PREM14A 1 s002488x1_prem14a.htm PREM14A

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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 (Amendment No.  )

Filed by the Registrant ☑
Filed by a Party other than the Registrant o
Check the appropriate box:

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

Birner Dental Management Services, Inc.
(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.
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, no par value, of Birner Dental Management Services, Inc.
 
(2)
Aggregate number of securities to which transaction applies:
 
 
The maximum number of shares of common stock to which this transaction applies is estimated to be 3,187,666, which consists of (A) 1,900,761 shares of common stock issued and outstanding as of October 22, 2018; (B) 1,039,349 shares of common stock issuable upon the full conversion of the 2017 Notes into shares of Series A Preferred Stock, followed by the conversion of all such shares of Series A Preferred Stock into Series B Preferred Stock, followed by the conversion of all such shares of Series B Preferred Stock into shares of common stock; (C) 94,271 shares of common stock issuable upon the full conversion of the 2018 Notes into shares of common stock; plus (D) 2,285 shares of common stock issuable upon the conversion of all shares of Series A Preferred Stock outstanding as of October 22, 2018; plus (v) the 151,000 shares of Company Common Stock issuable upon the exercise of all Options outstanding as of October 22, 2018
 
(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):
 
 
Solely for the purposes of calculating the filing fee, the maximum aggregate value of the transaction was determined based upon the sum of:
A) 1,900,761 shares of common stock issued and outstanding as of October 22, 2018 multiplied by the merger consideration of $10.75 per share; (B) 1,039,349 shares of common stock issuable upon the full conversion of the 2017 Notes into shares of Series A Preferred Stock, followed by the conversion of all such shares of Series A Preferred Stock into Series B Preferred Stock, followed by the conversion of all such shares of Series B Preferred Stock into shares of common stock multiplied by the merger consideration of $10.75 per share; (C) 94,271 shares of common stock issuable upon the full conversion of the 2018 Notes into shares of common stock multiplied by the merger consideration of $10.75 per share; (D) 2,285 shares of common stock issuable upon the conversion of all shares of Series A Preferred Stock outstanding as of October 22, 2018 multiplied by the merger consideration of $10.75 per share; (E) 151,000 shares of common stock issuable upon exercise of options to purchase shares of common stock with an exercise price of less than $10.63 per share multiplied by $2.92 (the difference between the merger consideration of $10.75 and the weighted average exercise price of such options of $7.83). In calculating the maximum aggregate value of the transaction, no value was attributed to 391,500 shares of common stock issuable upon exercise of options to purchase shares of common stock with an exercise price of $10.63 or more, which will be cancelled in the merger without any consideration.
 
(4)
Proposed maximum aggregate value of transaction:
 
 
$32,761,871.83
 
(5)
Total fee paid:
 
 
$3,970.74
o
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:
 
 
 

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PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION


1777 South Harrison Street, Suite 1400
Denver, Colorado 80210

            , 2018

To our shareholders:

Birner Dental Management Services, Inc. has entered into an agreement to be acquired by way of a merger. If the proposed merger is completed, Birner Dental Management Services, Inc. will become a wholly owned subsidiary of Mid-Atlantic Dental Services Holdings, LLC and each share of our common stock will be converted into the right to receive $10.62 in cash and a contingent value right that would entitle the holder thereof to receive up to $0.13 per share that may become payable after 18 months, in each case, without interest and less any applicable withholding taxes.

Our board of directors unanimously approved the merger agreement and has called a special meeting of our shareholders at which shareholders will have the opportunity to consider and vote upon a proposal to approve the merger agreement and the merger. Shareholder approval is one of several conditions to the proposed merger. Our board of directors unanimously recommends that you vote “FOR” each of the proposals to be considered at the special meeting, including approval of the merger agreement and the merger. The attached notice of special meeting includes further details about the special meeting, which will be held at             , at           on          ,          ,       .

You’re invited to attend the special meeting in person but, whether or not you plan to attend, please vote your shares as promptly as possible. Depending on how you hold your shares, you’ll find voting instructions on page 16 of the enclosed proxy statement and on the enclosed proxy or voting instruction card. Your vote is very important, because the merger cannot be completed unless the holders of a majority of the votes eligible to be cast by the holders of our outstanding common stock and Series A convertible preferred stock vote in favor of the proposal to approve the merger and the merger agreement. A failure to vote your shares of our common stock or Series A convertible preferred stock on the proposal to approve the merger and the merger agreement will have the same effect as a vote against the proposal.

The attached proxy statement provides you with detailed information about the special meeting, the merger agreement, and the merger. A copy of the merger agreement is attached as Appendix A. I encourage you to read the proxy statement, including its appendices and the documents incorporated by reference, carefully and in its entirety.

If you have any questions or need assistance in voting your shares, please contact us by telephone at or by email at                .

Thank you for your continued support.

Sincerely,

Frederic W.J. Birner
Chief Executive Officer and Director

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger, the merger agreement or the other transactions contemplated thereby or passed upon the adequacy or accuracy of the disclosure in this proxy statement. Any representation to the contrary is a criminal offense.

This proxy statement is dated           and is first being mailed to shareholders on or about          ,       .

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PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION


1777 South Harrison Street, Suite 1400
Denver, Colorado 80210

BIRNER DENTAL MANAGEMENT SERVICES, INC.

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held
            ,     

TO THE SHAREHOLDERS OF BIRNER DENTAL MANAGEMENT SERVICES, INC.:

You are cordially invited to attend a special meeting of shareholders, to be held at             , Denver, Colorado, at           Mountain Standard Time on             ,     . The purpose of the special meeting is to consider and vote upon the following proposals:

1. Merger Proposal. To approve the merger (as defined below) and the Agreement and Plan of Merger, dated as of October 3, 2018 (which, as it may be amended from time to time, we refer to as the “merger agreement”), by and among Birner Dental Management Services, Inc., Mid-Atlantic Dental Services Holdings, LLC, and Bronco Acquisition, Inc., pursuant to which Bronco Acquisition, Inc. would be merged (which we refer to as the “merger”) with and into Birner Dental Management Services, Inc. and Birner Dental Management Services, Inc. would become a wholly owned subsidiary of Mid-Atlantic Dental Services Holdings, LLC.
2. Adjournment Proposal. To approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger and the merger agreement at the time of the special meeting.

Accompanying this notice of special meeting of shareholders is a proxy statement, which describes these proposals in more detail, and a form of proxy, which allows you to vote on these proposals. Please carefully review these materials, including the information incorporated by reference into the proxy statement.

We welcome you to attend the special meeting, but whether or not you plan to attend, please submit your completed proxy via phone, mail or internet as soon as possible. Proxies are revocable and will not affect your right to vote in person in the event you revoke the proxy and attend the special meeting. Instructions on how to vote are found in the section titled “The Special Meeting—How to Cast your Vote” on page 16. Our board of directors unanimously recommends our shareholders vote “FOR” each of these proposals.

Only shareholders of record as shown on our books at the close of business on             ,      will be entitled to vote at the special meeting. On all matters to be voted on at the special meeting, each holder of common stock is entitled to one vote per share and each holder of Series A convertible preferred stock is entitled to 100,000 votes per share.

 
 
BY ORDER OF THE BOARD OF DIRECTORS,
 
 
 
Dated:
            ,     
Denver, Colorado
Dennis N. Genty
Chief Financial Officer and Secretary

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PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION

   
   
   
   
   
   
   
   
   

   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
BIRNER DENTAL MANAGEMENT SERVICES, INC.
   
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
to be held          ,     
   
The date of this Proxy Statement is          ,     
   

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PREFACE

ABOUT THIS PROXY STATEMENT

This document is being sent by Birner Dental Management Services, Inc., a Colorado corporation, which we refer to as “we,” “us,” “our,” “Birner Dental,” or the “company,” and our board of directors to solicit proxies from our holders of common stock and Series A convertible preferred stock to vote their shares at the special meeting of our shareholders to be held on        ,   ,     . At the special meeting, our shareholders will be asked, among other things, to approve the Agreement and Plan of Merger, which, as it may be amended from time to time, we refer to as the “merger agreement,” entered into on October 3, 2018, by and among Birner Dental, Mid-Atlantic Dental Services Holdings, LLC, a Delaware limited liability company, which we refer to as “Mid-Atlantic Dental” or “Parent,” and Bronco Acquisition, Inc., which we refer to as “Merger Sub.” Pursuant to the terms of the merger agreement, Merger Sub will merge with and into Birner Dental, with Birner Dental continuing as the surviving corporation and becoming a wholly owned subsidiary of Mid-Atlantic Dental, which we refer to as the “merger.”

The merger agreement permits a party to assign the merger agreement in certain circumstances, as described under “The Merger Agreement—Assignment” on page 64. References in this proxy statement to a party to the merger agreement are also to its permitted successors and assigns.

For a description of the company and some of the other parties involved in the transactions described in this proxy statement, please see “Parties” on page 18.

ADDITIONAL INFORMATION

We have elected to “incorporate by reference” certain information into this proxy statement, which means that we are disclosing important information to you by referring you to certain other documents that we have filed separately with the U.S. Securities and Exchange Commission, which we refer to as the “SEC,” and certain other documents that we may file with the SEC after the date of this proxy statement but prior to the special meeting. Because these documents contain important information and may subsequently amend this proxy statement, you should monitor and review our SEC filings until the special meeting is completed. References to this proxy statement are meant to include not only the main body of this proxy statement, but also the accompanying notice of special meeting and proxy card, each of the appendices, and the information incorporated by reference. See “Where You Can Find More Information” on page 77.

We have not authorized anyone to provide any information other than what is contained in or incorporated by reference in this proxy statement, and take no responsibility for any information others may give you. See “Miscellaneous—Legal and Cautionary Disclosures—Other Information Not Authorized by Birner Dental” on page 75.

FORWARD-LOOKING STATEMENTS

This proxy statement contains forward-looking statements, including statements related to our financial projections, the consequences of the outcome of the proposals to be considered and voted upon at the special meeting, the completion of the merger, or the consequences thereof. Forward-looking statements can usually be identified by the use of words such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “evolve,” “expect,” “forecast,” “intend,” “looking ahead,” “may,” “opinion,” “plan,” “possible,” “potential,” “project,” “should,” “will” and other expressions which indicate future events or trends.

These forward-looking statements are based upon certain expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those anticipated as a result of various factors, including:

(1) Risks related to the consummation of the merger, including the risks that:
a. The merger may not be consummated within the anticipated time period, or at all.
b. We may fail to obtain shareholder approval of the merger agreement.
c. Other conditions to the consummation of the merger under the merger agreement may not be satisfied.

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d. All or part of the financing to be obtained by Mid-Atlantic Dental may become unavailable.
e. The significant limitations on remedies contained in the merger agreement may limit or entirely prevent us from specifically enforcing Mid-Atlantic Dental’s obligations under the merger agreement or recovering damages for any breach by Mid-Atlantic Dental.
(2) The effects that any termination of the merger agreement may have on us and our business, including the risks that:
a. Our stock price may decline significantly if the merger is not completed.
b. The merger agreement may be terminated in circumstances requiring us to pay Mid-Atlantic Dental a termination fee of $2 million or reimburse them for their reasonable out-of-pocket expenses of up to $1.25 million.
c. The circumstances of the termination, including the possible imposition of a 12-month tail period during which the termination fee could be payable upon certain subsequent transactions, may have a chilling effect on alternatives to the merger.
(3) The effects that the announcement or pendency of the merger may have on us and our business, including the risks that:
a. Our business, operating results or stock price may suffer.
b. Our current plans and operations may be disrupted.
c. Our ability to retain or recruit key employees may be adversely affected.
d. Our business relationships (including customers, professional corporations and suppliers) may be adversely affected.
e. Our management’s or other employees’ attention may be diverted from other important matters.
(4) The effect of limitations that the merger agreement places on our ability to operate our business, return capital to shareholders or engage in alternative transactions.
(5) The nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the merger and instituted against us and others.
(6) The risk that the merger and related transactions may involve unexpected costs, liabilities or delays.
(7) Other economic, business, competitive, legal, regulatory, and/or tax factors.
(8) The risks described from time to time in our reports filed with the SEC under the heading “Risk Factors,” including Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, subsequent Quarterly Reports on Form 10-Q and in our other filings with the SEC.

All forward-looking statements are qualified by, and should be considered together with, these cautionary statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which such statements were made.

Except as required by applicable law, we undertake no obligation to update forward-looking statements (whether as a result of new information, future events or otherwise). However, we do advise you to consult any future disclosures we make on related subjects as may be detailed in our other filings made from time to time with the SEC.

DATE OF MAILING

We expect that this proxy statement, the related form of proxy, and notice of special meeting will first be sent to shareholders on or about          , 2018.

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PROXY STATEMENT SUMMARY

Below is a summary of certain of the information included in this proxy statement that we consider most significant. This summary does not address all of the material topics covered by this proxy statement, nor does it include all of the material information provided by this proxy statement on any topic. Please refer to the complete proxy statement for additional information and before you vote.

THE SPECIAL MEETING

   
 
Time:
Mountain Standard Time
   
 
Date:
         ,          ,          
   
 
Place:
 
   
 
Record Date:
            , 2018
   
 
Voting Eligibility:
Shareholders as of the close of business on the record date are entitled to vote at the special meeting. Each shareholder as of the record date will be entitled to one vote per share of our common stock and 100,000 votes per share of our Series A convertible preferred stock held by such shareholder as of the record date on all matters to be voted on at the special meeting. As of the close of business on the record date for the special meeting, there were       shares of our common stock outstanding and expected to be entitled to vote at the special meeting and 11 shares of our Series A convertible preferred stock outstanding and expected to be entitled to vote at the special meeting.
   
 
Admission:
Only shareholders and authorized guests may attend the meeting and all attendees will be required to show a valid form of ID (such as a government-issued form of photo identification). If you hold your shares in street name (i.e., through a bank, broker, or other nominee), you must also provide proof of share ownership, such as a letter from your bank, broker or other nominee or a recent brokerage statement.

PROPOSALS UNDER CONSIDERATION

The following table summarizes each of the proposals to be considered and voted upon at the special meeting, including for each the vote required for approval, the voting recommendation of our board of directors, and the page number in this proxy statement where you can begin to find more information.

No.
Proposal
Voting Requirement
Voting
Recommendation
See
Page
1
Merger Proposal. To approve the merger and the Agreement and Plan of Merger, dated as of October 3, 2018, by and among Birner Dental Management Services, Inc., Mid-Atlantic Dental Services Holdings, LLC, and Bronco Acquisition, Inc., pursuant to which Merger Sub would be merged with and into Birner Dental and Birner Dental would become a wholly owned subsidiary of Mid-Atlantic Dental, which we refer to as the “merger proposal.”
A majority of the votes eligible to be cast by the holders of our outstanding common stock and Series A convertible preferred stock as of the record date, voting together as a single class
FOR

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No.
Proposal
Voting Requirement
Voting
Recommendation
See
Page
2
Adjournment Proposal. To approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger and the merger agreement at the time of the special meeting, which we refer to as the “adjournment proposal.”
A majority of the votes eligible to be cast by the holders of shares of our common stock and Series A convertible preferred stock represented at the special meeting, in person or by proxy, and entitled to vote at the special meeting.
FOR

THE PARTIES

Birner Dental Management Services, Inc. (referred to in this proxy statement as “we,” “us,” “our,” “Birner Dental,” or the “company) is a Colorado corporation. We are a dental service organization that services dental practice networks in Colorado, New Mexico and Arizona. We currently service 68 affiliated dental offices that provide comprehensive services including general dentistry, hygiene, orthodontics, pediatric dentistry and oral surgery.

Mid-Atlantic Dental Services Holdings, LLC (referred to in this proxy statement as “Mid-Atlantic Dental” or Parent) is a Delaware limited liability company. Mid-Atlantic Dental is a regional dental support organization supporting dental practices in four states in the northeastern United States.

Bronco Acquisition, Inc. (referred to in this proxy statement as “Merger Sub) is a wholly owned subsidiary of Mid-Atlantic Dental formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement.

For more information about these parties, see “Parties” on page 18 .

The merger agreement permits a party to assign the merger agreement in certain circumstances, as described under “The Merger Agreement—Assignment” on page 64. For example, Mid-Atlantic Dental is generally permitted to assign the merger agreement to a wholly owned subsidiary or parent. References in this proxy statement to a party to the merger agreement are also to its permitted successors and assigns.

THE MERGER PROPOSAL

We are asking you to approve a proposal to approve the merger and the merger agreement and thereby adopt the merger agreement as a plan of merger. The merger agreement provides, among other things, that at the effective time of the merger, Merger Sub will be merged with and into Birner Dental. Birner Dental will continue as the surviving corporation in the merger. As a result of the merger, Birner Dental will be delisted from the OTCQX Market and deregistered under the Securities Exchange Act of 1934, which we refer to as the “Exchange Act,” and will become a wholly owned subsidiary of Mid-Atlantic Dental. See “The Merger—The Merger and Its Effects” on page 20 and “The Merger Agreement—Structure and Corporate Effects of the Merger” on page 47.

