to vote at the special meeting and any adjournments or postponements thereof. On the record date, there were 5,913,464 shares of our common stock outstanding and entitled to vote. Each share of our common stock entitles its holder to one vote on all matters properly coming before the special meeting.

 

A majority of the number of shares of our common stock, outstanding and entitled to vote at the special meeting, present in person or by proxy, shall constitute a quorum for the purpose of considering the proposals. Shares of our common stock represented at the special meeting in person or by proxy, but for which shareholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business properly brought before the meeting. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies.

 

Adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, requires the affirmative vote of the holders of a majority of the outstanding shares of National Dentex’s common stock entitled to vote thereon. For the proposal to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger, you may vote “FOR” , “AGAINST” or “ABSTAIN” . Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

We will only adjourn the special meeting if the proposal to adjourn the special meeting, if necessary or appropriate for the purpose of soliciting additional proxies, is approved by the a majority of the votes cast on the proposal to adjourn the special meeting. For any proposal to adjourn the special meeting, if necessary or appropriate, you may vote “FOR” , “AGAINST” or “ABSTAIN” . Abstentions and broker non-votes will have no effect on the vote to adjourn the special meeting.

 

If you submit a proxy, your shares will be voted at the special meeting as you indicate on your proxy card. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and “FOR” any proposal to adjourn the special meeting, if necessary or appropriate to solicit additional proxies. If

your shares of National Dentex’s common stock are held in “street name”, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted.

 

Proxies received at any time before the special meeting, and not revoked or superseded before being voted, will be voted at the special meeting. You have the right to change or revoke your proxy at any time before the vote is taken at the special meeting. You may do this by:

 

 

Please do not send in your stock certificates with your proxy card.   When the Merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the Merger consideration in exchange for your stock certificates.

 

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment may be made without notice, other than by an announcement made at the special meeting of the time, date and place of the adjourned meeting date; provided, however, that notice must be provided to shareholders if a new record date is fixed for the special meeting. If a quorum is present, we will only adjourn the special meeting if the proposal to adjourn the special meeting, if necessary or appropriate for the purpose of soliciting additional proxies, is adopted and approved by a majority of the votes cast. Any signed proxies received by us in which no voting instructions are provided on such matter will be voted “FOR” any proposal to adjourn the special meeting. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow National Dentex shareholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

This proxy solicitation is being made by the board of directors of National Dentex. We will split equally the costs of soliciting these proxies with Parent, unless the Merger Agreement is terminated under certain conditions, in which case we will be solely responsible for the cost of soliciting the proxies. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. In addition, we have retained Morrow & Co., LLC ( “Morrow” ) to assist in the solicitation. We agreed to pay Morrow a fee of approximately $6,500 for proxy solicitation services. In addition, we will indemnify Morrow against any losses arising out of that firm’s proxy soliciting services on our behalf. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of National Dentex’s common stock that the brokers and fiduciaries hold of record. Upon request, we will reimburse them for their reasonable out-of-pocket expenses.

 

If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call Morrow toll-free at (800) 460-1014 (brokers and banks may call toll-free at (800) 662-5200).

 

The discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

 

Our Company was established through the acquisition of 26 full service dental laboratories from two separate companies in 1982 and 1983. Throughout our history, we have maintained a strategy of growing our business principally through acquisitions and using financial and operational synergies and operational improvement at acquired laboratories to create a competitive advantage for our Company. Since 1983, we have completed the acquisition of an additional 37 dental laboratories.

 

While our focus has traditionally been to seek increased shareholder value through acquisitions and the growth of our existing laboratory businesses, our board and management team regularly review our business and operations, our long-term strategic plans, goals and alternatives, and our prospects as an independent company. This continuing review and analysis by our board has included the evaluation of trends and conditions from time to time impacting our industry and our Company and the markets and competitive environment in which we operate. In recent years, our board has increasingly focused on certain current trends that we believe could present long-term risks to our competitive position and future prospects, including: (i) increased competition from offshore laboratories, primarily those located in China, and (ii) the deployment of technology-based solutions that allow dentists to fabricate their own restorations without the use of a dental laboratory. Since early 2008, our board has also focused on the impact of price-sensitive consumers postponing elective dental work due to the weak economy in 2008 and 2009, coupled with high unemployment, tight credit and dampened consumer confidence, which had negatively impacted our revenue during this period. We currently believe that this decline in consumer spending subsided during the first quarter of 2010, and as the economy improves, we currently expect an increase in demand from these price sensitive consumers, mitigating the long term effects of this deferral on our revenue. As part of this ongoing review of our business, our position in the dental laboratory industry and our prospects, our board has also regularly evaluated strategic alternatives available to us, including, among other things, possible strategic combinations, acquisitions and divestitures.

 

Historically, we have from time to time received unsolicited inquiries from third parties regarding the potential acquisition of our Company. We received one such written inquiry on February 20, 2008 from Welsh, Carson, Anderson & Stowe X, L.P., a Welsh, Carson, Anderson & Stowe investment partnership ( “WCAS X” ), indicating its preliminary interest in potentially acquiring our Company at a price of $19.00 per share, subject to its further evaluation and due diligence. The price per share stated in the letter was a 20% premium over the closing price of our common stock on the date of the letter from WCAS X, but lower than the 52 week high closing price for our common stock from that date. At that time, WCAS X informed us that it was in discussions with GeoDigm to make a significant equity infusion in GeoDigm as part of its investment strategy in the dental laboratory industry, although WCAS X did not have a definitive agreement with GeoDigm regarding such investment at that time. Assuming it consummated its investment in GeoDigm, WCAS X hoped to combine our Company with GeoDigm. We had previously met representatives of GeoDigm as part of our ongoing evaluation of new technologies that could be used in our dental laboratories.

 

On February 26, 2008, our board met at a regularly scheduled meeting. At this meeting, management discussed with the board the business plan and budget for the 2008 fiscal year. After reviewing the business plan and budget, the board discussed the trends and conditions affecting our industry and our Company as well as recent inquiries relating to a possible acquisition of our Company by other businesses or investors in our industry. The board reviewed the status of various indications of interest, including the recent letter from WCAS X and another indication of interest (without a price) that had recently been received from a potential strategic acquiror, which was a portfolio company of another private equity firm (who shall hereinafter be referred to as “Party B” ). Party B’s indication of interest stood out from other past unsolicited inquiries given the strategic rationale for Party B’s interest in acquiring our Company and our understanding of the financial

resources of its sponsor. A representative of Posternak Blankstein & Lund LLP ( “Posternak” ), our legal counsel, was in attendance at the meeting and advised the board members of their fiduciary duties with respect to transactions involving a potential acquisition of our Company. The board reviewed a range of strategic alternatives, including the pursuit of additional accretive dental laboratory acquisitions, a stock buy-back program, a merger with a strategic partner or a transaction with a financial investor. After reviewing these various alternatives and considering our management’s business plan and budget, the board determined not to pursue a sale of our Company at that time, but rather to continue to pursue our existing operational plans and acquisition strategy together with continuing to look at the possibility of restarting our Company’s stock buy-back program.

 

On or about March 3, 2008, we informed both WCAS X and Party B that we were not interested in pursuing a merger transaction at that time. Representatives of WCAS X continued to contact management in order to inform us of the status of GeoDigm’s technology and to encourage us to consider a potential transaction involving GeoDigm and the acquisition of our Company. On April 10, 2008, WCAS X sent an email to Mr. Harkins reaffirming its interest in pursuing a possible transaction involving GeoDigm and the acquisition of our Company and advocating for the attractiveness of its proposed offer. During this time period, our Chief Executive Officer, Mr. David Brown, received further inquiries from Party B about a proposed acquisition of our Company by Party B.

 

In response to an invitation from GeoDigm, on May 6 and May 7, 2008, members of our management team met with representatives of WCAS X and GeoDigm at GeoDigm’s principal offices at which time our representatives were permitted to review GeoDigm’s technology to assess GeoDigm’s technology platform. On May 8, 2008, representatives of Party B met with members of our management to discuss Party B’s strategic plans and our Company’s fit in Party B’s strategic plans.

 

On May 13, 2008, at a regularly scheduled meeting, our board again discussed various acquisition opportunities under consideration by us, our long term strategy and challenges as well as our potential strategic alternatives. The board also discussed the continued interest of both WCAS X and Party B. Mr. Brown informed the board that management had recently reviewed the technology of GeoDigm and met with Party B. Following this discussion, our board decided to continue to explore these additional dental laboratory acquisition opportunities for our Company, and to simultaneously interview investment banking firms in order to engage a suitable firm to assist the board in its evaluation and assessment of possible strategic alternatives. A representative of Posternak then discussed with the board members their fiduciary duties with respect to transactions involving the potential acquisition of our Company. The board authorized Mr. Harkins and Mr. Brown, with the assistance of Posternak, to interview and make a recommendation to the board on investment banking firms that could assist in this evaluation and assessment.

 

Following the May 2008 board meeting, Mr. Brown and Mr. Harkins, with the assistance of Posternak, interviewed five potential investment banking firms, including BB&T Capital Markets. During the same time, Mr. Brown had various conversations with representatives of WCAS X and Party B about their continued interest in pursuing a transaction with our Company. We were also in the process of negotiating the acquisition of Dental Art Laboratories, a full service dental laboratory with 2007 sales in excess of $7,500,000, as well as continuing to explore the feasibility of restarting the stock buy-back program.

 

On August 22, 2008, our board held a special meeting to discuss the strategic alternatives available to us, whether to engage an investment banking firm, how to respond to the continuing inquiries from representatives of WCAS X and Party B and whether to pursue a transaction. After discussing the results of the interviews of the various investment banking firms, Mr. Brown and Mr. Harkins recommended to the board that it retain BB&T Capital Markets as our financial advisor, based upon BB&T Capital Markets’ experience with similar sized transactions, its current work on our valuation, the proposed process and the experience and quality of its team members. The board then discussed whether (a) to initiate a competitive process with only WCAS X and Party B, or (b) to pursue a more expanded process involving other potential acquirors and exposing our Company to the risks of such an effort, such as the potential public exposure that could result from a broader solicitation of potential purchasers and the effect that such exposure could have on our customers, employees and stock price. The board determined that it would pursue the first option, which provided the benefits of a

competitive process without the risks of a more expanded process. The board also decided to engage BB&T Capital Markets and to instruct them to contact WCAS X and Party B, provide each of them with limited access to certain confidential information and allow them to meet with our management, followed by a request for an indication of proposed valuation. The board further determined that if this process resulted in one or more valuation proposals at a level acceptable to it, the party or parties making such proposal or proposals would be allowed to complete additional confirmatory due diligence and submit a formal bid proposal. The board also considered that if the valuation proposals from WCAS X or Party B were not at a level acceptable to it, the board could open up the process to other potential parties or determine not to proceed with a potential transaction at that time. Based upon advice from representatives of Posternak who attended the meeting at the request of the board, the board also determined that, if we were to move forward with this limited process, any definitive acquisition agreement would have to include a “go shop” period, which would permit us to solicit alternative proposals for a reasonable period after execution to ensure that the board could achieve the greatest value reasonably available to our shareholders. The board also designated Mr. Harkins to serve as the board’s lead contact person with BB&T Capital Markets, Posternak and management between board meetings, for the purpose of responding to questions, discussing any issues and providing feedback on negotiations. The representatives of Posternak advised Mr. Brown that neither he nor any other member of management should have separate discussions with either WCAS X or Party B concerning any employment, equity interests or other arrangements.

 

On September 2, 2008, we completed the acquisition of Dental Art Laboratories for a purchase price of approximately $10,000,000.

 

On September 5, 2008, our Company signed an engagement letter with BB&T Capital Markets. Representatives of BB&T Capital Markets then contacted each of WCAS X and Party B to inform them of the board’s decision to explore the feasibility of a transaction and to determine whether each would be willing to participate in the process as outlined at the board’s August 22, 2008 meeting. On September 10, 2008, Party B entered into a confidentiality agreement with us. On September 16, 2008, WCAS X and GeoDigm each entered into a separate confidentiality agreement with us.

 

Over the next two weeks, representatives of BB&T Capital Markets had multiple discussions with representatives of each of WCAS X and Party B. The discussions focused upon their requests for non-public information about us and questions each party had concerning such provided information. Among other points discussed, representatives of BB&T Capital Markets disclosed to each party that there were two parties in the process, that any definitive agreement would include a “go-shop” process and would not include any material contingencies to closing, including any financing contingencies.