A copy of the merger agreement is attached as Appendix A. For a discussion of certain terms and conditions of the merger agreement, see the section entitled “The Merger Agreement” on page 47. For a discussion of certain other considerations related to the merger, see the section entitled “The Merger” on page 47. For a discussion of the merger proposal see “The Merger Proposal (Proposal #1)” on page 69. The following subsections of this summary highlight certain information contained in these sections.

THE MERGER

Effects of the Merger on our Common Stock; Merger Consideration

As a result of the merger, each share of our common stock that is issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive $10.62 in cash, without interest and less any applicable withholding taxes, which we refer to as the “cash consideration,” and a contingent value

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right that would entitle the holder thereof to receive up to $0.13 per share that may become payable after 18 months, which we refer to as a “CVR,” except for (1) any shares subject to vesting, repurchase or other lapse of restrictions, (2) any shares owned by the company or any shares that are directly or indirectly owned by Mid-Atlantic Dental or any of its subsidiaries(other than, in each case, shares of our common stock held on behalf of third paries), which, collectively, we refer to as the “cancelled shares,” and (3) any dissenting shares (as described under “The Merger Agreement—Effect of the Merger on Our Common Stock” on page 47). We refer to the cash consideration and the CVRs as the “merger consideration.” The shares will no longer be outstanding and will automatically be cancelled and will cease to exist, and each holder thereof will cease to have any rights with respect thereto, except the right to receive the merger consideration. See “The Merger—The Merger and Its Effects” on page 20 and “The Merger Agreement—Effect of the Merger on Our Common Stock” on page 47.

Contingent Value Rights Agreement

The merger agreement provides that at the effective time we will enter into a contingent value rights agreement in the form attached to this proxy statement as Appendix C, which we refer to as the “CVR agreement.” Under the contingent value rights agreement, our shareholders can receive additional merger consideration of up to $0.13 per share. There is no assurance our shareholders will receive any additional merger consideration under the CVR agreement or from the CVRs. See “Contingent Value Rights Agreement” on page 67.

Payment for Common Stock in the Merger

Promptly after the effective time of the merger, Mid-Atlantic Dental will cause a paying agent to mail or otherwise provide notice to each holder of record of shares of our common stock whose shares were converted into the right to receive the merger consideration (1) the appropriate transmittal materials (including a letter of transmittal) and (2) instructions for effecting the surrender of certificates or book-entry shares formerly representing shares of our common stock in exchange for the merger consideration. Upon surrender of certificates or book-entry shares, as applicable, to the paying agent together with the letter of transmittal, completed and executed in accordance with the instructions to the letter of transmittal, and such other documents as may customarily be required by the paying agent, the holder of such certificates (or effective affidavits of loss in lieu of certificates) or book-entry shares will be entitled to receive the merger consideration for all such shares, and such certificates or book-entry shares will be cancelled. Do not send in your certificates now. See “The Merger Agreement—Payment for Common Stock in the Merger” on page 47.

Birner Dental without the Merger

If the merger agreement is not approved by our shareholders or if the merger is not consummated for any other reason, our shareholders will not receive any payment for their shares of our common stock. Instead, we will remain a public company, our common stock will continue to be listed and traded on the OTCQX Market and registered under the Exchange Act. In addition, if the merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that our shareholders will continue to be subject to the same risks and opportunities as they currently are, including, among other things, general industry, economic, and market conditions. See “The Merger—Birner Dental Without the Merger” on page 20.

Material United States Federal Income Tax Consequences

The exchange of our common stock for cash and CVRs pursuant to the merger will generally be a taxable transaction to U.S. holders (as defined under “The Merger—Material U.S. Federal Income Tax Consequences” on page 20) for United States federal income tax purposes. A more complete description of the U.S. federal income tax consequences of the merger is provided under “The Merger—Material U.S. Federal Income Tax Consequences” on page 41.

TIMING OF THE MERGER AND RELATED CONTINGENCIES

Timing of the Merger

The closing of the merger is to take place on the third business day after conditions set forth in the merger agreement are satisfied or waived. We currently expect to complete the merger in the first quarter of 2019.

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However, we cannot predict the exact timing of completion of the merger. We sometimes refer to the date on which the closing occurs as the “closing date.” See “The Merger Agreement—Timing of the Merger” on page 47.

Conditions to Completion of the Merger

The respective obligations of us, Mid-Atlantic Dental, and Merger Sub to consummate the merger are subject to the satisfaction or waiver of certain customary conditions, including the approval of the merger and the merger agreement by our shareholders, the absence of any legal prohibitions to the consummation of the merger, the accuracy of the representations and warranties of the parties, a lack of a material adverse effect on the company and compliance by the parties with their respective obligations under the merger agreement. For a description of these conditions, see “The Merger Agreement—Conditions to Completion of the Merger” on page 59.

Financing of the Merger

We anticipate that the total amount of funds necessary to consummate the merger and the related transactions will be funded by equity financing to be provided by an affiliate of Mid-Atlantic Dental, which has agreed to fund Mid-Atlantic Dental with $45 million for the purpose of consummating the merger, subject to the terms and conditions set forth in the subscription agreement entered into by such fund and Mid-Atlantic Dental. The merger is not conditioned upon receipt of financing by Mid-Atlantic Dental. See “The Merger—Financing of the Merger” on page 39.

Regulatory Approvals

The consummation of the merger is not conditioned on any antitrust or competition law regulatory filings in the United States or in any other jurisdiction.

For more information about regulatory approvals relating to the merger, see “The Merger—Regulatory Approvals” on page 41.

OUR BOARD’S RECOMMENDATION AND RELATED CONSIDERATIONS

Board Recommendation

Our board of directors unanimously recommends that you vote “FOR” approval of the merger proposal, which we refer to as the “board recommendation.” In making the board recommendation, our board of directors considered a number of factors potentially weighing in favor of the merger, and also considered and balanced against these factors a number of uncertainties, risks, restrictions and other factors potentially weighing against the merger. For a summary of the reasons for our board of directors’ recommendation in favor of the merger, see “The Merger—Reasons for our Board’s Recommendation in Favor of the Merger” on page 28.

Additional information about the process leading to our board of directors’ approval of the merger and the execution of the merger agreement can be found under “The Merger—Background to the Merger” on page 21.

Opinion of Our Financial Advisor

Cain Brothers, a division of KeyBanc Capital Markets Inc., which we refer to as “Cain Brothers,” rendered an oral opinion to our board of directors, which was subsequently confirmed in a written opinion dated as of October 2, 2018, as to the fairness, from a financial point of view, to the holders of our common stock as of the date of the opinion and based upon and subject to the assumptions made, matters considered and limitations and qualifications upon the review undertaken by Cain Brothers, of the consideration per share of our common stock to be received by those shareholders in the merger pursuant to the merger agreement.

The full text of the written opinion of Cain Brothers, dated October 2, 2018, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix D. Cain Brothers provided its opinion for the information and assistance of our board of directors in connection with its consideration of the merger. Cain Brothers’ opinion was directed to the board of directors, in its capacity as the board of directors of the company, and addressed only the fairness from a financial point of view, as of the date of the opinion, to the holders of our common stock of the consideration to be received by those shareholders in the merger pursuant to the merger agreement. It does not constitute a

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recommendation as to how any shareholder should vote with respect to the merger or any other matter, and does not in any manner address the price at which our common stock will trade at any time. In connection with Cain Brothers’ services as the company’s financial advisor in connection with the merger, the company will pay Cain Brothers an aggregate fee, based on merger consideration of $10.62 in cash, without interest and less any applicable withholding taxes, for each share of our common stock, of approximately $1.06 million, $250,000 of which was payable upon the delivery of Cain Brothers’ fairness opinion.

See “The Merger—Opinion of Our Financial Advisor” on page 32.

“Go-Shop” Period and “Window-Shop Period”

The merger agreement provides that we are permitted, from the date of the merger agreement and continuing until 11:59 p.m. Eastern Daylight Saving Time on October 31, 2018, which we refer to as the “go-shop period”, to directly or indirectly (1) solicit, initiate, encourage or facilitate, including by the making of a public announcement, the submission to us of any takeover proposal or any proposal or inquiry that would reasonably be expected to lead to any takeover proposal, (2) initiate, participate or continue to participate in any discussion or negotiations regarding any takeover proposals or any inquiry or proposal that would reasonably be expected to lead to a takeover proposal, (3) provide any information in connection with any takeover proposal and any inquiry, proposal or offer that would reasonably be expected to lead to a takeover proposal, and (4) otherwise cooperate with, assist, participate in and facilitate any such inquiry, proposal, discussion or negotiation or any effort or attempt to make any takeover proposal.

Beginning at 12:00 a.m. Eastern Daylight Saving Time on November 1, 2018 until the earlier of the effective time and the termination of the merger agreement, which we refer to as the “window-shop period”, we will not be permitted to engage in the activities permitted during the go-shop period that are described above. However, during the window-shop period, we will be permitted to enter into and participate in discussions or negotiations with a third party in response to a bona fide written takeover proposal made after the execution of the merger agreement and that does not result from a breach of the restrictions of the window-shop period. We may furnish information to such third party and participate in such discussions or negotiations if our board of directors has determined in good faith, after consultation with outside legal counsel and our financial advisor, that such takeover proposal would result in a superior proposal and failure to take action would be inconsistent with our board of directors’ fiduciary duties under applicable law.

For more information on the go-shop period, see “The Merger Agreement—Go-Shop; Window-Shop; Acquisition Proposals; Change in Recommendation” on page 55.

Interests of our Directors and Executive Officers in the Merger

In considering the recommendation of our board of directors that you vote for the merger proposal, you should be aware that certain of our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a shareholder. These interests are summarized under “The Merger—Interests of Our Directors and Executive Officers in the Merger” on page 40. Our board of directors was aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be approved and adopted by the shareholders of the company.

Support Agreements

Frederic W.J. Birner and Palm Active Dental, LLC, Palm Global Small Cap Master Fund LP, Palm Management (US) LLC, Palm Active Partners Management, LLC, and Palm Active Dental II, LP (collectively, the “Palm entities”), entered into Voting and Support Agreements dated October 3, 2018 with Parent, which were amended and restated on October 24, 2018 (as amended, the “support agreements”). Copies of the support agreements are attached to this proxy statement as Appendix B. Mr. Birner is our Chief Executive Officer and a member of our board of directors. Joshua S. Horowitz, Burton J. Rubin, and Bradley M. Tirpak serve on our board of directors as designees of the Palm entities. In the support agreements, Mr. Birner and the Palm entities have agreed, among other things, to vote an aggregate of 37.5% of the outstanding voting shares of the company in favor of the adoption and approval of the merger agreement and the merger and the other transactions cotemplated by the merger agreement, against any change in the company’s board of directors, against the approval of any alternative acquisition proposal or the adoption of any agreement relating to any alternative acquisition proposal,

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and against other proposals relating to matters that would reasonably be expected to impede, interfere with, delay, postpone, adversely affect or prevent the consummation of the merger or the other transactions contemplated by the merger agreement. See the section entitled “Support Agreements” on page 65.

CERTAIN OTHER TERMS OF THE MERGER AGREEMENT

The merger agreement contains a range of representations and warranties, covenants, and additional agreements. Certain of these terms are summarized below, and additional detail is provided in the section entitled “The Merger Agreement” on page 47. A copy of the merger agreement is attached as Appendix A. We encourage you to read the merger agreement carefully in its entirety because the rights and obligations of the parties are governed by the express terms of the merger agreement and not by this summary or any other information contained in this proxy statement.

Termination of the Merger Agreement

The merger agreement may be terminated at any time prior to the effective time of the merger by the mutual written consent of us and Mid-Atlantic Dental. Subject to certain conditions and exceptions, the merger agreement may also be terminated and the merger abandoned at any time prior to the effective time of the merger as follows:

by either us or Mid-Atlantic Dental, if:
the merger is not completed by 5:00 p.m., Eastern Standard Time, on February 28, 2019 (which we refer to as the “end date”);
a final and nonappealable order, injunction, judgment or law is in effect permanently restraining, enjoining or otherwise prohibiting the merger; or
our shareholders do not approve the merger agreement when a final vote is taken on the merger proposal at the special meeting.
by us:
if (1) there is any inaccuracy in Mid-Atlantic Dental or Merger Sub’s representations and warranties, or if Mid-Atlantic Dental or Merger Sub has breached or failed to perform any of its covenants or agreements in the merger agreement, (2) such inaccuracy, breach or failure would result in the failure of certain closing conditions, and (3) such inaccuracy, breach or failure is not capable of being cured prior to the end date or, if curable, is not cured within the earlier of 30 days of written notice to Mid-Atlantic Dental of such inaccuracy, breach or failure or the end date;
to accept a superior proposal that did not result from a breach of the restrictions of the go-shop period or the window-shop period and enter into a definitive agreement providing for such superior proposal immediately following or concurrently with the termination of the merger agreement and the payment of any applicable termination fee; or
if, (1) all of the mutual conditions precedent to the merger and the conditions to Mid-Atlantic Dental and Merger Sub’s obligations to effect the merger have been satisfied (other than those conditions that by their nature are to be satisfied at the closing but which are then capable of being satisfied at the closing on such date) under the merger agreement, (2) we have delivered irrevocable written notice to Mid-Atlantic Dental that our obligations to effect the merger have been satisfied or waived, and that we stand ready, willing and able to consummate the merger at such time, and (3) Mid-Atlantic Dental and Merger Sub fail to consummate the merger by the time the closing should have occurred in accordance with the merger agreement.
by Mid-Atlantic Dental, if:
(1) there is any inaccuracy in our representations and warranties, or if we have breached or failed to perform any of our covenants or agreements in the merger agreement, (2) such inaccuracy, breach or failure would give rise to the failure of certain closing conditions, and (3) such inaccuracy, breach or failure is not capable of being cured prior to the end date or, if curable, is not cured within the earlier of 30 days of written notice to us of such inaccuracy, breach or failure or the end date; or

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(1) our board of directors makes an adverse recommendation change, (2) we enter into a definitive agreement providing for such superior proposal, (3) we materially breach the restrictions of the go-shop period or the window-shop period, or (4) we fail to timely file this proxy statement or convene the special meeting.

For more information on the circumstances in which the merger agreement may be terminated, and the effects of any such termination, see “The Merger Agreement—Termination” on page 61.

Termination Fees

We have agreed to pay Mid-Atlantic Dental a termination fee in an amount equal to $2.0 million, if the merger agreement is terminated in certain circumstances, including:

(1) if the company terminates the merger agreement because the company enters into a definitive agreement regarding a superior proposal approved by the company’s board of directors;
(2) if Mid-Atlantic Dental terminates the merger agreement because (1) the company’s board of directors made a change regarding the recommendation to the company’s shareholders to adopt the merger agreement, (2) the company entered into a definitive agreement relating to a superior proposal, (3) the company or any of its subsidiaries materially breached the go-shop or window-shop provisions in the merger agreement, or (4) the company or any of its subsidiaries committed a willful and material breach of the merger agreement resulting in the failure of the company to convene a special meeting of company’s shareholders relating to the transaction prior to the third business day next preceding the end date; or
(3) if (1) the merger agreement is terminated by the company or Mid-Atlantic Dental for the failure to close before the end date or for the failure to obtain shareholder approval, or the merger agreement is terminated by Mid-Atlantic Dental for the company’s material, uncured breach of the merger agreement, (2) after the date of the merger agreement but before such termination, a takeover proposal is made to the company or any of its subsidiaries or becomes publicly known and, in each case, is not publicly withdrawn on a bona fide basis, and (3) within 12 months after the termination, the company or any of its subsidiaries enters into a definitive agreement providing for any transaction contemplated by any takeover proposal (regardless of when made) and such takeover proposal is subsequently consummated.

The termination fee that will be payable by the company to Mid-Atlantic Dental will instead be $1.25 million rather than $2.0 million if Mid-Atlantic Dental terminates the merger agreement because the company’s board of directors made a change regarding the recommendation to the company’s shareholders to adopt the merger agreement, or Mid-Atlantic Dental or the company terminates the merger agreement in connection with the company entering into a definitive agreement regarding a superior proposal approved by the company’s board of directors, in each case, prior to the end of the go-shop period or in connection with the company entering into a definitive agreement with a party from whom the company received a bona fide written takeover proposal during the go-shop period that (a) the company’s board of directors determined during the go-shop period constituted or was reasonably likely to result in a superior proposal and (b) remains pending as of the start of the window-shop period.

If we terminate the merger agreement because of failure to obtain shareholder approval, we will be required to concurrently reimburse Mid-Atlantic Dental for all reasonable and documented out-of-pocket expenses incurred by Mid-Atlantic Dental or Merger Sub in connection with the merger agreement and the transactions contemplated by the merger agreement up to $1.25 million.

Mid-Atlantic Dental will be required to pay us a termination fee of $2 million, if the merger agreement is terminated in certain circumstances, including if Mid-Atlantic Dental fails to consummate the merger when required to do so and we are not then in material breach of the merger agreement.

Limitation on Remedies

The merger agreement provides that our right to terminate the merger agreement and the payment of the termination fee by Mid-Atlantic Dental is our sole and exclusive remedy and that of our shareholders, directors, officers, employees, agents or affiliates, against Mid-Atlantic Dental, Merger Sub, any of their financing sources,

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and their respective partners, shareholders, members, manager, officers, directors, employees, agents, or affiliates. Mid-Atlantic Dental and Merger Sub are not liable for monetary damages in excess of $2 million.

The merger agreement provides that except in connection with fraud or willful misconduct, a willful and material breach of the merger agreement, or a breach of certain covenants relating to using reasonable best efforts to consummate the merger by us, the right of Mid-Atlantic Dental and Merger Sub to terminate the merger agreement and the payment by us of the termination fee and Mid-Atlantic Dental’s reasonable and documented out-of-pocket expenses is their sole and exclusive remedy and that of their shareholders, directors, officers, employees, agents, or affiliates, against us and our shareholders, officers, directors, employees, agents, and affiliates.

For more information on the limitations on remedies in connection with the merger, see “The Merger Agreement—Limitations on Remedies” on page 63.

DISSENTERS’ RIGHTS

If the merger agreement is approved by our shareholders at the special meeting and the merger is consummated, any of our shareholders who do not vote in favor of the merger agreement and who otherwise strictly comply with Article 113 of the Colorado Business Corporation Act, which we refer to as the “CBCA,” will be entitled to demand payment for their shares and an appraisal of the value of those shares. The rights of dissenting shareholders under the CBCA are discussed under “Dissenters’ Rights” on page 44. Any exercise of dissenters’ rights must be in accordance with the procedures set forth in Article 113 of the CBCA, which article is attached as Appendix E to this proxy statement.

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QUESTIONS AND ANSWERS

Below are brief answers to some of the key questions that we anticipate you might have. These questions do not address all the material topics covered by this proxy statement, nor do the answers include all the material information provided by this proxy statement. Please refer to the complete proxy statement for additional information and before you vote.

Q: Why am I receiving this document?
A: On October 3, 2018, Birner Dental entered into a definitive agreement providing for Birner Dental to be acquired by way of a merger and become a wholly owned subsidiary of Mid-Atlantic Dental. You are receiving this document in connection with the solicitation of proxies by our board of directors in favor of the proposal to approve the merger agreement, which we refer to as the merger proposal, and related proposals to be voted on at the special meeting. In addition, this document is our formal notice to you of your dissenters’ rights under Colorado law.
Q: What is a proxy?
A: A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of our common stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of our common stock is called a “form of proxy” or “proxy card.” Our board of directors has designated each of Joshua Horowitz and Frederic Birner, and each of them with full power of substitution, as proxies for the special meeting.
Q: When and where is the special meeting?
A: The special meeting will be held at             , on             ,     , at Mountain Standard Time.

In certain circumstances, the special meeting could be adjourned to another time or place. All references in our proxy materials to the special meeting include any adjournment or postponement of the special meeting.

Q: Who can vote at the special meeting?
A: Only holders of record of our common stock and Series A convertible preferred stock as of the close of business on                , the record date for the special meeting, are entitled to receive these proxy materials and to vote their shares at the special meeting. As of the close of business on the record date, there were (i)           shares of our common stock outstanding and entitled to vote at the special meeting, held by approximately     holders of record, and (ii) 11 shares of our Series A convertible preferred stock outstanding and entitled to vote at the special meeting, held by three holders of record. Each share of our common stock issued and outstanding as of the record date will be entitled to one vote on each matter submitted to a vote at the special meeting. Each share of our Series A convertible preferred stock issued and outstanding as of the record date will be entitled to 100,000 votes per share of preferred stock on each matter submitted to a vote at the special meeting.
Q: What is the difference between holding shares as a “shareholder of record” and as a “beneficial owner”?
A: If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares, to be the “shareholder of record.” In this case, we have sent this proxy statement and your proxy card to you directly.

If your shares are held through a broker, bank, or other nominee, you are considered the “beneficial owner” of the shares of our common stock held in “street name.” In that case, this proxy statement has been forwarded to you by your broker, bank, or other nominee who is considered, with respect to those shares, to be the shareholder of record. As the beneficial owner, you have the right to direct your broker, bank, or other nominee on how to vote your shares by following their instructions for voting. You are also invited to attend the special meeting. However, because you are not the shareholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid legal proxy from your broker, bank, or other nominee.

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Q: What matters will be voted on at the special meeting?
A: You will be asked to consider and vote on the following proposals:
to approve the merger agreement (which we describe in greater detail on page 47); and
to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting (which we describe in greater detail on page 15).
Q: What is the proposed merger and what effects will it have on Birner Dental?
A: The proposed merger is the acquisition of Birner Dental by Mid-Atlantic Dental pursuant to the merger agreement. If the merger proposal is approved by the holders of our common stock and Series A convertible preferred stock and the other closing conditions under the merger agreement are satisfied or waived, Merger Sub will merge with and into Birner Dental, and Birner Dental will continue as the surviving corporation. As a result of the merger, Birner Dental will become a wholly owned subsidiary of Mid-Atlantic Dental. We would de-list our common stock from the OTCQX Market and de-register our common stock under the Exchange Act as soon as reasonably practicable following the effective time of the merger, and at such time, we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the merger is consummated, you will not own any shares of the capital stock of the surviving corporation.
Q: What happens if the merger is not completed?
A: If the merger agreement is not approved by our shareholders or if the merger is not consummated for any other reason, our shareholders will not receive any payment for their shares of common stock in connection with the merger. Instead, we will remain a public company, the common stock will continue to be listed and traded on the OTCQX Market and registered under the Exchange Act and we will continue to file periodic reports with the SEC.

Under specified circumstances, we may receive payment from or be required to pay to Mid-Atlantic Dental a termination fee or expense reimbursement upon the termination of the merger agreement, as described under “The Merger Agreement—Termination Fees” on page 62.

Q: What will I receive if the merger is completed?
A: Upon completion of the merger, you will be entitled to receive (i) $10.62 in cash, without interest and less any applicable withholding taxes, and (ii) one CVR that would entitle you to receive up to $0.13 in cash at the end of an 18-month period, for each share of our common stock that you own. There is no assurance our shareholders will receive any additional merger consideration under the CVR agreement or from the CVRs.

For example, if you own 100 shares of our common stock, you will receive $1,062.00 in cash in exchange for your shares of our common stock, less any applicable withholding taxes. In addition, you would be eligible to receive up to $13.00 from your CVRs. Following the merger, you will not own shares in the surviving corporation.

Q: How does the merger consideration compare to the market price of Birner Dental common stock prior to the public announcement of the merger agreement?
A: The merger consideration represents a premium of (1) approximately 105% to our closing stock price on October 3, 2018, the last trading day before the public announcement of the merger agreement.
Q: What will the holders of Birner Dental equity awards, such as options and restricted stock units, receive in the merger?
A: Until the effective time of the merger, equity awards will continue to be subject to vesting, exercise or forfeiture in accordance with their terms. At the effective time of the merger, all of our then-outstanding equity awards will be treated as summarized below and as described in more detail under “The Merger Agreement—Treatment of Birner Dental Equity Awards” on page 48. These payments will be made shortly following the effective time of the merger, without interest and subject to any applicable withholding tax.

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Stock Options. At the effective time of the merger, each then-outstanding unexercised option to acquire shares of our common stock will be cancelled in exchange for an amount in cash equal to the excess, if any, of $10.62 over the exercise price per share of our common stock subject to such option multiplied by the number of shares of our common stock subject to such option. Such “in the money” options will also receive one CVR per share of common stock subject to such option.

So-called “underwater” or “out of the money” options, where the exercise price per share of our common stock subject to such options is more than or equal to $10.62, will be cancelled without consideration and will not receive CVRs.

Restricted Stock. Each then-outstanding share of restricted stock subject solely to time-based vesting, repurchase or other lapse of restrictions will be cancelled in exchange for (i) an amount in cash equal to $10.62 (subject to any applicable withholding tax), and (ii) one CVR.

Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as soon as possible after the date of the special meeting, and currently expect to consummate the merger during the first quarter of 2019. However, the exact timing of completion of the merger cannot be predicted because the merger is subject to conditions, including approval of the merger agreement by our shareholders. See “The Merger Agreement—Timing of the Merger” on page 47 and “The Merger Agreement—Conditions to Completion of the Merger” on page 59.
Q: Am I entitled to appraisal or dissenters’ rights under Colorado law?
A: Yes. As a holder of our common stock, you are entitled to exercise dissenters’ rights under the Colorado Business Corporation Act in connection with the merger if you take certain actions and meet certain conditions. See “The Merger—Dissenters’ Rights” on page 44.
Q: Will I be subject to U.S. federal income tax upon the exchange of Birner Dental common stock for cash pursuant to the merger?
A: Generally, yes, if you are a U.S. holder. The exchange of our common stock for cash pursuant to the merger generally will require a U.S. holder to recognize a gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (1) the amount of cash received by such U.S. holder pursuant to the merger plus the amount used to satisfy any applicable withholding taxes and (2) such U.S. holder’s adjusted tax basis in the shares of our common stock surrendered pursuant to the merger. Backup withholding may apply to the cash payment made pursuant to the merger unless the U.S. holder or other payee provides a valid taxpayer identification number and complies with certain certification procedures (generally, by providing a properly completed and executed IRS Form W-9) or otherwise establishes an exemption from backup withholding. A more complete description of the U.S. federal income tax consequences of the merger is provided under “The Merger—Material U.S. Federal Income Tax Consequences” on page 41.

This discussion does not address U.S. federal income tax consequences with respect to holders other than U.S. holders. Because particular circumstances may differ, we recommend that you consult your own tax advisor to determine the U.S. federal income tax consequences relating to the merger in light of your own particular circumstances and any consequences arising under any state, local or non-U.S. tax laws or tax treaties.

Q: How do I attend the special meeting?
A: To attend the special meeting, you will need to present valid photo identification, such as a driver’s license or passport, and proof of ownership of our common stock. If you hold your shares in street name (i.e., through a bank, broker, or other nominee), you must also provide proof of share ownership as of the record date, such as a letter from your bank, broker or other nominee or a recent brokerage statement, to attend the meeting. If you are not a holder of record as of the record date, you will be permitted to vote at the meeting only if you have a valid legal proxy from a holder of record as of the record date.

You may not bring weapons, cameras, recording equipment, electronic devices, large bags, briefcases or packages to the special meeting. You and your belongings may be subject to search prior to your admittance to the meeting. We may implement additional security procedures. If you do not comply with these procedures, you will not be admitted to the special meeting.

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Q: What vote of Birner Dental shareholders is required to approve the merger and the merger agreement?
A: Approval of the merger and the merger agreement requires that shareholders holding a majority of the votes eligible to be cast by the holders of shares of our common stock and Series A convertible preferred stock, outstanding at the close of business on the record date for the special meeting vote “FOR” the merger proposal. Each share of our common stock is entitled to one vote on each matter to be voted upon at the special meeting. Each share of Series A convertible preferred stock is entitled to 100,000 votes on each matter to be voted upon at the special meeting. A failure to vote your shares of our common stock or an abstention from voting will have the same effect as a vote “AGAINST” the merger proposal. If your shares are held in “street name” by your broker, bank or other nominee and you do not instruct such broker, bank or other nominee how to vote your shares, such failure to instruct your broker, bank or other nominee will have the same effect as a vote “AGAINST” the merger proposal.
Q: How does Birner Dental’s board of directors recommend that I vote?
A: Our board of directors unanimously recommends that our shareholders vote “FOR” each of the proposals.

For a discussion of the factors that our board of directors considered in determining to recommend the approval of the merger agreement, please see the section entitled “The Merger—Reasons for our Board’s Recommendation in Favor of the Merger” on page 28. In addition, in considering the recommendations of our board of directors, you should be aware that some of our directors and executive officers have potential interests that may be different from, or in addition to, the interests of our shareholders generally. For a discussion of these interests, please see the section entitled “The Merger—Interests of Our Directors and Executive Officers in the Merger” on page 40.

Q: How do Birner Dental’s directors and officers intend to vote?
A: We currently expect that our directors and officers will vote their shares in favor of the merger proposal, although they have no obligation to do so, except as set forth in the support agreements.
Q: Have any shareholders already agreed to vote “FOR” approval of the merger agreement?
A: Yes. Frederic W.J. Birner and the Palm entities have entered into support agreements with the Parent. Mr. Birner is our Chief Executive Officer and a Director. Joshua S. Horowitz, Burton J. Rubin, and Bradley M. Tirpak serve on our board of directors as designees of the Palm entities. In the support agreements, Mr. Birner and the Palm entities have agreed, among other things, to vote an aggregate of 37.5% of the outstanding voting shares of the company in favor of the adoption and approval of the merger agreement and the merger and the other transactions contemplated by the merger agreement, against any change in the company’s board of directors, against the approval of any alternative acquisition proposal or the adoption of any agreement relating to any alternative acquisition proposal, and against other proposals relating to matters that would reasonably be expected to impede, interfere with, delay, postpone, adversely affect or prevent the consummation of the Merger or the other transactions contemplated by the merger agreement. See the section entitled “Support Agreements” on page 65.
Q: What do I need to do now? How do I vote my shares of Birner Dental common stock?
A: We urge you to read this entire document carefully, including its appendices and the documents incorporated by reference, and to consider how the merger affects you. Your vote is important, regardless of the number of shares of our common stock you own. You’ll find voting instructions on page 16 of this proxy statement or on the enclosed proxy card. You can vote your shares in person or by proxy over the internet, by telephone or by mail.
Q: Can I revoke my proxy?
A: Yes. You may revoke your proxy and change your vote at any time before your proxy is voted at the special meeting. To revoke your proxy, you must (1) submit a new proxy by internet or telephone no later than 11:59 p.m. Eastern Standard Time on ,20 ; (2) complete, sign, date and return a new proxy card to us, which must be received by us before the time of the meeting; or (3) if you are a record shareholder (or a beneficial owner with a legal proxy from the record shareholder), attend the meeting in person and deliver a

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proper written notice of revocation of your proxy. Attendance at the meeting will not by itself revoke a previously granted proxy. Unless you decide to vote your shares in person, please revoke your prior proxy in the same way you initially submitted it—that is, by internet, telephone or mail.

Q: Will my shares of Birner Dental common stock held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?
A: No. Because any shares of our common stock you may hold in “street name” will be deemed to be held by a different shareholder (that is, your bank, broker or other nominee) than any shares of our common stock you hold of record, any shares of our common stock held in “street name” will not be combined for voting purposes with shares of our common stock you hold of record. Similarly, if you own shares of our common stock in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares of our common stock because they are held in a different form of record ownership. Shares of our common stock held by a corporation or business entity must be voted by an authorized officer of the entity. Please indicate title or authority when completing and signing the proxy card. Shares of our common stock held in an individual retirement account must be voted under the rules governing the account. This means that, to ensure all your shares are voted at the special meeting, you should read carefully any proxy materials received and follow the instructions included therewith.
Q: What does it mean if I get more than one proxy card or voting instruction card?
A: If your shares of our common stock are registered differently or are held in more than one account, you will receive more than one proxy or voting instruction card. Please complete and return all of the proxy cards and voting instruction cards you receive (or submit each of your proxies by telephone or the internet, if available to you) to ensure that all of your shares of our common stock are voted.
Q: What happens if I sell my shares of Birner Dental common stock before completion of the merger?
A: To receive the merger consideration, you must hold your shares of our common stock through completion of the merger. Consequently, if you transfer your shares of our common stock before completion of the merger, you will have transferred your right to receive the merger consideration in the merger.

The record date for shareholders entitled to vote at the special meeting is earlier than the consummation of the merger. If you transfer your shares of our common stock after the record date but before the closing of the merger, you will have the right to vote at the special meeting but not the right to receive the merger consideration. We urge you to vote even if you have subsequently transferred your shares.

Q: Should I send in my stock certificates or other evidence of ownership now?
A: No. If the merger is completed, the paying agent will send information to our shareholders of record explaining how to exchange shares of our common stock for the merger consideration. You should not send in your Birner Dental stock certificates before you receive these transmittal materials. If your shares of our common stock are held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to receive the merger consideration. Do not send in your certificates now.
Q: Where can I find the voting results of the special meeting?
A: We intend to announce preliminary voting results at the special meeting and publish results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that we file with the SEC are publicly available when filed. See “Where You Can Find More Information” on page 77.
Q: Where can I find more information about Birner Dental?
A: You can find more information about us from various sources described in the section entitled “Where You Can Find More Information” on page 77.