 

During that month of September, the overall U.S. economy took a significant downward turn. During this same time period, our stock price declined from $9.42 per share to $6.43 per share. On September 15, 2008, Lehman Brothers filed for protection under Chapter 11 of the United States bankruptcy code and shortly thereafter the U.S. government took emergency actions to attempt to stabilize the financial markets. The U.S. economy was also experiencing an ongoing housing crisis and a rising level of unemployment, and the resulting weakening economy was beginning to have a negative impact on our Company’s and our industry’s performance.

 

On September 19, 2008, the board held a special meeting to discuss the progress on the discussions with WCAS X and Party B. Representatives of BB&T Capital Markets informed the board that due diligence sessions with management had been scheduled for the week of September 22, 2008 for each potential bidder. During the meeting, representatives of Posternak, who attended the meeting at the request of the board, again advised the board members of their fiduciary duties with respect to potential transactions involving the acquisition of our Company. After discussing the progress, the board set a meeting for October 3, 2008 to discuss further the status of these negotiations and due diligence.

 

On September 23, 2008, representatives of WCAS X and GeoDigm met with key members of our management team at Posternak’s office for purposes of conducting a due diligence meeting. On September 26, 2008, representatives of Party B and its advisors met with the same key members of our management team at Posternak’s offices for purposes of conducting a due diligence meeting.

On September 25, 2008, Mr. Wayne Coll, our Chief Financial Officer, received an unsolicited call from the chief financial officer of a competitor who expressed an informal interest in engaging in a transaction to acquire us at a price of $12.00 per share. Mr. John Green, our then Executive Vice President, followed up with a call to the competitor and he was informed that such interest was only an idea of the chief financial officer of the competitor and that the competitor’s acquisition of our Company was not under serious consideration. After discussing the matter with representatives of BB&T Capital Markets, we determined that this party was not seriously interested in pursuing a transaction to acquire us.

 

On October 1, 2008, representatives of BB&T Capital Markets had a conference call with representatives of Citigroup Global Markets, Inc. ( “Citi” ), the then financial advisor to GeoDigm. Citi proposed a potential acquisition of our Company by GeoDigm, with equity financing from one or more Welsh, Carson, Anderson & Stowe affiliated funds, at a valuation range of $12.50 to $13.75 per share for all of our outstanding common stock. Representatives of BB&T Capital Markets informed Citi that, in its opinion, the board would likely not pursue a sale transaction at such price level. Citi explained that the offer range was due to GeoDigm’s and WCAS X’s assessment that our performance had deteriorated and that the financial markets and general economic conditions had worsened significantly since WCAS X’s initial indication of interest in February, which would likely have a negative impact on our future performance. Representatives of BB&T Capital Markets had a subsequent conversation with representatives of WCAS X to reaffirm that, in its opinion, the board would likely not pursue a transaction based upon the valuation range that Citi provided.

 

On October 2, 2008, representatives of BB&T Capital Markets had a conference call with representatives of Party B to discuss Party B’s valuation of our Company. Party B proposed a valuation range of $10.50 to $12.50 per share. Representatives of BB&T Capital Markets informed Party B that the range was below Party B’s prior informal indications of value and that, in its opinion, the board would likely not pursue a sale transaction based upon the proposed range.

 

On October 3, 2008, our board held a special meeting, attended by members of our management and representatives of BB&T Capital Markets and Posternak. Mr. Brown reviewed with the board the due diligence sessions that management had attended with GeoDigm, WCAS X and Party B and the financial and other due diligence information provided to date to these parties. Representatives of BB&T Capital Markets then discussed each potential bidder’s existing operations in the dental space, financial resources and ability to proceed with a potential transaction involving our Company. Representatives of BB&T Capital Markets reviewed the preliminary valuations received from the two parties and indicated that they believed that it was likely that one or both of GeoDigm and WCAS X or Party B would increase their offers. Representatives of BB&T Capital Markets also noted that each party had indicated that it would need an exclusive period in order to perform further due diligence and to negotiate a definitive agreement, if it were to increase its proposal. Representatives of BB&T Capital Markets and the board reviewed together the potential value of our Company based upon updated financial metrics, taking into account our Company’s recent performance and our updated projected financial results. Representatives of Posternak reviewed again the board’s fiduciary duties with respect to potential transactions involving the acquisition of our Company. After discussion, the board asked BB&T Capital Markets to contact both parties again and to obtain additional information about how each had arrived at its valuation, their willingness to increase their offers and to obtain additional insight into their financial resources available to consummate any transaction.

 

Over the next week, representatives of BB&T Capital Markets contacted each party as instructed. During these conversations, Party B increased its proposal range to $13.00 to $15.00 per share. On October 8, 2008, WCAS X sent a written proposal to us indicating that it would be interested in acquiring all of our outstanding common stock for $16.00 per share, with equity financing being provided by WCAS X and debt financing being provided by an affiliated investment fund and other third party debt financing sources. In its proposal, WCAS X confirmed that a WCAS X/GeoDigm transaction would not be subject to any financing contingency and would permit a reasonable go-shop period during which we could solicit superior proposals. At this time, WCAS X has not completed its investment in GeoDigm.

 

On October 8, 2008, the board held a special meeting, attended by members of our management and representatives of BB&T Capital Markets and Posternak. Representatives of BB&T Capital Markets discussed

WCAS X’s and Party B’s revised valuations. The board asked BB&T Capital Markets to discuss further with representatives of WCAS X the status of and extent of its investment in GeoDigm, so as to better understand Welsh, Carson, Anderson & Stowe’s commitment to our industry and a potential transaction involving our Company.

 

On October 13, 2008, representatives of BB&T Capital Markets again spoke with representatives of WCAS X to further discuss the assumptions behind WCAS X’s October 8, 2008 proposal and to understand the status of WCAS X’s proposed equity investment in GeoDigm. Representatives of BB&T Capital Markets communicated that the board would likely be willing to enter into an exclusivity agreement with WCAS X and GeoDigm if WCAS X was willing to further raise its offer price. During that phone call, WCAS X indicated orally to representatives of BB&T Capital Markets that it would be willing to increase its proposal from $16.00 per share to $17.00 per share, but the representatives of WCAS X also expressed concern during this call over how much debt financing would be required by GeoDigm to make such proposed transaction attractive to WCAS X, as WCAS X planned to obtain debt financing in the market (either before or after closing).

 

On October 13, 2008, our board held a special meeting, attended by members of management and representatives of Posternak and BB&T Capital Markets. Representatives of BB&T Capital Markets discussed WCAS X’s revised valuation and the economic assumptions underlying that proposal. BB&T Capital Markets also discussed Party B’s valuation of $13.00 to $15.00 per share. Management provided the board with the preliminary results for the third fiscal quarter of 2008 and its outlook for the balance of 2008, down materially from earlier projections. The board discussed the impact of our Company’s weakening performance in the third quarter and the continued impact on business of the deterioration in the U.S. economy on a potential transaction, as well as the decline in our Company’s stock price. The board also considered that each of these proposals was still subject to completion of significant due diligence and that our Company’s weakening performance, which had worsened even since the parties’ meetings with our management in September, had not been reviewed by the two parties. After weighing all of the foregoing, the board concluded that there was too much uncertainty in the financial and capital markets, in the economy and in our Company’s performance at that time, and accordingly, it was unlikely that we would actually be able to consummate a transaction at these proposed prices with either of these parties and further believed that any transaction that we would be able to consummate during the then ongoing economic recession would not have likely reflected an acceptable valuation of our Company. The board also determined that it did not want to further disrupt our management team to work on a transaction that the board considered unlikely to be completed for the foregoing reasons, reviewed our Company’s financial position, and determined that exploring potentially accretive acquisitions, such as the recently completed Dental Art Laboratories acquisition, and focusing on continuing to execute our business plan, managing our expenses, and investigating integration of new technologies to improve productivity was a superior use of our management team’s time and resources and in the best interests of our shareholders and the Company. The board instructed representatives of BB&T Capital Markets to inform each party that the board was terminating the process.

 

Following the board meeting, representatives of BB&T Capital Markets communicated the board’s decision to both parties and requested that the parties destroy the confidential information that they had been provided (per the terms of the confidentiality agreements that they each had executed). Both parties indicated a continued interest in remaining in communication with us.

 

In late February 2009, Welsh Carson and GeoDigm announced WCAS’s commitment to invest $100 million in GeoDigm, and GeoDigm’s completion of its first acquisition financed by Welsh Carson. At such time, WCAS X, the investment fund that had previously engaged in discussions with our Company, was no longer committing to new investments.

 

From time to time following our October 13, 2008 board meeting through December 2009, Mr. Brown was contacted by representatives of GeoDigm, Welsh Carson and Party B and had various informal discussions with such parties regarding their continued interest in our Company. In December 2009, Andrew Hofmeister, GeoDigm’s Chief Executive Officer, visited Mr. Brown in Boston and indicated that Welsh Carson and GeoDigm remained interested in acquiring our Company. In January 2010, Mr. Brown had a lunch meeting

with representatives of Party B during an industry conference. At this meeting, the representatives of Party B indicated that Party B was still interested in pursuing an acquisition of our Company and that its board of directors was meeting in mid February to discuss the matter and authorize a formal proposal at a range that it believed our board would find attractive. On January 21, 2010, Mr. Brown received a letter from Welsh Carson indicating that it was interested in exploring a transaction whereby GeoDigm would acquire all of our then outstanding common stock for approximately $14.25 to $15.00 per share in a transaction that would contain no financing contingency and permit our Company a reasonable go shop period to solicit alternative proposals. In subsequent conversations with Mr. Brown, each of the parties indicated its ability to pay a price in excess of the range quoted in Welsh Carson’s letter. During the next few days, Mr. Brown had a series of separate phone conversations with representatives of Posternak and Mr. Harkins to discuss the recent inquiries from the two interested parties. Mr. Harkins and Mr. Brown agreed that our Company should meet with BB&T Capital Markets, given BB&T Capital Markets’ past representation of our Company, its familiarity with the two parties, and its knowledge of our Company, to consider whether to re-engage the firm to advise on strategic alternatives and how to respond to the inquiries from both Welsh Carson and Party B.

 

On February 3, 2010, Mr. Brown, Mr. Harkins and representatives of BB&T Capital Markets and Posternak held a conference call to discuss these recent inquiries from the two parties. They reviewed the two parties possible motivations for acquiring our Company at that time, the synergies that each might achieve from such a transaction and the increased availability of financing for transactions. They also discussed whether there might be other strategic or financial buyers that would be interested in a transaction with us and concluded that the two parties were two of the best candidates and the two most interested in acquiring our Company at an acceptable valuation. Mr. Brown then scheduled a board meeting for the following week to discuss the matter with the full board.

 

On February 8, 2010, our board held a special meeting to discuss its strategic alternatives. At the meeting, Mr. Brown recapped the recent contacts that he had had with the two parties. Representatives of BB&T Capital Markets, who were in attendance at the request of the board, presented to the board BB&T Capital Market’s updated analysis on valuation of our Company. The board discussed our Company’s recent performance, the continued lack of liquidity in our common stock, the current trading range of our common stock and the difficulty in being a smaller public company. The board also considered that the price ranges that both parties had communicated to our Company represented substantial premiums over the then current market price of our common stock, which was then trading at about $8.00 per share. Given the improving financing markets, the board concluded that there was a greater likelihood of consummating a transaction at a favorable price that would reflect an acceptable valuation of our Company. Representatives of BB&T Capital Markets then discussed initiating a process that was similar to the process conducted in 2008. Representatives of Posternak, who were in attendance at the request of the board, discussed with the board members their fiduciary duties with respect to potential transactions involving the acquisition of our Company. The board discussed conducting a broader process and determined that, again, it would conduct a competitive process with Welsh Carson/GeoDigm and Party B to limit disruption to management and the risks that a broader solicitation of potential purchasers could entail. The board also determined that the go-shop process previously discussed by the board in the 2008 process would enable it to engage in an effective post signing market check on the availability of other interested parties. After discussing the various options, the board authorized management to engage BB&T Capital Markets to act as our financial advisor and authorized BB&T Capital Markets to contact both Welsh Carson/GeoDigm and Party B. The board designated Mr. Harkins to serve as the board’s contact person to BB&T Capital Markets, Posternak and management in between board meetings, for the purpose of responding to questions, discussing any issues and providing feedback on negotiations. Representatives of Posternak also advised Mr. Brown that neither he nor other members of management should have separate discussions with any party interested in a sale transaction concerning any employment, equity interests or other arrangements.