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Q: Who can help answer my other questions?
A: If you have more questions about the merger or require assistance in submitting your proxy or voting your shares or need additional copies of this proxy statement or the enclosed proxy card, please contact us by telephone at (303) 691-0680 or by email at dgenty@perfectteeth.com.

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THE SPECIAL MEETING

THE SPECIAL MEETING

Date, Time, Place

We will hold a special meeting of shareholders, at                   , at           Mountain Standard Time on                    ,              , 20  .

Purpose

The purpose of the special meeting is to consider and vote upon the following proposals:

1. Merger Proposal. To approve the Agreement and Plan of Merger, dated as of October 3, 2018 (as it may be amended from time to time), by and among Birner Dental, Mid-Atlantic Dental and Merger Sub, pursuant to which Birner Dental would be acquired by way of a merger and become a wholly owned subsidiary of Mid-Atlantic Dental. For more information on this proposal, see “The Merger Proposal (Proposal #1)” on page 69.
2. Adjournment Proposal. To approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting. For more information on this proposal, see “The Adjournment Proposal (Proposal #2)” on page 70.

Our board of directors unanimously recommends our shareholders vote “FOR” each of these proposals.

Other Business

Our management knows of no other matters to be presented at the special meeting. Applicable Colorado law and our bylaws prohibit the transaction at the special meeting of any business that is not stated in the notice of special meeting.

Admission

Only shareholders and authorized guests may attend the meeting and all attendees will be required to show a valid form of ID (such as a government-issued form of photo identification).

If you hold your shares in street name (i.e., through a bank, broker or other nominee), you must also provide proof of share ownership as of the record date, such as a letter from your bank, broker or other nominee or a recent brokerage statement, to attend the meeting.

Security Procedures

Please do not bring weapons, cameras, recording equipment, electronic devices, large bags, briefcases or packages to the special meeting. You and your belongings may be subject to search prior to your admittance to the meeting. We may implement additional security procedures. If you do not comply with these procedures, you will not be admitted to the special meeting.

Adjournment

Although it is not currently expected, we may adjourn the special meeting one or more times, including if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting. The meeting may be adjourned either (1) by our chairperson without a vote of our shareholders or (2) pursuant to a vote of our shareholders on the adjournment proposal.

All references in our proxy materials to the special meeting include any adjournment or postponement of the special meeting.

RECORD DATE – WHO CAN VOTE – SHARES OUTSTANDING

Our board of directors has fixed                             , 20    as the record date for the special meeting. Shareholders of record as shown on our books at the close of business on the record date will be entitled to vote at the special meeting. Persons who were not shareholders on the record date will not be eligible to vote.

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At the close of business on the record date, there were                                shares of our common stock and 11 shares of our Series A convertible preferred stock issued and outstanding.

HOW TO CAST YOUR VOTE

Your vote is important! Please cast your vote as soon as possible, using the instructions on the enclosed proxy card.

Our board of directors unanimously recommends that you vote “FOR” each of the proposals.

Instructions for voting your shares depend on how you hold them and whether you wish to vote in-person or by proxy:

Shareholders of record, who hold shares registered in their own name, can vote by signing, dating, and returning the enclosed proxy card in the postage-paid return envelope, or by telephone or via the internet, following the easy instructions shown on the enclosed proxy card.
Beneficial owners, who own shares through a bank, broker, or other nominee, can vote by returning the voting instruction form, or by following the instructions for voting via telephone or the internet, as provided by the bank, broker or other nominee. If you own shares in different accounts or in more than one name, you may receive different voting instructions for each type of ownership. Please vote all your shares.
If you are a shareholder of record or a beneficial owner who has a legal proxy to vote the shares, you may choose to vote in person at the special meeting. Even if you plan to attend the special meeting in person, please cast your vote as soon as possible by using the proxy card.

If you have any questions or need assistance voting, please contact us by telephone at (303) 691-0680 or by email at dgenty@perfectteeth.com.                      .

Proxies will be voted as directed therein. If you sign and return the enclosed proxy card or submit a proxy by telephone or over the internet and do not specify how your shares are to be voted, your shares will be voted “FOR” the merger proposal and “FOR” the adjournment proposal.

REVOKING YOUR PROXY

Any shareholder giving a proxy may revoke it any time prior to its use at the special meeting (1) by giving written notice of such revocation to our corporate secretary or any one of our other officers, (2) by submitting a timely, later dated written proxy (or voting instruction form if you hold shares through a broker, bank or other nominee), or (3) providing timely subsequent telephone or internet voting instructions.

Personal attendance at the special meeting is not, by itself, sufficient to revoke a proxy unless written notice of the revocation or a later dated proxy is delivered to an officer before the revoked or superseded proxy is used at the special meeting.

VOTING INTENTIONS OF OUR DIRECTORS AND OFFICERS AND CERTAIN SHAREHOLDERS

Frederic W.J. Birner and the Palm entities entered into support agreements with the Parent. Mr. Birner is our Chief Executive Officer and a director. Joshua S. Horowitz, Burton J. Rubin, and Bradley M. Tirpak serve on our board of directors as designees of the Palm entities. In the support agreements, Mr. Birner and the Palm entities have agreed, among other things, to vote an aggregate of 37.5% of the outstanding voting shares of the company in favor of the adoption and approval of the merger agreement and the merger and the other transactions contemplated by the merger agreement, against the approval of any alternative acquisition proposal or the adoption of any agreement relating to any alternative acquisition proposal, and against other proposals relating to matters that would reasonably be expected to impede, interfere with, delay, postpone, adversely affect or prevent the consummation of the merger or the other transactions contemplated by the merger agreement. See the section entitled “Support Agreements” on page 65.

VOTING PROCEDURES AND TECHNICALITIES

Votes per Share

Each share of our common stock is entitled to one vote on each matter to be voted upon at the special meeting. Each share of Series A convertible preferred stock is entitled to 100,000 votes on each matter to be voted upon at

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the special meeting. The Series A convertible preferred stock votes together with the common stock as a single class. Holders of our common stock and Series A convertible preferred stock are not entitled to cumulative voting rights.

Quorum

A “quorum” is the minimum number of shareholders who must be present at the special meeting for business to be conducted. The holders of at least           votes of our common stock and Series A convertible preferred stock (which represents a majority of the votes eligible to be cast at the special meeting) will be a quorum for a vote to be taken on the merger proposal.

If a quorum is present when the special meeting is convened, the shareholders present may continue to transact business until adjournment, even if the withdrawal of shareholders originally present leaves less than a quorum.

Abstentions

If a shareholder indicates on their proxy that they wish to abstain from voting, including banks, brokers, or other nominees holding their customers’ shares who cause abstentions to be recorded, these shares are considered present and entitled to vote at the special meeting and those shares will count toward determining whether a quorum is present at the meeting. An abstention will have the same effect as a vote against the merger proposal and the adjournment proposal.

Broker Non-Votes

If a shareholder who holds their shares through a bank, broker, or other nominee does not give instructions to the bank, broker, or other nominee as to how to vote the shares, the bank, broker, or other nominee has authority under applicable stock exchange to vote those shares for or against “routine” proposals. However, banks, brokers, and other nominees without discretionary authority cannot vote on their customers’ behalf on “non-routine” proposals. All the proposals to be considered at the special meeting are “non-routine.”

If a bank, broker, or other nominee does not receive voting instructions as to a non-routine proposal and does not have discretionary authority to vote on the proposal, a “broker non-vote” may occur. Shares that are subject to broker non-votes are considered not entitled to vote, and therefore will not count toward determining whether a quorum is present at the meeting and will be ignored for purposes of determining the outcome of any vote on the adjournment proposal. However, a broker non-vote will have the same effect as a vote against the merger proposal.

SOLICITATION OF PROXIES

Our board of directors is soliciting your proxy, and we will bear the cost of this solicitation of proxies. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock and Series A convertible preferred stock. Proxies may be solicited by mail, personal interview, email, telephone, or via the internet, without additional compensation, by certain of our directors, officers, and employees.

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PARTIES

BIRNER DENTAL

Birner Dental Management Services, Inc. (referred to in this proxy statement as “we,” “us,” “our,” “Birner Dental,” or the “company) is a Colorado corporation. We incorporated in 1995.

We are a dental service organization devoted to servicing geographically dense dental practice networks in select markets, currently including Colorado, New Mexico and Arizona. With 47 affiliated dental practices (“Offices”) in Colorado and 11 in New Mexico, the company believes that its affiliated Offices comprise one of the largest providers of dental care in Colorado and New Mexico. In addition, the company has ten affiliated Offices in Arizona. As of                                   , 2018, the company provided business services to             Offices, of which           were acquired and           were developed internally. The company provides a solution to the needs of dentists, patients and third-party payors by allowing the company’s affiliated dentists to provide high-quality, efficient dental care in patient-friendly, family practice settings. Dentists practicing at the various locations provide comprehensive general dentistry services, and the company offers specialty dental services through affiliated specialists at some of its locations.

Our common stock is currently listed on the OTCQX Market under the ticker symbol “BDMS.” For more information about our common stock, see “Market Prices and Dividend Data” on page 73.

The members of our board of directors are:

Joshua S. Horowitz, Interim Chairman
Frederic W.J. Birner
Thomas D. Wolf
Bradley Tirpak
John Climaco
Gregory Fulton
Burton J. Rubin   

Our executive officers are:

Frederic W.J. Birner, Chief Executive Officer
Dennis N. Genty, Chief Financial Officer

Our principal executive offices are located at 1777 S. Harrison Street, Suite 1400, Denver, CO 80210, and our telephone number is +1 (303) 691-0680. Our investor website is www.perfectteeth.com/about/investor-relations. The information contained on, or accessible through, our website is not incorporated into this proxy statement. More information about the company, our board of directors, and our executive officers is available as described under “Where You Can Find More Information” on page 77.

MID-ATLANTIC DENTAL

Mid-Atlantic Dental Services Holdings, LLC (referred to in this proxy statement as “Mid-Atlantic Dental” or Parent) is a Delaware limited liability company. It was originally incorporated in Delaware in 2015.

Mid-Atlantic Dental is the parent company of Mid-Atlantic Dental Partners, which offers dentists a dental support organization model that supports dental professionals by providing marketing, financial, practice information and other business services so dentists can focus on delivering the highest quality care to their patients.

Mid-Atlantic Dental’s principal executive offices are located at 630 West Germantown Pike, Suite 120, Plymouth Meeting, PA 19462, and its telephone number is +1 (484) 455-4550. Its website is www.mid-atlanticdental.com. The information contained on, or accessible through, Mid-Atlantic Dental’s website is not incorporated into this proxy statement.

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MERGER SUB

Bronco Acquisition, Inc. (referred to in this proxy statement as “Merger Sub) is a Delaware corporation and a wholly owned subsidiary of Mid-Atlantic Dental. Merger Sub was formed on September 28, 2018 solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, and it currently has no other business or operations. Upon completion of the merger, Merger Sub will cease to exist and Birner Dental will continue as the surviving corporation.

Merger Sub’s principal executive offices are located at 630 West Germantown Pike, Suite 120, Plymouth Meeting, PA 19462, and its telephone number is +1 (484) 455-4550.

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THE MERGER

THE MERGER AND ITS EFFECTS

If the merger agreement is approved by our shareholders and the other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into Birner Dental, and the separate corporate existence of Merger Sub will cease. Birner Dental will be the surviving corporation in the merger and will continue its corporate existence as a Colorado corporation and a wholly owned subsidiary of Mid-Atlantic Dental.

Upon the terms and subject to the conditions of the merger agreement, at the effective time of the merger, each share of our common stock issued and outstanding immediately before the effective time of the merger (other than cancelled shares, dissenting shares and shares subject to vesting, repurchase or other lapse of restrictions) will be converted into the right to receive (i) $10.62 in cash, without interest and less any applicable withholding taxes, and (ii) one CVR, which would entitle you to receive up to $0.13 in cash at the end of an 18-month period, for each share of our common stock that you own. At the effective time of the merger, our current shareholders will cease to have ownership interests in the company or rights as its shareholders. Therefore, our current shareholders will not participate in any of our future earnings or growth and will not benefit from any appreciation in our value.

Our common stock is currently registered under the Exchange Act and is quoted on the OTCQX Market under the symbol “BDMS.” As a result of the merger, Birner Dental will cease to be a publicly traded company and will be a wholly owned subsidiary of Mid-Atlantic Dental. Following the consummation of the merger, our common stock will be delisted from the OTCQX Market and deregistered under the Exchange Act, and Birner Dental will no longer be required to file periodic reports with the SEC with respect to our common stock, in each case in accordance with applicable law, rules and regulations.

The merger will be accounted for as a “purchase transaction” for financial accounting purposes.

BIRNER DENTAL WITHOUT THE MERGER

If the merger agreement is not approved by our shareholders or if the merger is not consummated for any other reason, our shareholders will not receive any payment for their shares of our common stock. Instead, we will remain a public company, our common stock will continue to be listed and traded on the OTCQX Market and registered under the Exchange Act and we will continue to file periodic reports with the SEC. In addition, if the merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that our shareholders will continue to be subject to the same risks and opportunities as they currently are, including, among other things, general industry, economic, and market conditions and our declining financial performance in recent years (that consisted of losses and related defaults under our bank loan agreement with Guaranty Bank and Trust Company (the “bank”) that caused us to restructure our debt and sell $5 million of notes and shares of Series A convertible preferred stock in December 2017 and sell an additional $468,000 of notes and shares of Series A convertible preferred stock in August 2018 to regain compliance with, and avoid a default under, an EBITDA covenant in our bank loan agreement,) and the potential for future defaults that could require additional infusions of capital, which may not be available, and actions our bank could take in response to future uncured defaults. If the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of our common stock. From time to time, if the merger is not consummated, our board of directors will evaluate and review our business operations, properties, dividend policy, and capitalization and, among other things, make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to maximize shareholder value. If the merger agreement is not approved by our shareholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects, or results of operations will not be adversely impacted.

If the merger agreement is terminated, under specified circumstances, we may receive from or be required to pay Mid-Atlantic Dental a termination fee or expense reimbursement, as described under “The Merger AgreementTermination Fees” on page 62.

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BACKGROUND TO THE MERGER

The following chronology summarizes certain key events and contacts that led to the signing of the merger agreement. It does not purport to catalogue every conversation among our board of directors, members of our management, or our representatives and other parties.

During the past several years, as part of our ongoing strategic planning process, our board of directors and management regularly reviewed and assessed, among other things, our long-term strategic goals and opportunities, competitive environment, and short- and long-term performance in light of our strategic plan, with the goal of enhancing shareholder value. This included a publicly announced process to consider strategic alternatives that commenced in April 2016 and included the engagement of a financial advisor, discussions with several potential acquirers, and negotiations with one party that had made proposals to acquire the company that terminated in late 2016. The company continued the process until March 2017, when our board of directors decided to facilitate a renewed focus on improving our results of operations, and discontinued the strategic review process. Mid-Atlantic did not participate in this prior strategic review process.

In December 2017, as part of a debt restructuring and capital infusion by Palm Active Dental, LLC and Palm Global Small Cap Master Fund LP (the “Palm investors”), required to cure events of default under the company’s loan agreement with the bank, two members, Joshua Horowitz and Bradley Tirpak, were added to our board and two incumbent directors resigned. With the addition of these two new directors to our board, the entire board and management undertook a renewed evaluation during the first quarter of 2018 of our short- and long-term strategic goals and opportunities, the competitive environment, and developed a strategic plan with the goal of improving our financial performance and enhancing shareholder value. These goals included improved recruitment and retention of dentists and improving dentist productivity, targeted technology improvements and capital expenditures including converting additional offices to digital radiography, migration of dental records to the cloud, improvements to our website to attract and retain new patients, improved accounts receivable and collections processes and reduction of expenses including through office closures and staff reductions. Some of these goals, such as improvements to our website and certain technology improvements, have been achieved while others are in progress.

In May 2018, our board received an unsolicited proposal from a third party to acquire an unspecified number of our managed dental practices in Colorado. Our board of directors reviewed and rejected this proposal because it did not believe selling offices piecemeal would maximize shareholder value.

Later in May 2018, a representative of a third party (“Company A”) contacted the company regarding a potential purchase of the company by Company A. On May 29, 2018, Mr. Horowitz had a conversation with a representative of Company A to discuss Company A’s interest in the company. On June 19, 2018, we received an unsolicited non-binding proposal to acquire our company from Company A for a price ranging from $9.00 to $11.00 per share. The proposal sought a 30-day exclusivity period as a condition to Company A’s willingness to proceed. At a regularly scheduled meeting of our board of directors that followed our 2018 annual meeting of shareholders on June 20, 2018, in response to demands from certain shareholders our board appointed Mr. Horowitz as our interim chairman of the board, reaplacing Mr. Birner, who remained a director. In addition, at the June 20 meeting, our board conducted an initial review of the proposal from Company A and authorized management to respond to Company A that our board would review and respond to the proposal. A representative of Faegre Baker Daniels LLP (“FaegreBD”), our outside legal counsel, attended the board meeting.

On June 15, 2018, Messrs. Horowitz and Tirpak from Birner Dental and Andrew Goldman, a representative of Mid-Atlantic Dental, had a telphone call regarding a potential transaction, including by way of a merger.

On June 21, 2018, at our board of director’s direction, management responded to Company A that our board would review and respond to Company A’s proposal. On June 26, 2018, our board of directors met to review the Company A proposal. Frederic Birner, our Chief Executive Officer and a board member, and Dennis Genty, our Chief Financial Officer (together, “senior management”), attended the meeting. A representative of FaegreBD also attended the meeting. At the meeting, our board discussed whether to undertake a sale process. Although it did not conclude that it would engage in a sale process at the meeting, our board of directors instructed Mr. Horowitz to contact potential financial advisors that could assist our board in a strategic review, including our board’s evaluation of, and response to, the Company A proposal. During the meeting, the FaegreBD

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representative reviewed with our board its fiduciary duties in the context of a potential strategic transaction and other matters related to a sale process, including the formation of a special committee of our board. Our board of directors directed Messrs. Horowitz and Birner to contact Company A to discuss further Company A’s interest in a potential transaction to purchase the company.

On June 27, 2018, our board of directors received another letter from Company A providing additional information about Company A and asking for a response from our board of directors regarding its review of Company A’s proposal. Also, on June 27, 2018, at the direction of our board of directors, Mr. Horowitz contacted Company A to arrange a teleconference with representatives of Company A to discuss Company A’s interest in a potential transaction to purchase the company and the Company A proposal. On June 29, 2018, Messrs. Horowitz and Birner held the teleconference with representatives of Company A.

Beginning on June 30, 2018, Mr. Horowitz contacted potential financial advisors at the direction of our board of directors.

During July 2018 until our engagement of Cain Brothers as independent financial advisor to our board of directors (discussed in greater detail below) on July 24, 2018, Mr. Horowitz and other members of our board of directors had discussions with and solicited proposals from potential financial advisors, including Cain Brothers, to assist our board with its strategic review.

On July 3, 2018, Mr. Horowitz sent a letter to Company A following up on the June 29, 2018 conference call that asked Company A to provide more detail regarding its proposal and asking the diligence items Company A would require.

On July 5, 2018, we received an unsolicited, non-binding, proposal to acquire the company from Mid-Atlantic Dental for $10.00 per share, in cash, based on 2,874,761 shares outstanding on a fully diluted basis (representing an enterprise value that we determined to be $33.1 million and $9.81 per share based on the number of our shares outstanding on a fully diluted basis). The proposal requested a 45-day exclusivity period for Mid-Atlantic Dental to conduct a due diligence review of the company and negotiate with the company a definitive merger agreement. The proposal also contemplated a customary “go-shop” period of undefined length and stated that there would not be any financing contingencies.

On July 9, 2018, Company A sent a letter to our board of directors responding to our July 3, 2018 letter with additional details regarding its proposal and including a diligence request list.

On July 11, 2018, our board of directors met to discuss further Company A’s proposal and to consider the Mid-Atlantic Dental proposal. Senior Management and a representative of FaegreBD also attended the meeting. Our board of directors agreed to provide Company A and Mid-Atlantic Dental certain non-public information as requested by those parties, subject to execution by the parties of satisfactory confidentiality agreements. Our board also agreed to advise Company A and Mid-Atlantic Dental that it was in the process of selecting a financial advisor and was unable to offer either party exclusivity. On July 11, 2018, Mr. Horowitz sent a letter to each of Mid-Atlantic Dental and Company A with this information and a draft confidentiality agreement. Also at the July 11, 2018 board meeting, our board appointed Burton J. Rubin to the board, replacing Paul Valuck, who had resigned from the board on July 16, 2018. Mr. Rubin constituted an appointee of the Palm investors pursuant to its rights to appoint an additional director if the company did not meet certain financial covenants under the December 2017 investment documents. Mr. Valuck resigned to open a vacancy for Mr. Rubin.

On July 12, 2018, we received comments from Company A on the draft confidentiality agreement, to which we responded on July 13, 2018. On July 13, 2018, we signed a confidentiality agreement with Company A.

On July 13, 2018, Mr. Horowitz had a telephone call with Andrew Goldman, a representative of Mid-Atlantic Dental, and Mitchell Goldman, Mid-Atlantic’s Chief Executive Officer, to discuss the nature of Mid-Atlantic Dental’s interest in a potential acquisition of the company.

On July 17, 2018, Mr. Horowitz had a telephone call with Andrew Goldman to discuss further the nature of Mid-Atlantic’s interest in us and Mid-Atlantic’s participation in a sale process.

On July 17, 2018, Mr. Horowitz received an email from a representative of a third party (“Company B”) expressing an interest in acquiring the company and stating that an indication of interest would be forthcoming.

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On July 18, 2018 and July 20, 2018, Mr. Horowitz had telephone calls with Andrew Goldman to discuss the draft confidentiality agreement. On July 20, 2018, we signed a confidentiality agreement with Mid-Atlantic Dental.

In addition, on July 19, 2018, Company B submitted an indication of interest to us that indicated an enterprise value for the company ranging from $21 million to $25 million. Mr. Horowitz engaged in communications with representatives of Company B to clarify Company B’s offer. Following such discussions, we estimated that Company B’s offer ranged from approximately $5.53 to $6.86 per share.

Also on July 19, 2019, our board of directors and senior management met to discuss the status of several matters pertaining to the strategic review process, including the status of confidentiality agreements with interested parties and establishment of a data room. Our board of directors and Senior Management discussed management’s projections and business plan. Following a review of this information, our board of directors did not view the projections and plan as sufficient to preclude our board from engaging in discussions with potential purchasers of the company due to, among other things, the risks associated with achieving the projections and successfully executing the business plan. Our board approved the engagement of Cain Brothers as our financial advisor in connection with a potential transaction and authorized Mr. Horowitz to negotiate the final terms of an engagement agreement with Cain Brothers. Our board of directors also established a Special Transactions Committee comprised of Messrs. Horowitz, Rubin, and Wolf to assist the board in evaluating potential transactions. The board of directors selected those persons because Mr. Horowitz served as the company’s interim chairman of the board and had significant strategic transaction experience, Mr. Rubin had substantial experience in selling dental service organizations, and Mr. Wolf was a long-time independent board member with substantial financial experience.

On July 23, 2018, Mr. Horowitz advised Mid-Atlantic Dental, Company A and Company B that we intended to engage Cain Brothers. On July 24, 2018, we signed an engagement agreement with Cain Brothers to serve as independent financial advisor to our board of directors.

On July 25, 2018, our board of directors held a meeting, pursuant to which Mr. Horowitz updated our board of directors regarding discussions with Mid-Atlantic Dental, Company A, and Company B. Senior management, representatives of Cain Brothers and a representative of FaegreBD also attended the meeting. The Cain Brothers representatives gave an overview of a potential strategic review process, alternative approaches to conducting a process, and the timing for such process. Our board of directors approved a charter for the Special Transactions Committee that authorized the committee to, among other things, review, evaluate in conjunction with our management and financial and other advisors, and respond to, third-party proposals to acquire the company, assess, examine, and advise our board regarding any and all alternatives to any particular transaction that may be available to the company to enhance shareholder value (including, without limitation, soliciting competing bids from third parties) and, if determined by the Special Transactions Committee to be appropriate, to recommend a transaction or other course of action to our board that is in our best interest and that of our shareholders.

Beginning on July 25, 2018 and continuing into September 2018, at the direction of our board of directors, Cain Brothers contacted strategic and financial acquirers to assess their interest in acquiring us. A total of 14 companies were contacted, including Company A, Company B and Mid-Atlantic Dental. A total of 11 parties, including Company A, Company B, Company C, and Mid-Atlantic Dental, signed confidentiality agreements with us.

Representatives of Cain Brothers had introductory discussions with Mid-Atlantic Dental and Company A on July 25, 2018 and July 26, 2018, respectively.

In August 2018 and September 2018, we provided the parties that entered into confidentiality agreements, including Mid-Atlantic Dental, Company A and Company B, with access to an electronic data room containing a confidential information presentation that provided an overview of our business, operations, and financial performance, a financial summary of historical performance, a financial forecast prepared by our management and various due diligence information and documents.

In August 2018 and September 2018, certain of the parties that entered into confidentiality agreements, including Mid-Atlantic Dental, conducted a due diligence review of us. These parties submitted due diligence requests, to which our management team, and Cain Brothers responded, and conducted telephone calls with Cain Brothers and our management team. Cain Brothers regularly communicated with Mr. Horowitz, acting on behalf of the

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Special Transactions Committee, during this time to update Mr. Horowitz and the Special Transactions Committee on developments in the strategic process and due diligence activities. The Special Transactions Committee, in turn, updated our board of directors during board meetings, including board meetings held August 2, 2018 and August 9, 2018. Mid-Atlantic Dental also met in person and by telephone with Senior Management and other select members of our management team. More specifically, with respect to the diligence activities of Mid-Atlantic Dental:

On August 14, 2018, representatives of Cain Brothers discussed with Andrew Goldman, a representative of Mid-Atlantic Dental, the timing of when due diligence information would be made available via electronic data room.
On August 15, 2018, Mid-Atlantic Dental received access to initial diligence information. Twelve individuals representing Mid-Atlantic Dental gained data room access, including Andrew Goldman, Mitchell Goldman, Mid-Atlantic Dental’s chief financial officer and chief operating officer, Mid-Atlantic Dental’s outside legal counsel Duane Morris LLP (“Duane Morris”), and an accounting firm engaged by Mid-Atlantic Dental to conduct a quality of earnings review.
On August 16, 2018, representatives of Mid-Atlantic Dental, including Mitchell Goldman, Andrew Goldman and Mid-Atlantic Dental’s financial advisor Houlihan Lokey, participated on a call with Cain Brothers to discuss management’s financial model. Later that day, Mid-Atlantic Dental provided Cain Brothers with an initial operational due diligence request list.
On August 17, 2018, Cain Brothers returned to Mid-Atlantic Dental a completed set of the initial operational due diligence requests received on August 16.
On August 20, 2018, a call was held among the same participants from Mid-Atlantic Dental as the August 16, 2018 call and our Senior Management to enable Mid-Atlantic Dental to ask follow-up questions regarding the assumptions in the company’s financial model. Andrew Goldman provided Cain Brothers with two additional follow-up diligence questions, to which Cain Brothers responded later that day.
On August 21, 2018, at Mid-Atlantic Dental’s request, Cain Brothers provided data room access to a representative of Mid-Atlantic Dental, who had been hired by Mid-Atlantic Dental as an M&A advisor.
On August 27, 2018, representatives of our company, Mid-Atlantic Dental, and Cain Brothers held an in-person half-day diligence meeting in Denver, Colorado. Our attendees included Senior Management, our treasurer, and our hygiene director. Attendees for Mid-Atlantic Dental included Mitchell Goldman and Mid-Atlantic Dental’s chief financial officer, chief operating officer and M&A advisor. Topics discussed included an update on our second quarter performance, July 2018 financial results, day-to-day operations, new initiatives and finance and accounting procedures. That evening, all attendees had dinner together at which they discussed various matters regarding the potential transaction, including key open diligence items.
On August 28, 2018, Senior Management accompanied Mitchell Goldman and other Mid-Atlantic Dental representatives on in-person visits of several of our affiliated dental offices.
On August 30, 2018, a Cain Brothers representative had a telephone conference with representatives of Company A where Company A informed Cain Brothers that it had determined not to pursue further a transaction with us.
On August 31, 2018, Andrew Goldman provided Cain Brothers with an email introduction to the accounting firm engaged to conduct a quality of earnings review along with a follow up due diligence request list covering financial, operational and legal questions.
On September 4, 2018, the accounting firm hired by Mid-Atlantic Dental to conduct a quality of earnings review provided Cain Brothers with a template for its review.

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On September 6, 2018, a half-day meeting occurred at our offices in Denver, Colorado. Attendees included Senior Management, our treasurer, representatives of the accounting firm hired by Mid-Atlantic Dental to conduct a quality of earnings review and a Cain Brothers representative. Topics covered at the meeting included various financial matters related to revenue recognition, our balance sheet and risk management.

As disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, at June 30, 2018, we were not in compliance with a required EBITDA covenant under our loan agreement with the bank. On August 15, 2018, we sold to an affiliate of the Palm investors convertible senior subordinated secured notes in the aggregate principal amount of $467,000 together with one attached share of Series A Convertible Preferred Stock for $1,000 per share to enable us to regain compliance with the EBITDA covenant as permitted under the loan agreement.

On August 15, 2018, a representative of Cain Brothers discussed with representatives of Company B about an acquisition of the company. The representatives of Company B expressed continued interest and asked to receive a confidentiality agreement for execution.

On August 17, 2018, the company and Company B entered into a confidentiality agreement. Later that day, representatives of Company B were provided access to the virtual data room. Representatives of Cain Brothers spoke with representatives of Company B to discuss the sale process Cain Brothers was running on behalf of the company.

On August 22, 2018, representatives of Cain Brothers had a follow-up teleconference with Company B regarding Company B’s due diligence review process.

On August 22, 2018, our board of directors held a meeting that was attended by representatives from Cain Brothers, Senior Management and a representative from FaegreBD. The Cain Brothers representatives gave our board of directors an update on the strategic review process, including a summary regarding the parties that were contacted and any discussions with those parties, the status of the diligence process, and anticipated timing for offers.

On August 28, 2018, a representative of Cain Brothers spoke to a representative of Company B regarding its interest in acquiring the company. The representative of Company B informed the representative of Cain Brothers that following its due diligence review its remained at a $21-$25 million enterprise value for the company. On September 5, 2018, our board of directors held a meeting that was attended by Senior Management and a representative of FaegreBD. Mr. Horowitz updated our board of directors on the strategic review process, including Mid-Atlantic Dental’s engagement of the accounting firm to conduct a due diligence-related financial review of us and meetings that were scheduled between Mid-Atlantic Dental representatives and our management team.

On September 7, 2018, following a telephone call from Mitchell Goldman to Mr. Horowitz, Mid-Atlantic Dental submitted to the Special Transaction Committee a non-binding Letter of Intent (“LOI”) to acquire our capital stock for an enterprise value of $36.0 million (representing an equity value of $30.4 million and a per share price of $9.87, as determined by us based on the number of fully diluted shares of common stock). Mid-Atlantic Dental’s submission also included a draft merger agreement and exclusivity agreement under which Mid-Atlantic Dental requested an exclusivity period, expiring at 5:00 p.m. EDT on September 24, 2018, to complete its legal due diligence and negotiate a purchase agreement. Similar to its July 5, 2018 proposal, the LOI stated that there would not be any financing contingencies. The draft merger agreement contemplated a 15-day “go-shop” period and requested agreements from holders of 37.5% of our equity to support the transaction. The draft merger agreement also included a termination fee of $2 million payable by us if we terminated the agreement and entered into an alternative transaction (for a superior proposal and $1.5 million if we terminated the agreement and entered into an alternative transaction for a superior proposal with a party with which we were dealing during the go-shop period) and a reverse termination fee of $2 million payable by Mid-Atlantic Dental if it did not close the transaction despite all of our conditions to closing having been fulfilled.

On September 8, 2018, Mr. Horowitz sent the LOI and related documents to our board of directors. On September 10, 2018, the Special Transactions Committee met to consider the Mid-Atlantic Dental proposal and the LOI. Representatives from Cain Brothers and FaegreBD attended the meeting. Following this discussion, the Special Transactions Committee rejected the proposal as inadequate and instructed Cain Brothers to approach

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Mid-Atlantic Dental to increase its price to $12.00 per share and determine whether Mid-Atlantic Dental had any flexibility on its request for exclusivity. On September 11, 2018, a representative from Cain Brothers contacted Mid-Atlantic Dental to convey the Special Transaction Committee’s position.

On September 10, 2018, a representative of Cain Brothers spoke with a representative of Company C about the acquisition opportunity involving the company. The representative of Company C expressed interest and asked to receive a confidentiality agreement for execution.

On September 11, 2018, the company and Company C entered into a confidentiality agreement. Later that day, representatives of Company C were provided access to the virtual data room.