 

On February 11, 2010, our Company signed a new engagement letter with BB&T Capital Markets.

 

Following the execution of the engagement letter, representatives of BB&T Capital Markets contacted Welsh Carson and GeoDigm as well as Party B. Representatives of BB&T Capital Markets informed the parties that upon signing new confidentiality agreements they would receive financial and other due diligence

items as well as limited access to our management team. Based upon their receipt of public and non-public information, each party would be asked to submit a proposal and supporting documentation for the acquisition of our Company. In its conversations with the two parties, representatives of BB&T Capital Markets stressed that any proposal must be free of any financing conditions or any other material contingency to closing and that the reliability and certainty of a proposed transaction would be important in the board’s assessment of any proposed transaction. On February 12, 2010, Party B signed a confidentiality agreement. On February 19, 2010, Welsh Carson and GeoDigm each signed a confidentiality agreement. Once the confidentiality agreements were signed, each of GeoDigm and Welsh Carson and Party B was provided a package of financial and other due diligence materials that BB&T Capital Markets and we had prepared following discussion and input from Mr. Harkins.

 

On February 22, 2010, representatives of BB&T Capital Markets sent out information packages to Welsh Carson and GeoDigm as well as Party B that included a draft merger agreement, a form of financial guarantee to be signed by Welsh Carson and the private equity sponsor of Party B, and a description of the bid process. Each potential bidder was asked to submit its proposal package to BB&T Capital Markets no later than March 5, 2010 and to include in its proposal (i) a specific offer price per share for shares of our common stock, (ii) the identity and structure of the buyer, (iii) a sources and uses table and description of the proposed financing for the transaction, (iv) the level of and timing of confirmatory due diligence remaining to be completed, (v) a revised merger agreement reflecting comments, (vi) the approval process necessary for the bidder, (vii) the plans for the combined organization and (viii) a description of any other contingencies.

 

Both parties were invited to visit certain of our laboratories and meet with our management team. During the week of March 1, 2010, representatives of GeoDigm visited certain of our laboratories with members of our management team. On March 2, 2010, representatives of Party B met with members of our management team.

 

On March 4, 2010, Party B called BB&T Capital Markets to request a one-week extension on submission of its bid proposal package. BB&T Capital Markets discussed the extension with Mr. Brown and Mr. Harkins and it was agreed that both parties would have until March 12, 2010 to submit their bid proposals. As previously planned before the extension, on March 5, 2010, representatives of Welsh Carson met with Mr. Brown and representatives of BB&T Capital Markets to discuss a potential transaction involving our Company. Welsh Carson informed Mr. Brown and representatives of BB&T Capital Markets that on March 12, 2010 GeoDigm would submit a bid proposal backed by Welsh Carson.

 

On March 9, 2010, the board conducted a regularly scheduled meeting. Representatives of BB&T Capital Markets, who were in attendance at the meeting at the request of the board, reviewed with our directors the profiles of the two potential bidders, which included information on their respective financing capacity, the degree of effort expended by each potential bidder to date in pursuing a potential transaction involving our Company, the strategic rationale for each potential bidder in completing a transaction with us, each potential bidder’s track record for closing transactions and its and its investors’ business reputations. The board asked BB&T Capital Markets to provide it with further information on each party’s ability to finance the transaction. Representatives of Posternak, who were present at the meeting at the invitation of the board, advised our directors of their fiduciary duties with respect to potential transactions involving the acquisition of our Company and then reviewed the terms of the proposed merger agreement with the board.

 

On or about March 10, 2010, BB&T Capital Markets contacted Welsh Carson to further establish GeoDigm’s access to funds and ability to finance a potential acquisition of National Dentex. Representatives of Welsh Carson indicated that Welsh Carson would provide GeoDigm with a sufficient equity investment to complete the transaction. Representatives of Welsh Carson noted Welsh Carson had $3.7 billion of committed capital, of which less than half had been invested to date. BB&T Capital Markets also reviewed information published by Welsh Carson and by public data sites, which confirmed the size of Welsh Carson. BB&T Capital Markets also made a similar inquiry of representatives of Party B, who indicated that its offer letter to be delivered on March 12th would provide a detailed explanation of Party B’s transaction financing plans and financial strength.

On March 12, 2010, GeoDigm and Party B each submitted a bid proposal to BB&T Capital Markets. The bid proposal from GeoDigm had an offer price of $15.75 per share, a request for a fourteen day exclusivity period, a form of proposed equity commitment letter from Welsh Carson that, subject to the terms and conditions therein, would be sufficient to fully fund a transaction with us in the event debt financing was not available, and a mark-up of the draft merger agreement that included the ability of our Company to specifically enforce the merger agreement and the equity commitment letter. The bid proposal from Party B had an offer price of $13.50 per share, a request for a 40 day exclusivity period, and a mark up of the merger agreement that included a reverse termination fee of 3% in lieu of specific performance. Party B’s bid proposal stated that its investment banking advisor would be a potential debt financing source for the senior portions of the debt financing needed for the transaction, and would act as an agent in raising the rest of the debt financing necessary for the transaction, but did not include any debt commitment letters. Party B indicated that it expected that at the end of its 40 day exclusivity period, it would be able to sign a definitive merger agreement that would not include a financing contingency. Over the next two days, representatives of BB&T Capital Markets and Posternak analyzed the two proposals and prepared materials comparing the two proposals in order to assist the board in its evaluation of the two proposals.

 

On March 14, 2010, Mr. Brown, Mr. Harkins, and representatives of BB&T Capital Markets and Posternak met by telephone to review and discuss the two proposals. They compared the prices offered by the two parties, the differences in the markups of the two merger agreements, the significantly shorter exclusivity period sought by GeoDigm, the greater certainty of closing afforded by Welsh Carson’s equity commitment letter in contrast to Party B’s need to obtain third party debt financing in order to close the transaction, and the remedy of specific performance offered by Welsh Carson and GeoDigm as compared to an unwillingness to offer specific performance and the 3% reverse termination fee proposed by Party B. Given the qualitative and quantitative differences in the two bid proposals, BB&T Capital Markets recommended, and Mr. Harkins and Mr. Brown concurred, that the best way to maximize shareholder value would be to negotiate with GeoDigm and Welsh Carson, prior to the previously scheduled March 16th board meeting, in order to determine if GeoDigm and WCAS would improve on the financial and legal aspects of the GeoDigm and Welsh Carson proposal.

 

Over the course of the next two days, representatives of BB&T Capital Markets engaged in a series of negotiations with representatives of Welsh Carson and GeoDigm. On March 15, 2010, representatives of BB&T Capital Markets had a telephone conversation with representatives of Welsh Carson and GeoDigm to clarify questions regarding their proposals and negotiate the transaction value. Representatives of BB&T Capital Markets communicated to representatives of Welsh Carson that if Welsh Carson and GeoDigm increased their offer to $17.50 per share, then, in BB&T Capital Markets’ opinion, the board would consider entering into exclusive negotiations with Welsh Carson and GeoDigm regarding a sale transaction. Representatives of Welsh Carson and GeoDigm indicated that they understood the request, that it was a high price, but they would take it under consideration. In a subsequent telephone conversation with representatives of BB&T Capital Markets, representatives of Welsh Carson indicated that GeoDigm would be willing to increase its offer to $16.50 per share. Representatives of BB&T Capital Markets communicated the revised offer price in a conference call with Mr. Brown, Mr. Harkins and representatives of Posternak. During the conference call, Mr. Brown and Mr. Harkins requested that BB&T Capital Markets negotiate for a purchase price of $17.00 per share. On March 16th, representatives of BB&T Capital Markets contacted representatives of Welsh Carson and communicated a price of $17.00 per share was necessary for the board to consider entering into exclusive negotiations for a sale transaction at that time. On March 16, 2010, representatives of Welsh Carson telephoned representatives of BB&T Capital Markets and increased Welsh Carson and GeoDigm’s offer price to $17.00 per share. Representatives of BB&T Capital Markets communicated the proposed $17.00 per share purchase price to Mr. Brown, Mr. Harkins and representatives of Posternak.

 

Later on March 16, 2010, the board held a special meeting to discuss the two proposals. Representatives of BB&T Capital Markets, who were in attendance at the meeting at the request of the board, updated the board on the timeline of events since the March 9, 2010 board meeting, including the series of price negotiations representatives of BB&T Capital Markets had with Welsh Carson and GeoDigm. Representatives of BB&T Capital Markets reviewed its analysis of the two bid proposals and the proposed financing for the

transaction, as well as its views of the value of our Company consistent with the valuation metrics discussed at the February 8, 2010 board meeting. BB&T Capital Markets’ presentation, among other things, noted the significantly higher price per share offered by Welsh Carson’s and GeoDigm’s offer, the greater certainty of closing offered by the Equity Commitment Letter and the greater level of detail on financing, making Welsh Carson’s and GeoDigm’s offer both quantitatively and qualitatively a better offer than that of Party B’s offer. Representatives of Posternak, who were in attendance at the meeting at the request of the board, reviewed with the board the differences in the legal terms of the two proposals and each party’s proposed revisions to the merger agreement including, the shorter exclusivity period sought to negotiate a definitive agreement with Welsh Carson and GeoDigm, the ability to specifically enforce the Welsh Carson and GeoDigm agreements, and the lower termination fee. Representatives of Posternak then discussed with the board members matters that they should consider when evaluating these bids to fulfill their fiduciary duties in connection with the possible acquisition of our Company. Following further discussion, the board unanimously authorized our management to sign an agreement with GeoDigm and Welsh Carson that provided GeoDigm and Welsh Carson exclusivity through March 31, 2010 and to proceed to negotiate a definitive merger agreement with them at the $17.00 per share price. The board discussed engaging a separate financial advisor for the purpose of rendering a fairness opinion. After discussing the matter, the board delegated to Mr. Harkins with assistance from Posternak, the duty of engaging a separate financial advisor to render a fairness opinion.

 

On March 17, 2010, representatives BB&T Capital Markets informed Party B’s financial advisor that we would not continue to consider a transaction with Party B at that time. On the same day, we signed an exclusivity agreement with GeoDigm and Welsh Carson through March 31, 2010. Representatives of Welsh Carson and GeoDigm were then provided access to our electronic data room for confirmatory due diligence.

 

On March 18, 2010, representatives of Posternak and BB&T Capital Markets had a conference call with representatives of Welsh Carson and GeoDigm and Welsh Carson’s and GeoDigm’s legal counsel, Ropes & Gray LLP, to discuss some high level legal and business issues in their proposed transaction terms, as indicated in their markup of the proposed merger agreement and their draft equity commitment letter, including the time period for the go shop period, whether there would be a two tiered termination fee, with a lower fee for termination of the merger agreement by us to enter into a transaction with any Continuing Party that made a superior proposal during the go- shop period, and the manner in which we could seek to enforce the provisions of the merger agreement and equity commitment letter.

 

On March 19, 2010, our board authorized us to engage Signal Hill to provide a fairness opinion to the board on the fairness of the merger consideration to our shareholders. Signal Hill would be paid a one time fee of $200,000 (plus the reimbursement of reasonable expenses incurred up to $25,000) that was not contingent on the transaction closing. In connection with rendering its opinion, Signal Hill was, among other matters, provided access to our electronic data room and met with management and representatives of BB&T Capital Markets.

 

On March 29, 2010, representatives of Posternak and Ropes & Gray met in person to review open issues in the proposed merger agreement and equity commitment letter. After making significant progress on most of the open material items, the parties’ attorneys agreed that Posternak would revise the merger agreement and equity commitment letter and the parties would continue to discuss the final terms of the merger agreement and equity commitment letter and move quickly to finish up any confirmatory due diligence items.