On September 12, 2018, our board held a meeting at which Mr. Horowitz updated the board on the September 10, 2018 meeting of the Special Transactions Committee, the response to Mid-Atlantic Dental as a result of that meeting and other aspects of the strategic review process. Senior Management and a representative from FaegreBD attended the meeting and briefed our board on the material terms of the draft merger agreement.

On September 13, 2018, Mid-Atlantic Dental increased its proposal to $10.50 per share, which we determined equated to an enterprise value of $38 million and an equity value of $32.4 million. Mid-Atlantic Dental also renewed its request for exclusivity. On the afternoon of September 13, 2018, the Special Transactions Committee met to consider this proposal. Representatives of Cain Brothers and FaegreBD attended the meeting. The Special Transactions Committee rejected the proposal and directed Cain Brothers to approach Mid-Atlantic Dental to increase its price to $10.75 per share. Later on September 13, 2018, a Cain Brothers representative and Mr. Horowitz communicated the Special Transactions Committee’s position to Mid-Atlantic Dental.

On September 15, 2018, Mid-Atlantic Dental provided a revised proposal of up to $10.75 per share consisting of $10.62 per share in cash plus a contingent value right equal to up to $0.13 per share. Mid-Atlantic Dental stated that its proposal was based on 3,026,921 shares outstanding on a fully diluted basis. Without attributing any value to the CVR, the cash portion of the consideration equated to a total enterprise value of $38.4 million and an equity value of $32.8 million. Mid-Atlantic Dental also requested an exclusivity period through September 26, 2018.

On September 16, 2018, our board of directors met to discuss the latest Mid-Atlantic Dental proposal. Senior Management and representatives of Cain Brothers and FaegreBD attended the meeting. The Cain Brothers representatives discussed the strategic review process, including the status of discussions with other potentially interested parties, diligence activities of Mid-Atlantic Dental and other interested parties, and the negotiations with Mid-Atlantic Dental since September 7, 2018. Following discussion, our board of directors unanimously agreed to allow Mid-Atlantic Dental to conduct confirmatory due diligence under an exclusivity period and negotiate a merger agreement.

On September 17, 2018, the company entered into an exclusivity agreement with Mid-Atlantic Dental with an expiration of 12:01 a.m. EDT on September 26, 2018. From September 17, 2018 to September 28, 2018, Mid-Atlantic Dental continued conducting its due diligence review. Among other things, Mid-Atlantic Dental and its advisors, including a consulting firm engaged by Mid-Atlantic Dental, conducted extensive healthcare regulatory diligence and a review of dental records under an amended nondisclosure agreement covering personal health information. On September 19, 2018 and September 20, 2018, Mid-Atlantic Dental’s chief financial officer met in Denver with Mr. Genty and our treasurer to conduct confirmatory finance and accounting diligence.

On September 19, 2018, Cain Brothers received a new unsolicited preliminary non-binding indication of interest from Company C that indicated an offer to acquire the common shares of the company for an enterprise value of $35.0 to $37.0 million. To adhere with the terms of the exclusivity agreement with Mid-Atlantic Dental and at the direction of the Special Transactions Committee, Cain Brothers disclosed the receipt of the indication of interest from Company C to Mid-Atlantic Dental on September 21, 2018.

On September 21, 2018, FaegreBD provided to Duane Morris comments to the draft merger agreement received from Mid-Atlantic Dental. From September 22, 2018 through October 2, 2018, FaegreBD and Duane Morris and representatives of our company including Cain Brothers and representatives of Mid-Atlantic Dental negotiated the terms and conditions of the merger agreement and other legal documentation in connection with the merger, including the CVR agreement. An initial call between FaegreBD and Duane Morris to discuss FaegreBD’s comments on the merger agreement occurred on September 23, 2018. Several drafts of the merger agreement were exchanged between September 22, 2018 and October 2, 2018. Among the material terms in the merger

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agreement that we negotiated with Mid-Atlantic Dental were the definition of “material adverse effect,” the duration of the go-shop period, the amount of our termination fees, limitations on liability after termination of the merger agreement, and the scope of covenants governing the conduct of our business during the period between signing and closing the merger agreement. Mid-Atlantic Dental initially proposed a 15-day go-shop period. We requested a 35-day go-shop period. Mid-Atlantic Dental countered with a 21-day go shop period and the parties agreed to a 28-day go-shop period. Mid-Atlantic Dental initially proposed a $2 million termination fee with a $1.5 million termination fee if we enter into an agreement with a party identified during the go-shop period. The parties agreed to a $1.25 million termination fee if we enter into an agreement with a party identified during the go-shop period. In addition, the parties to the support agreements negotiated those agreements.

On September 25, 2018, we and Mid-Atlantic Dental entered into an agreement to extend the exclusivity agreement through 11:59 pm EDT on September 28, 2018, with an automatic extension of the exclusivity period until 9:30 am EDT on October 1, 2018 if Mid-Atlantic Dental certified to us in writing by 6:00 pm EDT on September 28, 2018 that it had concluded its due diligence review in connection with the transaction.

On September 26, 2018, FaegreBD and Duane Morris had a call to discuss the draft merger agreement. That evening, the Special Transactions Committee, our Senior Management, Cain Brothers, and FaegreBD convened to review the status of the merger agreement negotiations and outstanding due diligence requests.

On September 28, 2018, representatives of Cain Brothers spoke with Andrew Goldman and Duane Morris regarding outstanding legal due diligence. Prior to 6:00 pm EDT on September 28, 2016, Mid-Atlantic Dental certified to us in writing that it had concluded its due diligence review in connection with the transaction. Over the weekend of September 29-30, 2018, we and Mid-Atlantic Dental and our and their advisors continued negotiation of the merger agreement and related documents including the CVR agreement and support agreements. On the morning of October 1, 2018, the parties extended the exclusivity agreement through 6:00 pm EDT on October 3, 2018.

On October 1, 2018, FaegreBD distributed to our board of directors and Senior Management substantially final versions of the merger agreement, the CVR agreement, the support agreements, and information from Cain Brothers and FaegreBD relating to the proposed acquisition, including, among other things, a summary of the strategic process undertaken by Cain, negotiations with Mid-Atlantic and discussions with other parties, certain financial analyses of the merger consideration prepared by Cain Brothers and a summary of the material terms of the merger agreement prepared by FaegreBD.

On October 2, 2018, our board of directors held a meeting along with Senior Management and representatives of Cain Brothers and FaegreBD. At the meeting:

Our board of directors engaged in extensive discussions of our historical and projected financial performance, operating initiatives and strategic plans, and assessed the likelihood of, and risks associated with, achieving our short-term and long-term objectives.
Representatives of Cain Brothers reviewed with our board of directors Cain Brothers’ financial analysis of the merger consideration and delivered to our board of directors an oral opinion, which was confirmed by delivery of a written opinion dated October 2, 2018, to our board of directors that, as of that date and based upon and subject to factors and assumptions set forth therein, the merger consideration to be paid to the holders of shares of our common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.
Representatives of FaegreBD presented a summary of the material terms of the merger agreement.
Representatives of FaegreBD reviewed with the directors their fiduciary duties under Colorado law in connection with their consideration of the merger.

Following consideration of these matters and discussion of the proposed merger agreement and the transactions contemplated thereby:

The compensation committee of our board unanimously approved the acceleration and cash-out of our equity awards, as contemplated by the merger agreement.
The Special Transactions Committee unanimously recommended to our board that the board approve the merger agreement, the merger, and the other transactions contemplated by the merger agreement.

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Our board of directors unanimously (1) approved the merger agreement, the merger, and the other transactions contemplated by the merger agreement, (2) declared the merger agreement, the merger, and the other transactions contemplated by the merger agreement to be advisable, and in the best interests of the company and its shareholders; (3) directed that the approval of the merger agreement be submitted to a vote at a meeting of our shareholders; and (4) recommended to our shareholders that they approve the merger agreement.

From October 2 through close of the markets on October 3, 2018, we and our advisors and those of Mid-Atlantic Dental negotiated the final terms of the merger agreement, CVR agreement, and support agreements and finalized those agreements. In addition, on October 3, 2018, we completed an amendment to our loan agreement with the Bank that, among other things, defers until the earlier of closing or termination of the merger agreement or February 28, 2019 the payment of certain amounts that may be otherwise due under the bank credit facility consisting of required principal curtailments and potential cure payments related to failure to achieve certain financial covenants under the credit facility.

We and Mid-Atlantic Dental executed the merger agreement after close of the markets on October 3, 2018, and we and Mid-Atlantic Dental issued a joint press release later in the afternoon on October 3, 2018 announcing the parties’ entry into the merger agreement. Our closing stock price on October 3, 2018 was $5.25 per share.

On October 3 and 4, 2018, Cain Brothers contacted Company A, Company B, Company C and all of the other parties previously contacted to notify them of the transaction and to explain the provisions of the go-shop with the aim of a securing a higher bid for the shareholders of the Company. On October 3, 2018, a representative of Company B indicated that they were not willing to increase their valuation of the company.

On October 12, 2018, a representative of Cain Brothers discussed with a representative of Company C its level of interest in an acquisition of the company. The representative of Company C indicated that Company C would not bid above the previously offered per share range.

On October 24, 2018, Mid-Atlantic Dental entered into amended and restated support agreements with Frederic W.J. Birner and the Palm entities to correct certain typographical errors therein.

REASONS FOR OUR BOARD’S RECOMMENDATION IN FAVOR OF THE MERGER

In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, our board of directors consulted with our executive management team, our outside financial advisor, Cain Brothers, and our outside legal counsel, FaegreBD.

In recommending that our shareholders vote in favor of the merger proposal, our board of directors also considered several factors potentially weighing in favor of the merger, including the following (which are not presented in order of relative importance):

The belief of our board of directors, after a review of our current and historical financial condition, results of operations, prospects, business strategy, management team, competitive position, and the broader industry, including the potential impact (which cannot be quantified numerically) of those factors on the trading price of our common stock, that the value offered to our shareholders under the merger agreement is more favorable to our shareholders than the potential value that might have resulted from the possible alternatives to the merger, including continuing execution of our current and planned strategies as an independent public company.
The risks and uncertainties inherent in our ability to execute on our strategic plan and achieve management’s related financial projections, including the risks and uncertainties described in the section entitled “risk factors” set forth in our Annual Report on Form 10-K for the year ended December 31, 2017.
The challenges and risks that we have faced, and would likely continue to face, if we remained an independent company, including:
our declining financial performance in recent years that consisted of losses and related defaults under our bank loan agreement that caused us to restructure our debt and sell $5 million of notes and shares of Series A convertible preferred stock in December 2017 and sell an additional $468,000 of notes and shares of Series A convertible preferred stock in August 2018 to regain

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compliance with, and avoid a default under, an EBITDA covenant in our bank loan agreement, and the potential for future defaults that could require additional infusions of capital, which may not be available, and actions our bank could take in response to future uncured defaults;

the possibility that it could take a significant period of time, if ever, and involve substantial risk, before the trading price of our common stock might reach $10.75 per share, as adjusted for the time value of money, in light of our continuing negative operating and financial performance trends;
the increasingly competitive landscape in our markets;
increased need for significant investment in technology;
our board of directors' belief that the limited trading market for our common stock negatively impacts the ability of our shareholders to obtain liquidity through market sales; and
the additional costs and burdens involved with being a public company.
The relationship of the merger consideration to the trading ranges our common stock and the potential trading range of the common stock absent announcement of the merger agreement, and the possibility that absent such announcement it could take a considerable period of time before our common stock would trade at a price in excess of the merger consideration on a present-value basis, including considering the fact that the merger consideration constitutes:
a premium of approximately 105% over the closing price of our common stock on October 3, 2018, the date the merger agreement was executed; and
a premium of 75% over the volume-weighted average price per share of our common stock over the one-year period ended on October 3, 2018.
Our board of directors’ belief that the merger consideration was the best price reasonably attainable for our shareholders, considering:
the improvement in the merger consideration proposed by Mid-Atlantic Dental from $9.81 per share at the time of its initial indication of interest on July 5, 2018 to $10.75 per share when it delivered its last proposal on September 16, 2018; and
our board of directors’ belief, based on the nature of the negotiations, that the price to be paid by Mid-Atlantic Dental is the highest price per share that Mid-Atlantic Dental was willing to pay and that the terms and conditions of the merger agreement were, in our board of directors’ view, the most favorable to us and our shareholders to which Mid-Atlantic Dental was willing to agree; and
our board of directors’ belief, following consultation with our financial advisor and based upon the results of the comprehensive market check conducted by our financial advisor from July through September 2018 and the go-shop process conducted by our financial advisor following the signing of the merger agreement, that Mid-Atlantic Dental would be the potential buyer candidate most likely to offer the best combination of value and closing certainty to our shareholders and that it was reasonably unlikely that any other party, individually or in consortium with other parties, would be willing to acquire us at a higher price.
The fact that $10.62 per share in cash merger consideration will provide certainty of value and liquidity to our shareholders.
The fact that the contingent value right provides an opportunity for additional cash consideration to our shareholders.
The oral opinion, provided to our board at its meeting on October 2, 2018 by representatives of Cain Brothers and subsequently confirmed in writing, that, as of that date, the $10.62 in cash per share of our common stock to be paid to our shareholders pursuant to the merger agreement was fair from a financial point of view to such shareholders, based upon and subject to the qualifications, assumptions, and other matters considered in connection with the preparation of such opinion. The opinion of Cain Brothers is more fully described below under “Opinion of Our Financial Advisor” on page 32, and full text of their written opinion is attached hereto as Appendix C.

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The likelihood that the merger would be completed based on, among other things:
our board of directors’ belief that there were not likely to be significant antitrust or other regulatory impediments to the closing;
the agreement of Mid-Atlantic Dental to use reasonable best efforts to take, all actions necessary, proper, or advisable to consummate the merger as promptly as reasonably practicable, subject to certain exceptions;
our board of directors’ belief that the outside date provisions of the merger agreement allow for sufficient time to complete the merger;
the fact that the conditions to the closing of the merger are specific and limited in scope and that the definition of “material adverse effect” in the merger agreement contains certain carve-outs that make it less likely that adverse changes in our business between announcement and closing of the merger will provide a basis for Mid-Atlantic Dental to refuse to consummate the merger;
our board of directors’ perception that Mid-Atlantic Dental is willing to devote the resources necessary to complete the merger in an expeditious manner based upon, among other things, the business reputation and capabilities of Mid-Atlantic Dental and the provisions of the merger agreement requiring Mid-Atlantic Dental to pay us a termination fee of $2 million if the merger agreement is terminated in certain circumstances following Mid-Atlantic Dental’s failure to consummate the merger when required to do so;
the fact that there is no financing condition to the completion of the merger in the merger agreement;
the representation of Mid-Atlantic Dental that it has, through a combination of committed financing and existing cash and cash equivalents, all funds necessary for the payment of the aggregate merger consideration; and
the receipt of equity subscription agreements, the terms thereof and the reputation of the parties providing the commitment, which increase the likelihood of the financing being available.
Our board of directors’ views that the terms of the merger agreement would not preclude or unreasonably restrict a superior offer from another party, considering:
our board of directors’ right under the merger agreement, during the go-shop period to solicit additional acquisition proposals and to provide non-public information subject to an acceptable confidentiality agreement, and to engage in negotiations or substantive discussions with any such person;
our board of directors’ right under the merger agreement, during the go-shop period and thereafter, to respond to third parties submitting unsolicited acquisition proposals by providing non-public information subject to an acceptable confidentiality agreement, and to engage in negotiations or substantive discussions with any such person, if our board of directors, prior to taking any such actions, determines in good faith (after consultation with its financial advisor and legal counsel) that (i) the failure to take such action is reasonably likely to be inconsistent with the directors’ fiduciary duties under applicable law and (ii) the competing proposal either constitutes a superior proposal or is reasonably likely to constitute a superior proposal;
our ability to terminate the merger agreement to enter into an alternative acquisition agreement that our board of directors determines to be a superior proposal, subject to certain conditions, including Mid-Atlantic Dental’s matching right and payment of a termination fee to Mid-Atlantic; and
our board of directors’ belief that the termination fees of $2 million, or approximately 4.9% of the enterprise value of our company, and $1.25 million, or approximately 3.1% of the enterprise value of our company, if we terminate the merger agreement to enter into a merger agreement with a

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party identified during the go-shop period, are reasonable in light of, among other things, the benefits of the merger to our shareholders, the typical size of such fees in similar transactions and the likelihood that a fee of such size would not be preclusive or unreasonably restrictive of other offers.

The other terms of the merger agreement.
The fact that the merger is subject to approval by our shareholders, and our board of directors’ right, under certain circumstances, to withhold, withdraw, rescind or adversely modify its recommendation that our shareholders approve the merger agreement.
The availability of dissenters’ rights to our shareholders who comply with specified procedures under Colorado law.

In its deliberations concerning the merger and the other transactions contemplated by the merger agreement, our board of directors also considered and balanced against the factors potentially weighing in favor of the merger several uncertainties, risks, restrictions, and other factors potentially weighing against the merger, including the following (not necessarily in order of relative importance):

The fact that the merger would preclude our shareholders from having the opportunity to realize the potential long-term value of successful execution as an independent public company or to otherwise participate in any future earnings or growth or in any future appreciation in value of shares of our common stock.
The fact that receipt of the all-cash merger consideration would be taxable to those of our shareholders that are treated as U.S. holders for U.S. federal income tax purposes.
The fact that, under specified circumstances, we may be required to pay fees and expenses in the event the merger agreement is terminated and the effect this could have on us, including:
the possibility that the termination fee payable by us to Mid-Atlantic Dental upon the termination of the merger agreement under certain circumstances could discourage other potential acquirers from making a competing proposal, although our board of directors believed that the termination fee was reasonable in amount and would not unduly deter any other party that might be interested in acquiring us; and
if the merger is not consummated, we will generally be required to pay our own expenses associated with the merger agreement and the transactions contemplated thereby.
The restrictions in the merger agreement on our ability to actively solicit competing bids to acquire our company after the go-shop period.
The significant costs involved in connection with entering into and completing the merger agreement and the substantial time and effort of management required to consummate the merger, which could disrupt our business operations.
The potential harm that the announcement and pendency of the merger, or the failure to complete the merger, may cause to our relationships with our managed dental practices, employees (including making it more difficult to attract and retain key personnel and the possible loss of key management and other personnel), vendors and patients.
The restrictions on our conduct of business prior to completion of the merger, which could delay or prevent us from undertaking business opportunities that may arise or taking other actions with respect to our operations during the pendency of the merger, whether or not the merger is completed, and the resultant potential negative effect on us if the merger is not consummated.
The terms of the merger agreement that significantly limit our remedies if Mid-Atlantic Dental fails to complete the merger when required to do so, whether because of a failure of its financing or otherwise.
The fact that the market price of our common stock could be affected by many factors, including: (1) if the merger agreement is terminated, the reason or reasons for such termination and whether such termination resulted from factors adversely affecting us; (2) the possibility that, as a result of the

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termination of the merger agreement, possible acquirers may consider us to be an unattractive acquisition candidate; and (3) the possible sale of our common stock by short-term investors following an announcement that the merger agreement was terminated.

The fact that certain members of our board of directors and executive officers may have interests in the merger that may be deemed to be different from, or in addition to, those of our shareholders.

After considering all of the factors set forth above, as well as others, our board of directors concluded that the risks, uncertainties, restrictions, and potentially negative factors associated with the merger were outweighed by the potential benefits of the merger to our shareholders.

The foregoing discussion of factors considered by our board of directors is not intended to be exhaustive, but summarizes the material factors considered by our board of directors. In light of the variety of factors considered in connection with its evaluation of the merger, our board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. Moreover, each member of our board of directors applied his own personal business judgment to the process and may have given different weight to different factors. Our board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. Our board of directors based its recommendation on the totality of the information presented, including thorough discussions with, and questioning of, our executive management team, financial advisor, and legal counsel. It should be noted that this explanation of the reasoning of our board of directors and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth under “Preface—Forward-Looking Statements.

OPINION OF OUR FINANCIAL ADVISOR

We retained Cain Brothers, a division of KeyBanc Capital Markets Inc., to act as our financial advisor in connection with the merger. In selecting Cain Brothers, we considered, among other things, Cain Brothers’ qualifications, expertise, reputation and knowledge of the business and affairs of the Company and the industry in which the Company operates.

On October 1, 2018, Cain Brothers rendered an oral opinion to our board of directors, which was subsequently confirmed in a written opinion dated as of October 2, 2018, as to the fairness, from a financial point of view, to the holders of our common stock as of that date, and based upon and subject to the assumptions made, matters considered and limitations and qualifications upon the review undertaken by Cain Brothers, of the consideration per share of our common stock to be received by those shareholders in the merger pursuant to the merger agreement.

The full text of Cain Brothers’ written opinion, dated as of October 2, 2018, is attached as Appendix D. You should read Cain Brothers’ opinion carefully and in its entirety for a discussion of, among other things, the scope of the review undertaken and the assumptions made, procedures followed, matters considered and qualifications and limitations upon the review undertaken by Cain Brothers in connection with its opinion. This summary is qualified in its entirety by reference to the full text of the opinion. Cain Brothers’ opinion was directed to the board of directors, in its capacity as the board of directors of the company, and addressed only the fairness from a financial point of view, as of the date of the opinion, to the holders of our common stock of the consideration to be received by those shareholders in the merger pursuant to the merger agreement. It does not constitute a recommendation as to how any shareholder should vote with respect to the merger or any other matter, and does not in any manner address the price at which our common stock will trade at any time.

In connection with rendering its opinion, Cain Brothers, among other things:

reviewed a draft of the merger agreement and the CVR agreement, each circulated on or around September 28, 2018, which Cain Brothers understood to be in substantially final form;
reviewed certain publicly available information concerning the company, including the Annual Reports on Form 10-K of the company for each of the years in the three-year period ended December 31, 2017, and the Quarterly Reports on Form 10-Q of the company for the quarters ended March 31, 2018 and June 30, 2018;

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reviewed certain other internal information, primarily financial in nature, including projections, concerning our business and operations;
reviewed certain publicly available information concerning the trading of, and the trading market for, our common stock;
reviewed certain publicly available information concerning Mid-Atlantic and its financing sources;
reviewed certain publicly available information with respect to certain other publicly traded companies that Cain Brothers believed to be comparable to the company and the trading markets for certain other companies’ securities;
reviewed certain publicly available information concerning the nature and terms of certain other transactions that Cain Brothers considered relevant to its inquiry;
met with certain officers and employees of the company to discuss the business and prospects of the company, as well as other matters considered relevant to its inquiry; and
considered such other data and information as Cain Brothers judged necessary to render its opinion.

In its review and analysis and in arriving at its opinion, Cain Brothers assumed and relied on the accuracy and completeness of all of the financial and other information provided to or otherwise discussed with Cain Brothers or publicly available, and Cain Brothers relied upon the representations and warranties of the company, Mid-Atlantic and Merger Sub contained in the merger agreement. Cain Brothers was not engaged to, and did not independently attempt to, verify any of such information. Cain Brothers also relied upon information provided by management of the company as to the reasonableness and achievability of the financial and operating projections (and the assumptions and bases therefor) provided to Cain Brothers, and, with our consent, Cain Brothers assumed that the projections were reasonably prepared and reflect the best currently available estimates and judgments of the company. Cain Brothers was not engaged to assess the reasonableness or achievability of the projections or the assumptions on which they were based, and Cain Brothers expressed no view as to such projections or assumptions. In addition, Cain Brothers did not conduct a physical inspection or appraisal of any of the assets, properties or facilities of the company, and Cain Brothers was not furnished with any such evaluation or appraisal. Cain Brothers also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger would be obtained without any material adverse effect on the company or the merger.

Cain Brothers was not asked to, nor did Cain Brothers, offer any opinion as to the material terms of the merger agreement or the form of the merger. In rendering its opinion, Cain Brothers assumed, with the company’s consent, that the final executed form of the merger agreement would not differ in any material respect from the draft that Cain Brothers examined, and that the conditions to the merger as set forth in the merger agreement will be satisfied and that the merger will be consummated on a timely basis in the manner contemplated by the merger agreement. Cain Brothers’ solicitation of third party interest in a transaction involving the company prior to the rendering of its opinion was limited at the company’s direction, including in connection with the exclusivity obligation to which the company is bound and in light of the “go shop” provision that was included in the merger agreement.

Cain Brothers’ opinion was based on economic and market conditions and other circumstances existing on, and information made available to Cain Brothers as of, October 2, 2018 and does not address any matters subsequent to such date. In addition, Cain Brothers’ opinion was limited to the fairness, as of October 2, 2018, from a financial point of view, of the consideration to be received by the holders of the company’s common stock pursuant to the merger agreement and does not address the company’s underlying business decision to effect the merger or any other terms of the merger. Although subsequent developments may affect Cain Brothers’ opinion, Cain Brothers’ does not have any obligation to update, revise or reaffirm its opinion. Cain Brothers’ opinion was approved by a fairness committee of KBCM.

The following is a summary of the material financial analyses performed by Cain Brothers in arriving at its opinion. Cain Brothers’ opinion was only one of many factors considered by the board of directors in evaluating the merger. Neither Cain Brothers’ opinion nor its financial analyses were determinative of the merger consideration or of the views of our board of directors or our management with respect to the merger consideration or the merger. None of the analyses performed by Cain Brothers were necessarily assigned a

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greater significance by Cain Brothers than any other, nor does the order of analyses described represent relative importance or weight given to those analyses by Cain Brothers. The summary text describing each financial analysis does not constitute a complete description of Cain Brothers’ financial analyses, including the methodologies and assumptions underlying the analyses, and if viewed in isolation could create a misleading or incomplete view of the financial analyses performed by Cain Brothers. The summary text set forth below does not represent and should not be viewed by anyone as constituting conclusions reached by Cain Brothers with respect to any of the analyses performed by it in connection with its opinion. Rather, Cain Brothers made its determination as to the fairness, from a financial point of view, to our shareholders of the merger consideration to be received by those shareholders in the merger pursuant to the merger agreement on the basis of its experience and professional judgment after considering the results of all of the analyses performed.

Analysis of Selected Precedent Transactions

Cain Brothers performed an analysis of selected precedent transactions involving group dental practices, which we refer to as “DSOs,” and practice management / multi-site health care providers that Cain Brothers determined, based on its professional judgment and experience, were comparable to the merger. The precedent transactions included 29 transactions total, including eight transactions involving DSOs and 21 transactions involving other physician practice management / multi-site healthcare companies. As used in this summary, (1) “EBITDA” refers to earnings before interest, taxes, depreciation and amortization, adjusted to exclude nonrecurring and other similar items and one-time charges and (2) “EV” refers to aggregate enterprise value, calculated as equity value, plus book value of total debt, including underfunded pension liability, plus non-controlling interest (as appropriate for the company being analyzed), less cash, cash equivalents and marketable securities.

Cain Brothers focused on EV to EBITDA and EBITDA margin for the 12 month, which we refer to as “LTM,” period prior to the public announcement of each respective transaction, which we refer to in the tables below as “EV / LTM EBITDA” and “EBITDA Margin,” respectively, for each of these transactions for comparison purposes. The overall median EV / LTM EBITDA for the 29 transactions analyzed was 9.7x. For comparison purposes, Cain Brothers utilized the information regarding the company’s estimated fiscal 2018 results, as provided to Cain Brothers by the company’s management and can be found under “The Merger—Certain Prospective Financial Information” on page 38.

The follow table sets forth the analysis for the eight transactions involving DSOs:

Announced
Target
Acquirer
EV ($mm)
EV / LTM
EBITDA
EBITDA
Margin
March 2015
Aspen Dental Management, Inc.
American Securities LLC
 
950.0
 
 
12.0x
 
 
NA
 
November 2012
Heartland Dental, LLC
Teachers’ Private Capital
 
1,277.7
 
 
11.0x
 
 
NA
 
October 2012
Western Dental Services, Inc.
Court Square Capital Partners L.P.
 
550.0
 
 
8.6x
 
 
NA
 
November 2011
American Dental Partners, Inc.
JLL Partners
 
392.0
 
 
8.0x
 
 
16.9
%
April 2011
Midwest Dental, Inc.
FFL Partners, LLC
 
150.0
 
 
10.0x
 
 
NA
 
December 2010
ReachOut Healthcare America Ltd.
Morgan Stanley Private Equity
 
175.0
 
 
9.4x
 
 
NA
 
November 2010
Smile Brands Group Inc.
Welsh, Carson, Anderson & Stowe LP
 
762.0
 
 
10.6x
 
 
NA
 
August 2010
Aspen Dental Management, Inc.
Ares Management LLC; Leonard Green & Partners
 
547.5
 
 
9.0x
 
 
23.4
%
Median
 
 
 
 
 
 
9.7x
 
 
20.2
%
Note: NA means Not applicable (not publicly disclosed or known to Cain Brothers).

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This analysis indicated the following implied share price and equity value, in each case, based on the company’s estimated full year 2018 EBITDA:

Implied Share Price
Implied Enterprise Value ($mm)
$2.21
$
17.3
 

The follow table sets forth the analysis for the 21 transactions involving other physician practice management / multi-site healthcare companies:

Announced
Target
Acquirer
EV ($mm)
EV / LTM
EBITDA
EBITDA
Margin
June 2018
Envision Healthcare Corporation
KKR & Co. L.P.
 
10,418.0
 
 
9.7x
 
 
13.4
%
April 2018
Sound Inpatient Physicians, Inc.
Summit Partners LLP
 
2,150.0
 
 
19.5x
 
 
7.4
%
December 2017
DaVita Medical Holdings, LLC
UnitedHealth Group
 
4,900.0
 
 
13.2x
 
 
NA
 
October 2017
Synergy Radiology Associates
MEDNAX, Inc.
 
101.1
 
 
8.0x
 
 
17.9
%
September 2017
Jefferson Radiology & Imaging Associates
MEDNAX, Inc.
 
67.4
 
 
8.0x
 
 
17.9
%
August 2017
Radiology Associates of South Florida
MEDNAX, Inc.
 
78.6
 
 
8.0x
 
 
17.9
%
July 2017
OB Hospitalist Group, LLC
Gryphon Investors
 
625.0
 
 
13.9x
 
 
NA
 
May 2017
Medical Solutions L.L.C.
TPG Growth
 
500.0
 
 
10.1x
 
 
NA
 
January 2017
Radiology Alliance & Infinity Management
MEDNAX, Inc.
 
74.1
 
 
8.0x
 
 
18.1
%
January 2017
Surgical Care Affiliates, Inc.
Optum, Inc.
 
4,169.0
 
 
12.3x
 
 
26.8
%
December 2016
Alliance Healthcare Services, Inc.
Fujian Thaihot Investment Co., Ltd.
 
801.1
 
 
6.2x
 
 
25.2
%
October 2016
TeamHealth Holdings, Inc.
The Blackstone Group L.P.
 
6,029.8
 
 
12.9x
 
 
10.7
%
June 2016
Envision Healthcare Holdings, Inc.
AmSurg Corp.
 
7,940.7
 
 
12.6x
 
 
11.1
%
March 2016
Emergency Physicians Medical Group
EmCare Inc.
 
120.0
 
 
5.2x
 
 
16.5
%
August 2015
IPC Healthcare, Inc.
TeamHealth Holdings, Inc.
 
1,642.8
 
 
20.1x
 
 
11.4
%
July 2015
Questcare Medical Services
EmCare Inc.
 
135.0
 
 
5.1x
 
 
16.5
%
May 2015
Virtual Radiologic Corporation
MEDNAX, Inc.
 
500.0
 
 
11.1x
 
 
24.3
%
January 2015
VISTA Staffing Solutions, Inc.
EmCare Inc.
 
123.0
 
 
9.8x
 
 
9.2
%
January 2015
Scottsdale Emergency Associates
EmCare Inc.
 
380.0
 
 
7.7x
 
 
16.5
%
June 2014
Phoenix Physicians, LLC
EmCare Inc.
 
170.0
 
 
8.3x
 
 
16.5
%
May 2014
Sheridan Healthcare, Inc.
AmSurg Corp.
 
2,344.6
 
 
12.2x
 
 
20.5
%
Median
 
 
 
 
 
 
9.8x
 
 
16.5
%
Note: NA means Not applicable (not publicly disclosed or known to Cain Brothers).

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This analysis indicated the following implied share price and equity value, in each case, based on the company’s estimated full year 2018 EBITDA:

Implied Share Price
Implied Enterprise Value ($mm)
$2.30
$
17.5
 

No company or transaction utilized as a comparison in the analysis of selected precedent transactions is identical to the company or directly comparable to the merger in business mix, timing and size. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that would affect the value of the companies to which the company is being compared. In evaluating the selected precedent transactions, Cain Brothers made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters which are beyond the company’s control, such as the impact of competition on the company and the industry generally, industry growth and the absence of any adverse material change in the financial conditions and prospects of the company or the industry or the financial markets in general.

Analysis of Comparable Publicly Traded Companies

Cain Brothers reviewed and compared certain publicly available financial data, ratios and trading multiples for comparable publicly traded multi-site medical service group practices (there are no publicly traded dental companies other than the company) that Cain Brothers determined, based on its professional judgment and experience, were comparable to the company’s current operations for purposes of this analysis. Financial data of the selected companies were based on publicly available information such as public filings and third party equity research reports. Cain Brothers reviewed data, including EV as a multiple of LTM and estimated calendar year 2018 Adjusted EBITDA based on S&P Capital IQ, Wall Street analyst research and press releases, of the company and each of the following selected publicly traded multi-site medical service group practices, the operations of which Cain Brothers deemed similar for purposes of this analysis, based on its professional judgement and experience. The multiples for each of the selected companies were calculated using their respective closing prices on October 1, 2018 and were based on the most recent publicly available information and S&P Capital IQ, Wall Street analyst research and press release estimates.