 

On March 31, 2010, the board held a special meeting at Posternak’s offices to discuss the status of negotiations over the merger agreement and equity commitment letter and to meet with representatives of Signal Hill who had been invited to attend the meeting. Representatives of Posternak, who were in attendance at the request of the board, provided the board with a detailed overview of the terms of the merger agreement and equity commitment letter that had been negotiated, reviewing specifically the terms of the go shop and no shop provisions and other material transaction terms, including the remedy of specific performance as to Welsh Carson’s equity commitment letter which (subject to its terms) required it to fund up to $139,000,000 (the amount estimated to be required to complete the proposed transaction, including the payment of transaction fees and expenses and related transaction expenses) in order to consummate the merger, and the absence of any financing contingencies. Representatives of Posternak also reviewed the remaining open deal

terms still under negotiation. The representatives of Signal Hill present at the meeting made a presentation of its preliminary financial analysis of the fairness, from a financial point of view, of the merger consideration to be received by shareholders. This presentation included, among other matters, Signal Hill’s analytical process; background and key terms of the proposed transaction; historical trading analysis regarding our common stock; industry and company observations; regulatory and shareholder approvals and anticipated completion of the proposed transaction; and a review of the valuation methodologies, as more fully described in the section titled “ Opinion of Signal Hill ” below. At that meeting, Signal Hill articulated that it was prepared to render its opinion to the board of directors that, based upon its financial analysis to date and subject to certain matters and assumptions (which are described in its written opinion more fully described below), the merger consideration to be received by the shareholders of the Company pursuant to the Merger Agreement was fair, from a financial point of view, to such shareholders. Representatives of BB&T Capital Markets, who had been invited by the board to attend the meeting, then presented the board with its proposed list of potential acquisition parties that it would contact during the go shop period.

 

Over the course of the next two days, Posternak and Ropes & Gray continued to negotiate the remaining items of the merger agreement and equity commitment letter. During this process Mr. Harkins and Mr. Brown received updates and provided guidance on the issues under discussion.

 

On April 2, 2010, our board convened a meeting to consider the proposed transaction. Representatives of Posternak and BB&T Capital Markets attended the meeting at the request of the board. Representatives of Posternak reported that the definitive agreements for a transaction with Welsh Carson and GeoDigm had been fully negotiated and were ready for execution, if and when the board chose to proceed, subject only to finalizing certain disclosure schedules. Posternak reviewed the terms of the final definitive merger agreement and equity commitment letter, including the price of $17.00 per share, which represented a premium of approximately 70% over the closing price of $10.02 per share on April 1, 2010, and an equity commitment from Welsh Carson which (pursuant to its terms) required it to fund up to $139,000,000 (the amount estimated to be required to complete the proposed transaction, including the payment of transaction fees and expenses and related transaction expenses) enforceable pursuant to its terms by specific performance. Representatives of Posternak then discussed with the board member the matters that they should consider in order to fulfill their fiduciary duties in connection with the proposed transaction. After discussion, the board indicated it was prepared to proceed. Representatives of Signal Hill updated its earlier presentation to the board of directors of its financial analysis of the merger consideration to be paid pursuant to the merger agreement and delivered Signal Hill’s opinion to the board to the effect that, as of that date and based on and subject to the matters described in the opinion, the merger consideration to be received by the holders of our common stock was fair, from a financial point of view, to such holders. Signal Hill’s opinion is included as Annex B to this proxy statement. After further discussion, the board unanimously approved the execution, delivery and performance of the merger agreement (including the consummation of the merger) and the equity commitment letter and voted to unanimously recommend to our shareholders that they adopt and approve the merger agreement and the transactions contemplated thereby, including the proposed merger. Later that evening, our Company and entities affiliated with GeoDigm executed the merger agreement and our Company and certain entities affiliated with GeoDigm and Welsh Carson executed the equity commitment letter.

 

On April 5, 2010, the parties issued a press release announcing execution of the merger agreement before the opening for trading on the Nasdaq Global Market.

 

Under the terms of the Merger Agreement, we were entitled to actively solicit alternative acquisition proposals during a go-shop period which ended at 11:59 p.m. on May 12, 2010. Under the Merger Agreement, we may under certain circumstances also consider unsolicited proposals at any time after the end of the go-shop period through the date of the special meeting of our shareholders. From and after the date that the definitive merger agreement was announced, representatives of BB&T Capital Markets contacted 63 other parties that it identified as potential acquirers of our Company, including Party B. These parties were selected by the board, in consultation with management and BB&T Capital Markets, or had contacted BB&T Capital Markets following the announcement of the Merger, and included both potential strategic and potential private equity acquirers. Of the parties contacted, five parties entered into confidentiality agreements and reviewed

nonpublic information regarding us. Despite this solicitation of interest, none of the contacted parties have submitted a written acquisition proposal.

 

Board of Directors.   After discussions with its legal and financial advisors and after careful consideration, our board of directors unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable to and in the best interests of the Company and the holders of our common stock, (ii) determined that the Merger consideration for outstanding shares of Company common stock is fair to the Company’s shareholders and (iii) approved and adopted the Merger Agreement and the transactions contemplated thereby, including the Merger. Accordingly, our board of directors recommends that shareholders vote “FOR” the proposal to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and “FOR” any adjournment proposal by the Company’s board of directors.

 

Reasons for the Merger.   The material factors and potential benefits of the Merger considered by our board of directors, each of which support the determination and recommendation set forth above, include the following:

 

 

 

Our board of directors also considered certain material risks or potentially adverse factors in making its determination and recommendation, including the following:

 

 

The foregoing summarizes the material factors considered by the board of directors in its consideration of the Merger Agreement and the Merger. After considering these factors, the board of directors concluded that the positive factors relating to the Merger Agreement and the Merger outweighed the potential negative factors. In view of the wide variety of factors considered by our board of directors and the complexity of these matters, the board of directors did not find it practicable to quantify or otherwise assign relative weights to the

foregoing factors. In addition, individual members of the board of directors may have assigned different weights to various factors. The board of directors adopted and approved and declared the advisability of the Merger Agreement based upon the totality of the information presented to and considered by it.

 

Our board of directors recommends that you vote “FOR” the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies to vote in favor of the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

Pursuant to a letter agreement dated March 19, 2010, the Company retained Signal Hill to render a fairness opinion in connection with the Merger.

 

At a special meeting of the board of directors held on March 31, 2010, Signal Hill presented its preliminary financial analyses with respect to whether the merger consideration proposed to be received by the shareholders of the Company pursuant to the Merger Agreement was fair, from a financial point of view, to such shareholders. This presentation included, among other matters, Signal Hill’s analytical process; background and key terms of the proposed transaction; historical trading analysis regarding our common stock; industry and company observations; anticipated timing with respect to execution of the Merger Agreement, the “go-shop” period, regulatory and shareholder approvals and anticipated completion of the proposed transaction; and a review of the valuation methodologies, as set forth below. At that meeting, Signal Hill articulated that it was prepared to render its opinion to the board of directors that, based upon its financial analysis to date and subject to certain matters and assumptions (which were subsequently set forth in its written opinion), the merger consideration to be received by the shareholders of the Company pursuant to the Merger Agreement was fair, from a financial point of view, to such shareholders. Signal Hill subsequently met with the board of directors on April 2, 2010, updated its presentation to the board of directors (which provided updated market data for the intervening two trading days), and rendered its opinion to the board of directors that, as of April 2, 2010 and based upon and subject to the factors and assumptions set forth in its written opinion, the consideration per share to be received by the shareholders of National Dentex was fair from a financial point of view to such shareholders. Signal Hill issued its written opinion to the board of directors on April 2, 2010 as attached hereto as Annex B (the “Opinion” ). Signal Hill is a member of the Financial Industry Regulatory Authority ( “FINRA” ) and provides a broad range of valuation, investment banking and other advisory services. The Opinion did not state any other conclusion or address any other aspect or implication of the Merger.

 

The summary of the Opinion in this proxy statement is qualified in its entirety by reference to the full text of the written Opinion, which is included as Annex B to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Signal Hill in preparing the Opinion. Shareholders are urged to read the Opinion in its entirety. Neither the Opinion nor the summary of the Opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to any shareholder as to how such shareholder should act or vote with respect to the Merger Agreement or the other matters proposed in this proxy statement.

 

Scope of Analysis

 

In connection with the Opinion, Signal Hill made such reviews, analyses and inquiries as Signal Hill deemed necessary and appropriate under the circumstances. Signal Hill also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Signal Hill’s due diligence with regards to the Merger included, but was not limited to, the items summarized below:

 

 

 

Assumptions, Qualifications and Limiting Conditions

 

In performing its analyses and rendering the Opinion with respect to the Merger, Signal Hill, with the Company’s consent:

 

 

The Opinion should not be construed as a valuation opinion, credit rating, solvency opinion, liquidation analysis, an analysis of either National Dentex’s credit worthiness or otherwise as tax advice, or as accounting advice. Signal Hill has not been requested to, and did not, (a) negotiate the terms of the Merger or (b) advise the board of directors or any other party with respect to alternatives to the Merger.

 

Signal Hill prepared the Opinion effective as of April 2, 2010. The Opinion is necessarily based upon market, economic, financial and other conditions as they existed and can be evaluated as of the date of the written Opinion, and Signal Hill disclaims any undertaking or obligation to update the Opinion or advise any person of any change in any fact or matter affecting the Opinion which may come or be brought to the attention of Signal Hill after the date of the written Opinion.

 

The Opinion did not recommend as to how the board of directors or any shareholder should vote or act with respect to any matters relating to the Merger Agreement, or whether to proceed with the Merger or any related transaction, nor did it indicate that the terms of (including the Merger consideration to be paid with respect to) the Merger were the best attainable by the Company under any circumstances. Further, Signal Hill was not requested to opine as to, and the Opinion did not in any manner address, the underlying business decision of the Company to engage in the Merger or the relative merits of the Merger as compared to any alternative business transaction or strategy. The Opinion should not be construed as creating any fiduciary duty on the part of Signal Hill to any party. Other than this engagement, Signal Hill has not had any material relationships during the past two years, or that are mutually understood to be contemplated, in which compensation was received or was intended to be received as a result of the relationship between Signal Hill and any party to the Merger. Without Signal Hill’s prior consent, the Opinion may not be quoted from or referred to, in whole or in part, in any written document or used for any other purpose, except that the Opinion may be included in its entirety in filings with the SEC made by National Dentex in connection with the Merger. National Dentex may summarize or otherwise reference the existence of the Opinion in such documents provided that any such summary or reference language shall be subject to prior approval of Signal Hill.

 

In preparing its written Opinion to our board of directors, Signal Hill performed a variety of analyses, including those described below. The summary of Signal Hill’s valuation analyses is not a complete description of the analyses underlying Signal Hill’s Opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses are readily susceptible to partial analysis or summary description. Signal Hill arrived at its Opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. Accordingly, Signal Hill believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods, and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and Opinion.

 

In performing its analyses, Signal Hill considered business, economic, industry, and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of the Opinion. No company, transaction, or business used in Signal Hill’s analyses for comparative purposes is identical to National Dentex or the Merger. The valuation methodologies, as described and set forth below, “Selected Comparable Companies Trading Analysis,” “Selected Transaction Analysis,” “Discounted Cash Flow Analysis” and “M&A Premiums Analysis,” were all evaluated in arriving at the Opinion. As set forth in the preceding paragraph, the conclusion of Signal Hill, as to the merger consideration per share to be received by the shareholders pursuant to the Merger Agreement being fair to the shareholders, from a financial point of view, as set out in the Opinion is based upon the aggregate analysis taken as a whole. The implied reference range values indicated by Signal Hill’s analyses are illustrative and not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond our control and the control of Signal

Hill. Much of the information used in, and accordingly the results of, Signal Hill’s analyses are inherently subject to substantial uncertainty.

 

The Opinion and analyses were prepared for and provided to our board of directors in connection with its consideration of the Merger and were among many factors considered by our board of directors in evaluating the Merger. Neither Signal Hill’s Opinion nor its analyses were determinative of the Merger consideration or of the views of our board of directors with respect to the Merger. Signal Hill is not a legal, regulatory, accounting or tax expert and assumed the accuracy and completeness by the Company and its advisors with respect to legal, regulatory, accounting and tax matters.

 

Valuation Analysis Summary

 

The following is a summary of the material valuation analyses performed in connection with the preparation and rendering of the Opinion. The information summarized below does not constitute a complete description of the analyses performed by Signal Hill, and without considering the full narrative description of the analyses, as well as the methodologies underlying the assumptions, qualifications, and limitations affecting each analysis, could create a misleading or incomplete view of Signal Hill’s analyses. Furthermore, the order of analysis set forth below does not represent relative importance or weight given to these analyses.

 

For purposes of its analyses, Signal Hill reviewed a number of financial metrics including:

 

 

 

 

In preparing its analyses, Signal Hill noted the following:

 

 

Valuation Methodologies

 

Selected Comparable Companies Trading Analysis

 

Signal Hill compiled and reviewed publicly available financial information and quoted market prices in order to calculate certain financial multiples and ratios for selected publicly traded companies in the dental industry. Equity values and enterprise values were calculated using the closing price of the common stock of the selected companies listed below as of April 1, 2010.

 

The calculated multiples included:

 

 

There are no other publicly traded dental laboratory companies and as such Signal Hill reviewed U.S. listed companies that operated in the dental distribution, manufacturing, and services sectors with equity market capitalizations above $100 million. The companies, metrics and data ranges considered in this analysis are set forth below:

 

 

Because the dental manufacturing comparable companies were more highly profitable and had significantly more exposure to new technologies, Signal Hill chose to use only the Dental Distribution (HSIC and PDCO) and Dental Services (ADPI) comparable companies in applying valuation metrics to the Company.

 

 

 

 

Signal Hill focused its comparable companies analysis on comparable CY 2010 EBITDA multiples. Based on the low and high multiples (6.0x and 9.7x) and a comparable CY 2010 Budget EBITDA of $17.4 million, the selected comparable companies analysis indicated an implied reference enterprise value range of National Dentex of $104.2 million to $168.5 million, as compared to the proposed Merger enterprise value consideration of $128.7 million.

 

Signal Hill focused its primary valuation analysis on the CY 2010 EBITDA multiples because this valuation approach takes into account the implied profitability of a company before taking into account associated capital costs of interest expense, dividends and/or returns to shareholders. However, based upon the low and high CY 2010 Revenue multiples (0.7x and 1.2x) and a comparable CY 2010 Budget Revenue of $157.0 million, the selected comparable companies analysis indicated an implied reference enterprise value range of National Dentex of $109.9 million to $188.4 million, and, based on the low and high CY 2010 Price/EPS multiples (15.5x and 19.3x) and a comparable CY 2010 Budget EPS of $1.10, the selected comparable companies analysis indicated an implied reference enterprise value range of National Dentex of $129.0 million to $156.6 million.

 

Selected Transactions Analysis

 

Signal Hill compiled and reviewed publicly available financial information and estimated purchase prices offered or paid in order to calculate certain financial multiples and ratios for the selected publicly-announced transactions involving companies in the dental industry or mail-order pharmacy services. These target companies were of similar representative size, scale, operating performance and growth prospects as National Dentex, including certain National Dentex acquisitions and related EBITDA multiples (prior to corporate overhead). Enterprise values for companies used below were calculated as of the closing date of the relevant transaction based on the purchase prices paid in the relevant transactions.

 

The calculated multiples included:

 

 

The selected transactions were as set forth below. These transactions were selected because they involved companies whose main businesses were dental or mail-order pharmacy services related and were completed since January 1, 2007. Within the dental lab industry, services are provided to dentists via mail order as well as proximate market locations. Similar to the comparable companies analysis, the acquired companies below were of similar size, scale and operating metrics to National Dentex. Based upon publicly available information, Signal Hill was not aware that any of the transactions used in this analysis were “distressed sales” or were otherwise entered into under specific financial or market circumstances applicable to such participants, which were known to have negatively impacted the terms of the transaction.

 

 

The metrics, data ranges and multiples considered in this analysis are set forth below ($ in millions):

 

 

 

 

 

 

Signal Hill focused its selected transaction analysis on comparable LTM EBITDA multiples. Based on the low and high multiples (5.7x and 8.2x) and a comparable LTM EBITDA of $17.4 million, the selected transactions analysis indicated an implied reference enterprise value range of National Dentex of $99.2 million to $142.7 million, as compared to the proposed Merger enterprise value consideration of $128.7 million.

 

Signal Hill focused its primary valuation analysis on the LTM EBITDA multiples because this valuation approach takes into account the implied profitability of a target or acquired company relative to aggregate purchase price, or enterprise value, before taking into account associated capital costs of interest expense, dividends and/or returns to shareholders. However, based upon the low and high LTM Revenue multiples (0.5x and 2.3x) and a comparable LTM Revenue of $161.2 million, the selected transactions analysis indicated an implied reference enterprise value range of National Dentex of $80.6 million to $370.8 million.

 

Discounted Cash Flow Analysis

 

Signal Hill performed a discounted cash flow analysis of National Dentex’s unlevered, after-tax cash flows based on the Fiscal Year 2010 Budget and Fiscal Year 2011-2014 Plan projections provided by National Dentex management. In performing this analysis, Signal Hill utilized a range of discount rates of 16% to 18% based on the estimated weighted average cost of capital ( “WACC” ) for National Dentex, which was based on (i) an estimated pre-tax cost of debt of 5% (after tax cost of debt of 3%), (ii) an estimated cost of equity of approximately 21%, and (iii) an estimated long term net debt as percentage of equity of 25%. The estimated cost of equity was determined based on the Capital Asset Pricing Model ( “CAPM” ), a finance model widely used in securities’ valuation to determine a theoretically appropriate required rate of return. In determining a terminal value for National Dentex, Signal Hill used two commonly used methods: (i) an EBITDA exit multiple applied to Fiscal Year 2014 EBITDA and (ii) the perpetuity growth rate method, applied to Fiscal Year 2014 Free Cash Flow. Signal Hill used terminal value multiples ranging from 6x to 8x of projected Fiscal Year 2014 EBITDA based on the multiples indicated by long term trading and transaction valuations for comparable companies and 3% to 4% perpetuity growth rates.

 

The discounted cash flow analysis (based on an EBITDA exit multiple) indicated an implied reference enterprise value range of National Dentex of $98.7 million to $136.4 million and the discounted cash flow

analysis (based on the perpetuity growth rate) indicated an implied reference enterprise value range of National Dentex of $70.1 million to $90.8 million, as compared to the proposed Merger enterprise value consideration of $128.7 million.

 

M&A Premiums

 

Signal Hill performed an M&A premiums analysis based on premiums paid on precedent transactions, then applied this to National Dentex’s current and recent stock price. Signal Hill reviewed completed M&A transactions of public healthcare companies since 2007, with enterprise values equal to or less than $500, $250, and $150 million. The premium analysis was conducted with the respective target’s stock price one day prior and on its preceding 30-, 60-, and 90-day volume weighted average price ( “VWAP” ). The transactions’ related premiums and metrics analyzed are set forth in the table below.

 

Transaction Values $250-500 Million

 

 

Transaction Values $150-250 Million

 

Transaction Values: Less than $150 Million

 

 

Transaction Values Less than $500 Million

 

 

Transaction Values Less than $250 Million

 

Transaction Values Less than $150 million

 

 

Having reviewed both adjusted mean (removing the lowest and highest data points) and median premiums, Signal Hill applied the low and high premium data points from the collective precedent transactions and calculated a premium range of 36.9% (based on one-day closing price premiums) to 62.4% (based on 30-day VWAP premiums). Signal Hill then determined the low implied reference enterprise value range by applying the low range premium of 36.9% to $10.02 (the closing price per share of Company common stock on April 1, 2010) multiplied by 6.007 million shares (the number of fully diluted shares at the referenced premium) plus Company’s estimated net debt of $24.8 million at June 30, 2010, and the high implied reference enterprise value range by applying the high range premium of 62.4% to $9.79 (the 30-day VWAP of the Company’s common stock) multiplied by 6.077 million shares (the number of fully diluted shares at the referenced premium) plus Company’s estimated net debt of $24.8 million at June 30, 2010. Based on these calculations, the M&A premiums analysis indicated an implied reference enterprise value range of National Dentex of $107.2 million to $121.5 million, as compared to the proposed merger enterprise value consideration of $128.7 million.

 

Engagement and Compensation of Signal Hill

 

We engaged Signal Hill, pursuant to a letter agreement, dated as of March 19, 2010, to render an opinion to our board of directors with respect to whether the merger consideration to be paid by Parent in accordance with the terms of the Merger Agreement is fair to holders of our common stock from a financial point of view. We selected Signal Hill because it is a nationally recognized investment bank, our board was familiar with its work and Signal Hill is regularly engaged to render financial opinions in connection with mergers and acquisitions, financial restructuring, tax matters, corporate planning, and for other purposes. Under the terms of the letter agreement, Signal Hill earned a fee of $200,000 for its services. No portion of the fee was contingent upon the consummation of the Merger or the conclusions set forth in Signal Hill’s Opinion. In addition, the Company has agreed to reimburse Signal Hill for certain of its reasonable out-of-pocket expenses incurred in connection with the service rendered by Signal Hill under its engagement letter with the Company, not to exceed $25,000. The Company has also agreed to indemnify Signal Hill and certain related parties for certain liabilities. Signal Hill has consented to the inclusion of its written Opinion as Annex B to this proxy statement.

 

 

We do not, as a matter of course, publicly disclose financial forecasts as to future financial performance, earnings or other results and we are especially cautious of making financial forecasts for extended periods due to unpredictability of the underlying assumptions and estimates. However, in connection with the evaluation of a possible transaction involving us, our management team prepared and finalized on February 8, 2010, and provided or made available upon the execution of confidentiality agreements on February 12, 2010 to Party B and on February 19, 2010 to Parent and Merger Sub, and to Signal Hill on or about March 19, 2010, certain non-public financial forecasts that were not prepared with a view toward public disclosure.

 

A summary of these financial forecasts is not being included in this document to influence your decision whether to vote for or against the proposal to adopt and approve the Merger Agreement and the transactions contemplated therein, including the Merger, but because these financial forecasts were made available to Parent, Merger Sub, the board of directors, and the board of directors’ advisors, including Signal Hill. Our management’s internal financial forecasts, upon which the financial forecasts were based, are subjective in many respects. There can be no assurance that these financial forecasts will be realized or that actual results will not be significantly higher or lower than forecasted. The financial forecasts cover multiple years and such information by its nature becomes subject to greater uncertainty with each successive year.

 

These projections were not prepared with a view toward public disclosure or toward complying with generally accepted accounting principles, which we refer to as GAAP, the published guidelines of the SEC regarding projections and the use of non-GAAP measures or the guidelines established by the American

Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The financial forecasts included below were prepared by, and are the responsibility of, our management. Neither our independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the financial forecasts contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

 

Management prepared these financial forecasts based on numerous variables and assumptions that our management believed were reasonable at the time the projections were made, but are difficult to predict and are inherently uncertain and may be beyond our control. Important factors that may affect actual results and cause these financial forecasts to not be achieved include, but are not limited to, risks and uncertainties relating to our business (including our ability to achieve strategic goals, objectives and targets over the applicable periods), industry performance, the regulatory environment, general business and economic conditions and other factors described under “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 16 of this proxy statement. In addition, the forecasts do not reflect any other transaction or event that has occurred or that may occur and that was not anticipated at the time the financial forecasts were prepared, and, accordingly, do not give effect to the Merger or any changes to our operations or strategy that may be implemented after the consummation of the Merger. Further, the projections do not take into account the effect of any failure to consummate the Merger and should not be viewed as accurate or continuing, if the Merger does not occur.

 

No one has made or makes any representation to any shareholder or anyone else regarding our ultimate performance compared to the information contained in its projections set forth below. We do not intend to update, or otherwise revise the financial forecasts 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 are shown to be in error. We have made no representation to, Parent, Merger Sub or any other person in the Merger Agreement or otherwise, concerning these financial forecasts. The financial forecasts are forward-looking statements. For information on factors that may cause our future financial results to materially vary, see “Cautionary Statement Regarding Forward-Looking Statements” on page 16.

 

The following is a summary of the financial forecasts prepared by our management and given to Parent, the board of directors, and the board of directors’ advisors, including Signal Hill:

 

 

 

 

Each member of the board of directors of National Dentex will resign effective immediately prior to the effective time of the Merger. Upon completion of the Merger, the current directors and officers of Merger Sub are expected to continue as directors or officers, as the case may be, of the surviving corporation.

 

National Dentex common stock is quoted on Nasdaq under the symbol “NADX.” Upon completion of the Merger, National Dentex common stock will be delisted from Nasdaq and thereafter will be deregistered under the Securities Exchange Act of 1934, as amended.

 

We do not believe our shareholders will be entitled to appraisal rights under the Massachusetts Business Corporation Act, which we refer to as the MBCA, in connection with the Merger. The MBCA generally provides that shareholders of a Massachusetts corporation are entitled to appraisal rights in the event of a merger. However, an exception to the general rule in Section 13.02(a)(1) of the MBCA provides that shareholders of a Massachusetts corporation are not entitled to appraisal rights in a merger transaction in which the sole consideration they receive consists of cash so long as no director, officer or controlling shareholder of the corporation has a direct or indirect material financial interest in the merger other than in:

 

(i) his, her or its capacity as a shareholder of the corporation;

 

 

(ii) his, her or its capacity as a director, officer, employee or consultant of the merging corporation or the surviving corporation or an affiliate of the surviving corporation pursuant to bona fide arrangements with the merging corporation or the surviving corporation or any affiliate; or

 

 

(iii) any other capacity so long as the shareholder owns less than 5% of the voting securities of the corporation.

 

National Dentex believes that this exception applies to the Merger and that National Dentex shareholders will not be entitled to appraisal rights in connection with the Merger. However, the MBCA took effect on July 1, 2004 and Section 13.02 of the MBCA has not yet been the subject of judicial interpretation. Accordingly, it is possible that a court could conclude that this exception is not applicable in the present circumstances and that National Dentex shareholders are entitled to appraisal rights under Massachusetts law, in connection with the Merger.

 

If you believe you are entitled to appraisal rights under Massachusetts law, in order to exercise these rights you must: (i) deliver to National Dentex, before the vote to adopt and approve the Merger Agreement and the transactions contemplated thereby is taken, written notice of your intent to demand payment for your shares if the Merger is consummated; (ii) not vote your shares in favor of the proposal to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger; and (iii) comply with the other procedures specified in Part 13 of the MBCA. Because a submitted proxy not marked “against” or “abstain” will be voted “FOR” the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and FOR the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies, the submission of a proxy card not marked “against” or “abstain” will result in the waiver of appraisal rights, to the extent such rights are available. If you hold shares in the name of a broker, bank or other nominee and you want to attempt to assert appraisal rights, you must instruct your nominee to take the steps necessary to enable you to assert appraisal rights. If you or your nominee fails to follow all of the steps required by the statute, you will lose your right of appraisal (to the extent such right otherwise would be available).

 

Since National Dentex does not believe that our shareholders are entitled to appraisal rights in the Merger, National Dentex intends to take the position that any of shareholders who seek appraisal for their shares of common stock are not entitled to do so under the MBCA and does not intend to deliver the appraisal notice and form called for by Section 13.22 of the MBCA to any of our shareholders seeking appraisal. Any shareholder who believes he, she or it is entitled to appraisal rights and who wishes to preserve those rights should carefully review Sections 13.01 through 13.31 of Part 13 of the MBCA, attached as Annex C to this proxy statement, which sets forth the procedures to be complied with in perfecting any such rights. Failure to strictly comply with the procedures specified in Part 13 of the MBCA would result in the loss of any appraisal rights to which such shareholder may be entitled in connection with the Merger. Please read Part 13 of the MBCA carefully, because exercising appraisal rights involves several procedural steps, and failure to follow appraisal procedures could result in the loss of such rights, if any. Shareholders should consult with their advisors, including legal counsel, in connection with seeking appraisal. The foregoing discussion is not a complete statement of the law pertaining to appraisal rights under the MBCA and is qualified in its entirety by reference to Part 13 of the MBCA.

 

National Dentex and Parent have agreed to use their respective reasonable best efforts to obtain all regulatory approvals required to complete the Merger and the other transactions contemplated by the Merger Agreement. As of the date of this proxy statement, the waiting period requirements under the HSR Act have been satisfied, and we do not have any reason to believe that there are any other regulatory approvals are required to complete the Merger and the other transactions contemplated by the Merger Agreement, other than certain waiting period requirements under the HSR Act.

 

Certain Executive Officers May be Employed by GeoDigm and/or the Surviving Corporation to the Merger Following the Merger

 

While certain of our executive officers may be employed following the completion of the Merger by GeoDigm and/or the surviving corporation following the Merger, as of the date of this proxy statement, neither we nor Parent, Merger Sub, Sponsor or, to our knowledge, any of their respective affiliates have entered into any employment agreements or agreement to purchase or participate in the equity of GeoDigm or its parent companies with our management in connection with the Merger, nor amended or modified any existing employment agreements in connection with the Merger.

 

Ownership of National Dentex Stock, Stock Options, and other Equity Awards

 

Our directors and executive officers own our common stock (including restricted stock) and, like our other shareholders, will be entitled to receive the Merger consideration for their shares. See “Security Ownership of Certain Beneficial Owners and Management” on page 65.

 

In addition, our directors and executive officers hold stock options to purchase shares of our common stock or RSUs. Like the other holders of our equity awards, our directors and executive officers will be entitled to receive cash in exchange for the cancellation of their vested and unexercised stock options and RSUs pursuant to the terms of the Merger Agreement. Further, our board of directors has approved the lapse of restrictions on all shares of outstanding restricted stock and the acceleration of vesting of all other equity awards if such awards allow for vesting in the event of a change of control of National Dentex. These actions will be effective immediately prior to the effective time of the Merger, including for restricted shares and equity awards held by our directors and executive officers.

 

Our directors, other than Mr. Brown, would receive the following amounts in connection with the cancellation of their vested restricted stock units and the lapse of restrictions on shares of restricted stock, if any, they hold upon consummation of the Merger as well as the shares of common stock they hold without restrictions:

 

 

 

 

Our named executive officers would receive the following amounts in connection with the cancellation of their vested and unexercised stock options upon consummation of the Merger (assuming they do not exercise

any such options prior to the effective time of the Merger as well as the shares of common stock they hold without restrictions):

 

 

 

 

 

 

Existing Employment Agreements and Change of Control Severance Agreements.

 

As most recently amended in July 2008, Mr. Brown and Mr. Becker are each party to employment agreements with the Company which provide for annual base salaries that may be increased at the discretion of our board of directors. These agreements also provide for participation in our executive incentive compensation plan, reimbursement of expenses, and the same types of benefits that we generally offer to our other executives. In the event that either of those executives terminate his employment with “good reason,” the Company terminates them without “cause” or their death or “disability” (each as defined in their employment agreement), the Company will continue to pay their current base salary and average bonus for a period of two years following the date of termination, which amount may be reduced in the second year to the extent of compensation received from other employment, and in the case of disability, may be reduced to the extent of any payments under the Company’s long term disability plan. The average bonus paid in each of these scenarios would be the average bonus paid to these executives in the previous two years. In the event of such a termination, we will also provide health and welfare benefits for the shorter of (i) two years following the termination date or (ii) until Mr. Brown or Mr. Becker has commenced other employment. Mr. Brown and Mr. Becker are also each subject to certain non-competition provisions covering the dental laboratory business. The agreements automatically renew for one-year terms until such time as they may be terminated by National Dentex or the named executive. The terms of the employment agreements with each of Mr. Brown and Mr. Becker stipulate that in the event of a change in control the determination and payment of any benefits

following a qualified termination would be exclusively governed by the provisions of any existing change in control severance agreement, as discussed below.

 

In July 2008, we entered into or amended our change of control severance agreements with each of Mr. Brown, Mr. Green, Mr. Becker and Mr. Coll, which provide for a severance benefit upon termination of employment within two years after a “change in control” (as defined in the agreements) of National Dentex. The Merger would be a “change of control” under all of these agreements. Other than with respect to Mr. Brown, these agreements provide that, in the event that the named employee is terminated without “cause” (as defined in the agreements), or terminates his employment for certain specified reasons constituting “good reason” (as defined in the agreement and including, without limitation, a reduction in compensation or duties), within two years of a change of control, the employee will receive severance benefits equal to two times his base salary in effect immediately prior to the date of termination, plus two times the average amount of the bonus paid for the two fiscal years ending on or immediately prior to the date of termination. In Mr. Brown’s case, these severance benefits are three times salary and three times the average bonus over the two preceding years. These agreements also provide for two years of post-termination health and welfare benefits. The severance payments are payable in a lump sum within thirty days of the qualifying termination following a change of control. The estimated potential payments would be as follows: Mr. Brown, $1,624,404; Mr. Green, $971,388; Mr. Becker, $636,689; and Mr. Coll, $480,515, which amounts may be reduced to maximize the amount received following the application of Section 280G of the Internal Revenue Code of 1986, as amended.

 

Existing Supplemental Employee Retirement Programs

 

Mr. Brown, Mr. Becker and Mr. Coll each participate in our Supplemental Executive Retirement Plans ( “SERPs” ). These plans are generally designed to provide these participants with annual benefits payable over a period of ten years beginning on the participant’s 65th birthday or the participant’s date of retirement (whichever comes later), if the employee has elected to defer retirement in accordance with the terms of the plan. In order to provide these benefits, we have purchased life insurance contracts for each participating employee. Generally, the benefits for each participant vests at ten years (except in the case of one SERP established for the benefit of Mr. Brown to which Mr. Brown vests as to 20% of the benefits provided thereunder annually over a period of five years). Our SERPs provide that in the event of a change of control (which includes the Merger) the benefits which the employees are entitled to under the SERPs become fully vested. Pursuant to this change of control provision, Mr. Brown will receive one year of vesting under one of the SERPs that he participates in, which provides for ten annual payments of $125,000 beginning at age 75 (plus health benefits for him and his wife for the remainder of their lives) and Mr. Coll will receive one year of vesting under the SERP in which he participates, under which he would receive ten annual payments currently estimated to be approximately $28,000 when he terminates employment after attaining the age of 65, in accordance with the terms of the SERP. Mr. Becker’s benefits under the SERPs are fully vested.

 

Neither our directors or Mr. Green participates in any of the SERPs.

 

The following is a discussion of certain material U.S. federal income tax consequences of the Merger to U.S. holders (as defined below) whose shares of our common stock are converted into the right to receive the Merger consideration. This discussion is for general information only and is not tax advice. The discussion is based upon the Internal Revenue Code, Treasury regulations, Internal Revenue Service published rulings and judicial and administrative decisions in effect as of the date of this proxy statement, all of which are subject to change (possibly with retroactive effect) and to differing interpretations. The following discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our shareholders. This discussion applies only to shareholders who, on the date on which the Merger is completed, hold shares of our common stock as capital assets within the meaning of section 1221 of the Internal Revenue Code. The following discussion does not address taxpayers subject to special treatment under U.S. federal income tax laws, such as insurance companies, financial institutions, dealers in securities or currencies, traders of securities that elect the mark-to-market method of accounting for their securities, persons that have a

functional currency other than the U.S. dollar, tax-exempt organizations, mutual funds, real estate investment trusts, S corporations or other pass-through entities (or investors in an S corporation or other pass-through entity) and taxpayers subject to the alternative minimum tax. In addition, the following discussion may not apply to shareholders who acquired their shares of our common stock upon the exercise of stock options, ESPP options, RSUs or otherwise as compensation for services or who hold their shares as part of a hedge, straddle, conversion transaction or other integrated transaction. If our common stock is held through a partnership, the U.S. federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. It is recommended that partnerships that are holders of our common stock and partners in those partnerships consult their own tax advisors regarding the tax consequences to them of the Merger.

 

The following discussion also does not address potential alternative minimum tax, foreign, state, local and other tax consequences of the Merger. All shareholders should consult their own tax advisors regarding the U.S. federal income tax consequences, as well as the foreign, state and local tax consequences of the disposition of their shares in the Merger.

 

For purposes of this summary, a “U.S. holder” is a beneficial owner of shares of our common stock, who or that is, for U.S. federal income tax purposes:

 

 

Except with respect to the withholding discussion below, this discussion is confined to the tax consequences to a shareholder who or that, for U.S. federal income tax purposes, is a U.S. holder.

 

For U.S. federal income tax purposes, the disposition of our common stock pursuant to the Merger generally will be treated as a sale of our common stock for cash by each of our shareholders. Accordingly, in general, the U.S. federal income tax consequences to a shareholder receiving cash in the Merger will be as follows:

 

 

Cash payments made pursuant to the Merger will be reported to our shareholders and the Internal Revenue Service to the extent required by the Internal Revenue Code and applicable Treasury regulations. Non-corporate shareholders may be subject to back-up withholding at a rate of 28% on any cash payments they receive. Shareholders who are U.S. holders generally will not be subject to backup withholding if they: (i) furnish a correct taxpayer identification number and certify that they are not subject to backup withholding on the substitute Form W-9 included in the election form/letter of transmittal they are to receive or (ii) are otherwise exempt from backup withholding and comply with other applicable rules and certification requirements. Shareholders who are not U.S. holders should complete and sign a Form W-8BEN (or other applicable tax form) and return it to the paying agent in order to provide the information and certification necessary to avoid withholding tax or otherwise establish an exemption from withholding tax. Certain of our shareholders will be asked to provide additional tax information in the letter of transmittal for the shares of our common stock.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the Merger. Because individual circumstances may differ, each shareholder should consult the shareholder’s tax advisor regarding the applicability of the rules discussed above to the shareholder and the particular tax effects to the shareholder of the Merger in light of such shareholder’s particular circumstances, the application of state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of options, ESPP options, or RSUs to purchase shares of National Dentex common stock.

 

Indemnification and Insurance

 

The Merger Agreement requires (i) the surviving corporation to cause all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the completion of the Merger, to the extent provided under any indemnification agreement or the respective certificates or articles of organization or bylaws (or comparable organizational documents) of National Dentex or any of its subsidiaries in effect on the date of the Merger Agreement, in favor of any current and former officers, directors and employees of National Dentex or any of its subsidiaries and any person prior to the Merger serving at the request of any such party as a director, officer, employee, fiduciary or agent of another corporation, partnership, trust or other enterprise, to survive the Merger and continue in full force and effect for a period of six years from the completion of the Merger and (ii) Parent to guarantee the payment and performance by the surviving corporation of the indemnification and exculpation obligations set forth in clause (i) above. The Merger Agreement also provides that we shall purchase, and following the effective time of the Merger the Parent and surviving corporation shall maintain in effect for a six year period after the effective time of the Merger without any lapse in coverage, a prepaid or “tail” directors’ and officers’ liability insurance coverage not materially less favorable than the directors’ and officers’ liability insurance coverage currently in effect. The maximum premium for such a policy is 300% of 2009’s annual premium for our existing directors’ and officers’ liability insurance; provided however, that if the premium exceeds such percentage we may modify the terms of coverage so long as the premium does not exceed such 300%.

 

This section of the proxy statement describes the material provisions of the Merger Agreement but it may not contain all of the information about the Merger Agreement that is important to you. The Merger Agreement is attached as Annex A to this proxy statement and is incorporated into this proxy statement by reference. We encourage you to read the Merger Agreement in its entirety. The Merger Agreement is a document that establishes and governs the legal relations among us, Parent, and Merger Sub with respect to the transactions described in this proxy statement.

 

The effective time of the Merger will occur at the time that we file articles of merger with the Massachusetts Secretary of State and a certificate of merger with the Delaware Secretary of State on the closing date of the Merger or on such later date as may be mutually agreed to by Parent and us (or such later time as is provided in the articles of merger and the certificate of merger). The closing date will occur no later than the second business day after all of the conditions to the consummation of the Merger set forth in the Merger Agreement have been satisfied or waived (other than those conditions that by their nature are to be satisfied on the closing date), or on such other date as we and Parent mutually agree; provided that Parent may delay the closing date not more than five business days (but not beyond September 15, 2010) to finalize any debt financing it is obtaining in connection with the transactions contemplated by the Merger Agreement.

 

Subject to the terms and conditions of the Merger Agreement and in accordance with Massachusetts and Delaware law, at the effective time of the Merger, Merger Sub, a direct wholly owned subsidiary of GeoDigm and an indirect wholly owned subsidiary of Parent, will merge with and into National Dentex. The separate corporate existence of Merger Sub will cease, and National Dentex will continue as the surviving corporation, a direct wholly owned subsidiary of GeoDigm and an indirect wholly owned subsidiary of Parent. The surviving corporation will be a privately held corporation and our current shareholders will cease to have any ownership interest in the surviving corporation following the Merger. As a result of the Merger, our current shareholders will not participate in any future earnings or growth of the surviving corporation and will not benefit from any appreciation in value of the surviving corporation.

 

Common Stock

 

At the effective time of the Merger, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger will automatically be cancelled, will cease to exist and will be converted into the right to receive $17.00 in cash, without interest and less applicable withholding taxes, other than:

 

 

Stock Options; Employee Stock Purchase Plan; Restricted Stock; Restricted Stock Units;

 

Stock Options.   Immediately prior to the effective time of the Merger, each then outstanding option to purchase common stock of National Dentex will become vested in full and exercisable in accordance with its terms immediately prior to the effective time of the Merger. If not exercised at or prior to the effective time of the Merger, as of the effective time of the Merger, each such outstanding option will be terminated and

converted into the right to receive an amount, if any, equal to (i) the excess, if any, of (A) $17.00 over (B) the exercise price per share of the applicable option, multiplied by (ii) the number of shares of common stock subject to such option.

 

Employee Stock Purchase Plan.

 

 

Restricted Stock.   Shares of common stock awarded pursuant to our equity incentive plans and subject to vesting or other lapse restrictions outstanding immediately prior to the effective time of the Merger will vest in full and become free of applicable lapse restrictions as of the effective time of the Merger.

 

Restricted Stock Units.   Each award of a right to shares of common stock pursuant our equity incentive plans that is subject to vesting or other lapse restrictions and that is outstanding immediately prior to the effective time of the Merger will vest in full and become free of applicable lapse restrictions as of the effective time of the Merger. Such RSUs will be canceled and extinguished as of the effective time of the Merger, and the holder thereof will be entitled to receive from National Dentex an amount in cash equal to $17.00 per share with respect to each share previously subject to such RSU and not previously delivered pursuant to such RSU.

 

Payment for Options and RSUs.   No later than three days after the effective time of the Merger, National Dentex will pay the holders of the options and RSUs all payments they are entitled to, less amounts the surviving corporation is required to withhold under tax laws.

 

Certain Expiring Options.   Certain employees whose options were to expire as of April 5, 2010 will, to the extent that they did not exercise their options prior to April 5, 2010, be granted by National Dentex a special cash bonus, described in the Merger Agreement, intended to compensate for any lost opportunity to participate in the Merger. Such cash bonus will be paid no later than three business days after the effective time of the Merger. No director or executive officer is receiving any such special bonus.

 

At or prior to the effective time of the Merger, Parent will designate a paying agent, which will act as the agent for payment of the Merger consideration to the holders of National Dentex common stock. At or before the effective time of the Merger, Parent and Merger Sub will cause to be deposited with the paying agent for the benefit (as of the effective time of the Merger) of National Dentex’s shareholders cash in an aggregate amount equal to the product of (i) the number of shares of National Dentex common stock issued and outstanding immediately before the effective time of the Merger (other then shares held by National Dentex, our subsidiaries, Parent or Merger Sub), and (ii) the $17.00 per share Merger consideration.

 

Instructions with regard to the surrender of certificates formerly representing shares of National Dentex common stock or uncertificated shares of National Dentex common stock, together with the letter of transmittal to be used for that purpose, will be mailed to our shareholders by the paying agent promptly after the effective time of the Merger. Promptly following receipt from the shareholder of a duly executed letter of

transmittal, together with the applicable certificate(s) representing National Dentex common stock, and any other items specified by the letter of transmittal, the paying agent will pay in cash to such shareholder an amount equal to the product of the number of shares of National Dentex common stock represented by such certificates remitted by the shareholder and the $17.00 per share Merger consideration, without interest and less any applicable withholding tax.

 

No transfer of shares of National Dentex common stock will be made on the stock transfer books of the surviving corporation after the effective time of the Merger. After the effective time of the Merger, previous shareholders will have no rights with respect to shares of National Dentex common stock except to receive the Merger consideration or statutory appraisal rights (if available) if they have properly demanded and not withdrawn or lost such rights.

 

After one year following the effective time of the Merger, any amounts remaining in the payment fund may be refunded to the surviving corporation of the Merger, and any previous holders of certificates representing National Dentex common stock who have not complied with the applicable provisions for payment summarized above will be entitled to payment of the Merger consideration only from the surviving corporation, without interest.

 

For the payment agent to pay some or all of a portion of a shareholder’s Merger consideration to someone other than the person in whose name the certificate is registered, the shareholder’s certificate(s) must be properly endorsed or otherwise in proper form for transfer, and any transfer or other taxes payable by reason of the transfer must be paid or it must be established to Parent’s reasonable satisfaction that the taxes have been paid or are not required to be paid.

 

If a certificate has been lost, stolen, or destroyed, the paying agent will only issue the portion of the Merger consideration applicable to such certificate if the person claiming the lost, stolen, or destroyed certificate makes an affidavit of that fact. The surviving corporation may also require the delivery of a bond in an amount that it directs as indemnity against any claim that may be made against it with respect to the lost, stolen or destroyed certificate.

 

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

 

We have made various representations and warranties in the Merger Agreement with respect to National Dentex and our subsidiaries. These include representations and warranties regarding:

 

 

 

Many of our representations and warranties are qualified by the absence of a material adverse effect on National Dentex, or by the occurrence of any event which does not have, or would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on National Dentex, which means, for purposes of the Merger Agreement, any effect, change, event, occurrence, circumstance or development that (i) has, or would be reasonably expected to have, a material adverse effect on the business, results of operations, properties or financial condition of National Dentex and its subsidiaries taken as a whole or (ii) prevents, materially delays or materially affects, or would reasonably be expected to prevent, materially delay or materially affect, the ability of National Dentex to consummate the transactions contemplated by, or to perform its obligations under, the Merger Agreement, subject to a number of customary exceptions.

 

Parent and Merger Sub have made various representations and warranties in the Merger Agreement with respect to Parent and Merger Sub. These include representations and warranties regarding:

 

 

 

The representations and warranties of each of the parties to the Merger Agreement will expire upon the effective time of the Merger. The assertions embodied in those representations and warranties were made solely for purposes of the Merger Agreement and are subject to important qualifications and limitations agreed by the parties in connection with negotiating its terms. Moreover, some of those representations and warranties may not be accurate or complete as of any particular date because they are used for the purpose of allocating risk between the parties to the Merger Agreement rather than establishing matters of fact and may be subject to a contractual standard of materiality or material adverse effect different from that generally applicable to public disclosures to shareholders.

 

We have undertaken certain customary covenants that place restrictions on us and our subsidiaries until the effective time of the Merger. From the date of the Merger Agreement until the effective time of the Merger, we have agreed to (and to cause our subsidiaries to) conduct our and our subsidiaries’ business in the ordinary course of business consistent with past practices and to use commercially reasonable efforts to preserve our and our subsidiaries’ business organization and goodwill, keep available the services of our employees and officers, maintain our existing relations with customers, suppliers, licensors, creditors, and other third parties, and maintain our current insurance coverage.

 

In addition, we have agreed, with certain limited exceptions, not to do (and not to permit our subsidiaries to do) any of the following, except as expressly contemplated by the Merger Agreement or agreed to in writing by Parent:

 

 

 

 

Parent acknowledges that nothing in the Merger Agreement gives it the right to control our business prior to the effective time of the Merger.

 

We are required to take all action that is reasonable and lawful to solicit from our shareholders the requisite proxies in favor of the Merger, and our board of directors cannot withhold its recommendation in favor of the Merger. Notwithstanding the above, we may postpone the shareholders’ meeting (i) with Parent’s consent to ensure that any amendment to this proxy statement reaches the shareholders; (ii) if no quorum would be present at the initially-scheduled shareholders’ meeting; or (iii) for the duration of the four day notice period allowed pursuant to the provisions regarding solicitation of other alternative acquisition proposals, and up to two further business days beyond the four day notice period.

 

Prior to the effective time of the Merger, we are required to allow Parent and its representatives reasonable access to our officers, employees, properties, books and records, provided that such reasonable access will be restricted to extent that we determine a trade secret would be revealed.

 

Upon the terms and conditions set forth in the Merger Agreement, National Dentex, Parent and Merger Sub agree to take, or cause to be taken, all actions reasonably necessary, and to do, or cause to be done, and assist and cooperate with the other party or parties to the Merger Agreement in doing, all things reasonably necessary, proper or advisable under applicable law to consummate the Merger in the most expeditious manner reasonably practicable, including using reasonable best efforts to cause the conditions of the Merger to be satisfied. Each of National Dentex and Welsh Carson filed a Notification and Report Form under the HSR Act on May 18, 2010, and the 30 day waiting period requirements under the HSR Act have been satisfied and no further Governmental approval of the merger is required under the HSR Act. We are required to pay 50% of the fees related to the HSR Act filings.

 

The Go-Shop Period

 

Until 11:59 P.M., Eastern Standard Time, on May 12, 2010, we had the right to:

 

 

 

We are obligated to provide or make available to Parent any non-public information concerning National Dentex that is provided or made available to any solicited person which was not previously provided or made available to Parent.

 

The No-Shop Period

 

Subject to certain exceptions outlined below, from May 13, 2010 until the earlier of the effective time of the Merger or the termination of the Merger Agreement, we shall not:

 

 

If, after May 12, 2010, but prior to obtaining shareholder approval of the Merger, we receive a written alternative acquisition proposal from a third party that:

 

 

then we may furnish information to, and participate in discussions with, the person making such alternative acquisition proposal. We may not disclose any information to a person making such alternative acquisition proposal until such person has entered into an acceptable confidentiality agreement, and any information we do provide to such person must be provided to Parent within 48 hours.

 

We may also furnish information to, and participate in discussions with a person (a “Continuing Party” ) that has made a written alternative acquisition proposal after April 2, 2010 and before 11:59 p.m., Eastern Standard Time, on May 12, 2010 and with whom we are having ongoing discussions or negotiations as of such time regarding such alternative acquisition proposal. In each case, the board of directors must believe in good faith that such Continuing Party’s alternative acquisition proposal is bona fide and determine in good faith, after consultation with its financial and legal advisors, that such Continuing Party’s alternative

acquisition proposal constitutes or would reasonably be expected to result in a superior proposal. We must keep Parent informed of, and provide Parent copies of, all alternative acquisition proposals received from Continuing Parties. We may not continue to furnish information to, or participate in discussion with, any Continuing Parties if their proposal ceases to be bona fide or to constitute a superior proposal to the transactions contemplated by the Merger Agreement, and such person or entity will thereafter cease to be a Continuing Party.

 

As used herein, “superior proposal” means a bona fide written alternative acquisition proposal made by any person or entity other than Parent or Merger Sub that the board of directors determines in good faith, after consultation with its financial advisor and legal counsel, is more favorable from a financial point of view to our shareholders (solely in their capacity as such) than the transactions contemplated by the Merger Agreement or any amended proposal by Parent, after taking into account all relevant factors, including all legal, financial (including the certainty of any financing commitment thereto relative to the commitment set forth in the Equity Commitment Letter), regulatory and other aspects of such proposal, and is reasonably likely to be consummated on the terms proposed.

 

After May 12, 2010, we must notify Parent within 48 hours in writing if we receive:

 

 

National Dentex is required to keep Parent reasonably informed within 24 hours as to the status of any material developments, modifications, discussions, negotiations concerning all alternative acquisition proposals from any such persons.

 

Change of Company Recommendation

 

Subject to the qualifications described below, our board of directors shall not:

 

 

provided , that at any time prior to obtaining the shareholder adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, if we receive an alternative acquisition proposal and our board of directors concludes in good faith, after consultation with its financial and legal

advisors, that such alternative acquisition proposal constitutes a superior proposal to the transactions contemplated by the Merger Agreement and that the failure to effect a Change in Company Recommendation would be inconsistent with the fulfillment of its fiduciary duties under applicable law, our board of directors may

 

 

 

provided, however , that we shall not terminate the Merger Agreement pursuant to the foregoing clause unless concurrently with such termination we pay a termination fee equal to $4,150,000, or $3,150,000 if the alternative acquisition proposal is submitted by a Continuing Party; provided, further , that we may not terminate the Merger Agreement and effect a Change in Company Recommendation unless we provide prior written notice to Parent, at least four business days in advance, of our intention to effect a Change in Company Recommendation or terminate the Merger Agreement to enter into a definitive agreement with respect to such superior proposal, which notice must include a written summary of the material terms and conditions of such superior proposal. During the four day notice period, we are required to negotiate with Parent and Merger Sub in good faith (to the extent Parent and Merger Sub desire to negotiate) to make adjustments in the terms and conditions of the Merger Agreement and Equity Commitment Letter, and the board of directors shall take into account any changes to the financial and other terms of the Merger Agreement and the Equity Commitment Letter proposed by Parent in response to any such written notice by National Dentex in evaluating whether the alternative acquisition proposal ceases to constitute a superior proposal to the transactions contemplated by the Merger Agreement. Any amendment to the financial terms or other material terms of such superior proposal shall require a new written notice to Parent and a new notice period, except that such new notice period shall be two business days. Further, we can not terminate the Merger Agreement in order to accept a superior proposal to the transactions contemplated by the Merger Agreement if such superior proposal was knowingly and intentionally solicited in violation of the Merger Agreement, or that resulted from a material breach of the provisions of the Merger Agreement regarding alternative acquisition proposals.

 

Notwithstanding anything to the contrary indicated here, our board of directors may, prior to obtaining the shareholder adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and solely in response to a material change in the results or operations of National Dentex that was unknown to our senior management or board of directors prior to April 2, 2010 (an “Intervening Event” ), effect a Change in Company Recommendation, if the board of directors determines in good faith that the failure to take such action would be inconsistent with the fulfillment of its fiduciary duties. Prior to taking such action:

 

 

The Merger Agreement requires (i) the surviving corporation to cause all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the completion of the Merger, to the extent provided under any indemnification agreement or the respective certificates or articles of organization or bylaws (or comparable organizational documents) of National Dentex or any of its subsidiaries in effect on April 2, 2010 in favor of any current and former officers, directors and employees of National Dentex or any

of its subsidiaries and any person prior to the Merger serving at the request of any such party as a director, officer, employee, fiduciary or agent of another corporation, partnership, trust or other enterprise, to survive the Merger and continue in full force and effect for a period of six years from the completion of the Merger and (ii) Parent to guarantee the payment and performance by the surviving corporation of the indemnification and exculpation obligations described above. The Merger Agreement also provides that we are required to purchase, and following the effective time of the Merger, the Parent and surviving corporation shall maintain in effect for a six year period after the effective time of the Merger without any lapse in coverage, a prepaid or “tail” directors’ and officers’ liability insurance coverage not materially less favorable than the directors’ and officers’ liability insurance coverage currently in effect. The maximum premium for such a policy is 300% of the 2009’s annual premium for our existing directors’ and officers’ liability insurance; provided however, that if the premium exceeds such percentage we may modify the terms of coverage so long as the premium does not exceed such 300%.

 

For one year after the effective time of the Merger, Parent or the surviving corporation will:

 

 

This does not alter the at-will status of employees, to the extent that the employees are at-will.

 

Continuing employees will receive credit for all purposes under any employee benefit plan, program or arrangement established or maintained by Parent or the surviving corporation or any of their respective subsidiaries under which each continuing employee may be eligible to participate on or after the effective time of the Merger for service with National Dentex to the same extent recognized by National Dentex under comparable plans immediately prior to the effective time of the Merger.

 

Supplemental Executive Retirement Plans and Deferred Compensation Plans

 

After the effective time of the Merger, Parent will guarantee the payment and performance of all supplemental executive retirement plans and other deferred compensation plans of National Dentex. Parent will not impair or borrow against the supplemental executive retirement plans or other deferred compensation plans, other than to effect payments to the beneficiaries under those plans in accordance with those plans. Further, Parent will establish a Rabbi Trust prior to the effective date of the Merger to separately hold each and every underlying insurance contract maintained to satisfy obligations under the supplemental executive retirement plans.

 

Parent and Merger Sub estimate that the total amount of funds necessary to consummate the Merger and related transactions will be approximately $139,000,000, which Parent and Merger Sub expect will be funded by equity and debt financings. Parent’s and Merger Sub’s obligations to consummate the Merger are not subject to any financing conditions (although funding of the equity financing is subject to the satisfaction of the conditions set forth in the Equity Commitment Letter under which the equity financing will be provided; the conditions in the Equity Commitment Letter are limited to satisfaction of the closing conditions set forth in the Merger Agreement or a final non-appealable judgment or settlement relating to the Merger Agreement

being entered into or awarded in favor of National Dentex). The following arrangements are in place for financing the Merger, including the payment of related transaction costs, charges, fees and expenses:

 

Equity Financing.   Parent and Merger Sub have received the Equity Commitment Letter from the Sponsor to, subject to its terms, provide equity financing of up to $139,000,000 (the maximum aggregate amount that is estimated to be necessary to consummate the Merger and the other transactions contemplated by the Merger Agreement) to consummate the transactions contemplated by the Merger Agreement or to provide Parent funds so that it can satisfy any monetary judgment awarded to the Company as a result of Parent and/or Merger Sub’s breach of the Merger Agreement. Parent and Merger Sub have agreed to take or cause to be taken all actions necessary or advisable to obtain the equity financing contemplated by the equity financing commitment and to fully enforce the equity financing commitment.

 

Debt Financing.   We have agreed to provide all cooperation reasonably requested by Parent in its efforts to obtain debt financing to finance the Merger, including by participating in due diligence sessions, providing unaudited monthly financial statements and obtaining consents of third parties to the Merger.

 

Mutual Agreements

 

In addition to the other agreements described elsewhere in this section of the proxy statement, National Dentex, Parent and Merger Sub have agreed to the following:

 

 

National Dentex Agreements

 

In addition to the other agreements described elsewhere in this section of the proxy statement, we have agreed to:

 

 

Conditions of National Dentex, Parent and Merger Sub

 

The obligations of each party to effect the Merger are subject to the fulfillment at or before the effective time of the Merger of the following conditions:

 

 

Conditions of Parent and Merger Sub

 

The obligations of Parent and Merger Sub to effect the Merger are subject to the fulfillment or waiver, to the extent permitted by law, at or before the effective time of the Merger of the following conditions:

 

 

Conditions of National Dentex

 

The obligations of National Dentex to effect the Merger are subject to the fulfillment or waiver, to the extent permitted by law, at or before the effective time of the Merger of the following conditions:

 

 

Termination by Mutual Consent

 

The Merger Agreement may be terminated at any time prior to the effective time of the Merger, whether before or after adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, by our shareholders, by the mutual written consent of us and Parent (and approved by our board of directors and Parent’s board of directors).

 

Termination by National Dentex or Parent

 

Either National Dentex or Parent may terminate the Merger Agreement, without the consent of the other, in the event of any of the following:

 

 

Termination by Parent

 

Parent may terminate the Merger Agreement, without our consent, in the event of any of the following:

 

 

Termination by National Dentex

 

We may terminate the Merger Agreement:

 

 

Effect of Termination by Mutual Consent

 

If the Merger Agreement is terminated as described above, then the Merger Agreement shall be of no further force or effect without liability of any party to the Merger Agreement to the other parties thereto except as to the provisions regarding:

 

 

Subject to the application of termination fees, and the provisions of the Merger Agreement regarding specific performance, remedies and the limitation on liability of Parent, Merger Sub and Sponsor, neither we nor Parent or Merger Sub shall be relieved or released from any liabilities arising out of a material breach of, or fraud in connection with, the Merger Agreement to the extent such breach or fraud was a proximate cause of the failure of the Merger to be consummated prior to termination. A party to the Merger Agreement may not seek punitive or multiple damages against another party thereto.

 

Expenses

 

Under certain circumstances National Dentex is required to reimburse Parent for its expenses incurred in connection with the transactions, contemplated by the Merger Agreement, up to a maximum of $2,000,000. This expense reimbursement would become payable if the termination fee described below is not then payable and the Merger Agreement is terminated under either of the following circumstances:

 

 

The payment of any expense reimbursement to Parent will not relieve us of our obligation to pay a termination fee, but the amount of any expense reimbursement paid to Parent would be deducted from the amount of any termination fee that becomes payable by us pursuant to the terms of the Merger Agreement.

 

Termination Fee

 

Under certain circumstances, National Dentex is required to pay Parent a termination fee, which termination fee may be $4,150,000 or $3,150,000, less any amount we pay for Parent’s transaction expenses, as described in the Section entitled “Expenses” above. The termination fee would become payable if the Merger Agreement is terminated under any of the following circumstances:

 

 

 

 

 

Parent is only entitled to the termination fee following termination for failure to consummate the Merger by 5 p.m., Eastern Standard Time, on September 15, 2010, or failure to obtain the required shareholder vote if, following such termination, we enter into a definitive agreement with respect to an alternative acquisition proposal or consummate an alternative acquisition proposal within one year of termination, in each case for more than 50% of the equity or assets of National Dentex; or