With respect to the company’s comparable companies, the information Cain Brothers presented to our board of directors included multiples of EV to EBITDA for LTM and 2018, which we refer to in the table below as “EV / LTM EBITDA” and “EV / 2018E EBITDA,” respectively. For comparison purposes, Cain Brothers utilized the information regarding the company’s estimated fiscal 2018 results, as provided to Cain Brothers by the company’s management and can be found under “The Merger—Certain Prospective Financial Information” on page 38. Due to size, liquidity, end market, and geographic concentration, Cain Brothers applied a 30% discount to the median results of the aforementioned multiples.

The following table reflects the results of this analysis:

Company
EV / LTM
EBITDA
EV / 2018E
EBITDA
Apollo Medical Holdings, Inc.
 
13.3x
 
 
14.0x
 
MEDNAX, Inc.
 
10.0x
 
 
10.3x
 
American Renal Associates Holdings
 
13.9x
 
 
14.0x
 
DaVita Inc.
 
10.3x
 
 
11.3x
 
Hanger, Inc.
 
10.8x
 
 
10.3x
 
RadNet, Inc.
 
9.1x
 
 
9.1x
 
Surgery Partners, Inc.
 
20.8x
 
 
17.6x
 
U.S. Physical Therapy, Inc.
 
27.8x
 
 
26.6x
 
Median
 
12.1x
 
 
12.6x
 
Median (includes a 30% size and comparability discount.)
 
 
 
 
8.8x
 

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This analysis indicated the following implied share price and equity value of the company:

Implied Share Price(1)
Implied Enterprise Value ($mm)
$1.39
$
15.8
 
(1) Reflects implied share price at the 30% size and comparability discount

No company utilized in the selected publicly traded companies analysis is identical to the company. In evaluating selected publicly traded companies, Cain Brothers made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters which are beyond the company’s control, such as the impact of competition on the company and the industry generally, industry growth and the absence of any adverse material change in the financial conditions and prospects of the company or the industry or the financial markets in general.

Discounted Cash Flow Analysis

Cain Brothers performed a discounted cash flow analysis of the company, which was performed to demonstrate an illustrative indication of the implied present value of the company on a share price basis. The illustrative discounted cash flow analysis of the company was based on the company’s estimated fiscal 2018 results and projections provided by the company’s management for fiscal years 2019 through 2022. Cain Brothers calculated terminal values for the company by applying the growth rate in perpetuity method, which reflects GDP growth of 1.0% to 2.0%. The cash flows and terminal values were then discounted to present value as of December 31, 2018 using discount rates ranging from 19.0% to 22.0%.

This analysis indicated the following per share equity value reference range for the company’s common shares:

Per Share Equity Value Reference Range(1)
$4.89 - $6.59
(1) Assumed 10,812 new shares issued from exercisable options

While discounted cash flow analysis is a widely accepted and practiced valuation methodology, it relies on a number of assumptions, including growth rates, terminal multiples and discount rates. The valuation derived from the discounted cash flow analysis is not necessarily indicative of the company’s present or future value or results. Discounted cash flow analysis in isolation from other analyses is not an effective method of evaluating transactions.

Premium Paid Analysis

Cain Brothers reviewed publicly available data for 124 transactions dating back to 2014 involving U.S. publicly traded companies in which the seller was categorized as a “Healthcare” company by ThomsonOne. For the purposes of this analysis, Cain Brothers excluded transactions in which the premium exceeded 1,000%.

For each of the target companies involved in the reviewed transactions, Cain Brothers examined the closing stock price one day, one week and four weeks prior to announcement of the transaction in order to calculate the premium paid by the acquiror over the target’s closing stock price at those points in time. Cain Brothers then determined the median percentage premiums observed for the reviewed transactions (i.e., the 124 transactions dating back to 2014 as referenced above) for each of the examined time periods, as set forth in the chart below.

Precedent Transaction Premium
1 Day
1 Week
4 Weeks
Median
 
37.4
%
 
35.6
%
 
44.2
%

For purposes of its fairness analysis, Cain Brothers noted that one day premium to share prices for the 25th percentile and 75th percentile transactions in this referenced data set were 15.7% and 63.9%, respectively. Applying these percentages to the company’s share price of $5.25 immediately prior to the announcement of the transaction implied a fair range of $6.07 per share to $8.60 per share.

No transaction utilized in the premiums paid analysis is identical to the merger. In selecting the precedent transactions, Cain Brothers made judgments and assumptions with regard to industry performance, general

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business, economic, market and financial conditions and other matters which are beyond the company’s control, such as the impact of competition on the company and the industry generally, industry growth and the absence of any adverse material change in the financial conditions and prospects of the company or the industry or the financial markets in general. Mathematical analysis of comparable transaction data (such as determining medians) in isolation from other analyses is not an effective method of evaluating transactions.

Historical Stock Trading Analysis

Cain Brothers also reviewed the trading range of the company’s common stock prices (lowest to highest) over the preceding 52 weeks prior to October 1, 2018, including the trading volume during the last three months prior to October 1, 2018. This range went from $4.00 per share (on November 10, 2017) to $9.50 per share (on January 2, 2018).

Miscellaneous

In connection with Cain Brothers’ services as the company’s financial advisor in connection with the merger, the company will pay Cain Brothers an aggregate fee, based on merger consideration of $10.62 in cash, without interest and less any applicable withholding taxes, for each share of our common stock, of approximately $1.06 million, $250,000 of which was payable upon the delivery of Cain Brothers’ fairness opinion. In addition, the company has agreed to reimburse Cain Brothers for certain of its expenses and to indemnify Cain Brothers and related persons against various potential liabilities, including certain liabilities that may arise in connection with Cain Brothers’ engagement.

In the ordinary course of its business, Cain Brothers may actively trade securities of the company for our own account and for Cain Brothers’ own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

CERTAIN PROSPECTIVE FINANCIAL INFORMATION

The company does not as a matter of course make public financial projections or estimates as to future revenues, earnings or other results given, among other reasons, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates. However, in connection with their consideration of the merger, certain forward-looking financial information prepared by the company’s management including estimated fiscal 2018 results and projections for fiscal years 2019 through 2022, was provided to Cain Brothers, which we refer to as the “projections,” in addition to the company’s actual results during the trailing twelve months ended August 31, 2018. We have included the projections in this proxy statement to give our shareholders access to certain nonpublic information considered by the board of directors and Cain Brothers for purposes of considering and evaluating the merger, but not to influence the decision of shareholders whether to vote for or against the approval of the merger agreement and the merger. The inclusion of this information should not be regarded as an indication that the board of directors, Cain Brothers or any other recipient of this information considered, or now considers, this information to be material or a reliable prediction of future results.

The projections are subjective in many respects. Although presented with numerical specificity, the projections reflect and are based on numerous assumptions and estimates with respect to industry performance, general business, economic, political, market and financial conditions, competitive uncertainties and other matters, all of which are difficult to predict and beyond our control. As a result, there can be no assurance that these projections will be realized or that actual results will not be significantly higher or lower than projected. The projections are forward-looking statements and should be read with caution. See “Legal and Cautionary Disclosures” on page 75. The projections reflect assumptions as to certain business matters that are subject to change.

The projections were prepared to assist the board of directors in evaluating the merger and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of projections. The company’s independent registered public accounting firm has not examined or compiled any of the projections, expressed any conclusion or provided any form of assurance with respect to the projections and, accordingly, assumes no responsibility for them. The projections should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the company contained in the company’s public filings. Readers of this proxy statement are cautioned not to place undue reliance on the

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specific portions of the projections set forth below. No one has made or makes any representation to any shareholder regarding the information included in these projections. The projections do not take into account any circumstances or events occurring after the date they were prepared, including the transactions contemplated by the merger agreement. Further, the projections do not take into account the effect of any failure of the merger to occur and should not be viewed as accurate or continuing in that context. Except as may be required by applicable securities laws, the company does not intend to update, or otherwise revise, the projections or the specific portions presented 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.

For the foregoing reasons, as well as the bases and assumptions on which the projections were compiled, the inclusion of specific portions of the projections in this proxy statement should not be regarded as an indication that the projections are an accurate prediction of future events, and they should not be relied on as such.

The following table is a summary of the projections and the company’s actual results during the trailing twelve months ended August 31, 2018:

 
TTM Aug-‘18
FY2018E
FY2019P
FY2020P
FY2021P
FY2022P
Dental Practice
Revenue, Net
$
60,183,335
 
$
60,893,160
 
$
67,642,990
 
$
72,692,291
 
$
76,414,063
 
$
80,023,616
 
% Growth
 
1.2
%
 
2.4
%
 
11.1
%
 
7.5
%
 
5.1
%
 
4.7
%
Direct Costs:
 
26,636,991
 
 
26,413,269
 
 
28,704,340
 
 
30,926,621
 
 
32,530,354
 
 
34,044,609
 
Gross Profit
$
33,546,344
 
$
34,479,891
 
$
38,938,650
 
$
41,765,670
 
$
43,883,709
 
$
45,979,007
 
% Margin
 
55.7
%
 
56.6
%
 
57.6
%
 
57.5
%
 
57.4
%
 
57.5
%
Total Office-Level
Expenses
 
28,729,453
 
 
28,961,133
 
 
30,711,879
 
 
31,839,945
 
 
32,839,896
 
 
33,842,817
 
Adjusted Office-Level EBITDA
$
4,816,891
 
$
5,518,758
 
$
8,226,771
 
$
9,925,725
 
$
11,043,813
 
$
12,136,191
 
% Margin
 
8.0
%
 
9.1
%
 
12.2
%
 
13.7
%
 
14.5
%
 
15.2
%
Total Corporate
Expenses
 
3,766,309
 
 
3,733,887
 
 
3,797,149
 
 
3,916,588
 
 
4,039,601
 
 
4,166,295
 
Adjusted Corporate EBITDA
$
1,050,582
 
$
1,784,870
 
$
4,429,622
 
$
6,009,137
 
$
7,004,211
 
$
7,969,895
 
% Margin
 
1.7
%
 
2.9
%
 
6.5
%
 
8.3
%
 
9.2
%
 
10.0
%

In preparing the projections, the company’s management assumed the successful implementation of multiple operational initiatives to drive improved efficiencies and that would result in significant improvements in the financial performance of the company, including:

provider productivity improvements (productivity per doctor days);
hygiene productivity improvements (productivity per hygienist); and
increase in the number of Invisalign procedures.

Additionally, the projections reflect the impact of recent headcount reductions implemented in August 2018.

FINANCING OF THE MERGER

We anticipate that the total amount of funds necessary to consummate the merger and the related transactions (including the funds needed to pay our shareholders the amounts due to them under the merger agreement, make payments in respect of our outstanding equity awards, repay our existing indebtedness and to pay related fees and expenses) will be funded through equity financing to be provided by an affiliate of Mid-Atlantic Dental, which has agreed to fund Mid-Atlantic Dental with $45 million for the purpose of consummating the merger, subject to the terms and conditions set forth in a subscription agreement, which we refer to as the “subscription agreement.” The merger is not conditioned upon receipt of financing by Mid-Atlantic Dental.

Birner Dental is an express third-party beneficiary of the subscription agreement to, in accordance with the terms and conditions of the merger agreement, enforce the obligations of the parties thereto, including the funding of the equity commitment to Mid-Atlantic Dental.

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The obligations to fund the equity financing under the equity commitment letter will terminate if Mid-Atlantic Dental doesn’t deliver a drawdown notice in connection with the closing of the merger on or before February 28, 2019.

INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER

When considering the recommendation of our board of directors that you vote for the proposal to approve the merger agreement, you should be aware that certain of our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a shareholder. Our board of directors was aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be approved by our shareholders.

Our executive officers are:

Frederic W.J. Birner, Chief Executive Officer and Director
Dennis N. Genty, Chief Financial Officer and Secretary

Agreements with Executive Officers

No executive officer of the company has entered into an agreement with Mid-Atlantic Dental or Merger Sub or any of their respective affiliates regarding employment with, or the right to purchase or participate in the equity of, the surviving corporation or one or more of its affiliates. Prior to or following the closing of the merger, however, these executive officers may discuss or enter into such agreements with Mid-Atlantic Dental, Merger Sub, or any of their respective affiliates.

Under the merger agreement, the equity-based awards held by our directors and executive officers under our equity incentive plans will be treated as described in “The Merger AgreementTreatment of Birner Dental Equity Awards” starting on page 48.

No amounts are payable to each of our named executive officers in settlement of their outstanding equity awards. Three of our current directors, Joshua S. Horowitz, Burton J. Rubin, and Bradley M. Tirpak, each have 2,000 shares of restricted stock awards, which will vest upon closing of the merger. Three of our current directors, John M. Climaco, Gregory G. Fulton, and Thomas D. Wolf, each have 3,000 shares of restricted stock awards, which will vest upon closing of the merger.

Payments to Company Executives upon Termination Following Change in Control

Employment, Severance, and Retention Agreements

We have no employment, severance, or retention agreements with our executive officers.

Quantification of Payments and Benefits to Named Executive Officers

No named executive officer will receive any payments or benefits upon closing of the merger other than amounts the officers were already entitled to receive or that were vested as of       ,       , or amounts under contracts, agreements, plans, or arrangements to the extent they do not discriminate in scope, terms or operation in favor of an officer and that are available generally to all of the salaried employees of the company.

Insurance and Indemnification of Directors and Executive Officers

See “The Merger Agreement—Indemnification and Insurance,” starting on page 58, for a summary of the obligations of Mid-Atlantic Dental and the surviving corporation with respect to insurance indemnification of directors and executive officers after the effective time of the merger.

Support Agreements

Frederic W.J. Birner and the Palm entities entered into support agreements. Mr. Birner is our Chief Executive Officer and a Director. Joshua S. Horowitz, Burton J. Rubin, and Bradley M. Tirpak serve on our board of directors as designees of the Palm entities. In the support agreements, Mr. Birner and the Palm entities have agreed, among other things, to vote an aggregate of 37.5% of the outstanding voting shares of the company in favor of the adoption and approval of the merger agreement and the merger and the other transactions

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contemplated by the merger agreementt, against any change in the company’s board of directors, against the approval of any alternative acquisition proposal or the adoption of any agreement relating to any alternative acquisition proposal, and against other proposals relating to matters that would reasonably be expected to impede, interfere with, delay, postpone, adversely affect or prevent the consummation of the Merger or the other transactions contemplated by the merger agreement. See “Support Agreements” on page 65.

REGULATORY APPROVALS

We and Mid-Atlantic Dental have agreed to use each of our respective reasonable best efforts to take or cause to be taken all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on its part under the merger agreement and applicable laws to consummate and make effective the merger and other transactions contemplated by the merger agreement as promptly as practicable, including efforts needed to prepare and file all documentation to effect all necessary notices, reports and filings to obtain as promptly as practicable, all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party or governmental entity. Applicable law or the terms and conditions of certain of our licenses and permits may impose requirements to notify or obtain approval of the applicable regulator in connection with the merger. However, the merger is not conditioned upon making or obtaining any such notices or approvals.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a general discussion of certain material U.S. federal income tax consequences of the merger to U.S. holders of our common stock whose shares are exchanged for cash and CVRs pursuant to the merger. This discussion does not address U.S. federal income tax consequences with respect to holders other than U.S. holders. This discussion is based on the provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the “tax code,” applicable U.S. Treasury Regulations promulgated under the tax code, judicial opinions and administrative rulings and published positions of the Internal Revenue Service, which we refer to as the “IRS,” each as in effect as of the date hereof. These authorities are subject to change or differing interpretations, possibly on a retroactive basis, and any such change or interpretation could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion is general in nature and does not discuss all aspects of U.S. federal income taxation that may be relevant to a holder of shares of our common stock in light of such holder’s particular circumstances. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, nor does it address any tax considerations under state, local or non-U.S. laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. This discussion is not binding on the IRS or the courts and, therefore, could be subject to challenge, which could be sustained. We have not sought, and no ruling will be sought from the IRS with respect to the merger.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of our common stock that is for U.S. federal income tax purposes:

a citizen or individual resident of the United States;
a corporation, or other entity classified as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
a trust if (1) a court within the United States is able to exercise primary supervision over the trust’s administration, and one or more U.S. persons are authorized to control all substantial decisions of the trust or (2) such trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person; or
an estate the income of which is subject to U.S. federal income tax regardless of its source.

This discussion applies only to U.S. holders of shares of our common stock who hold such shares as a capital asset within the meaning of Section 1221 of the tax code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that may be relevant to a U.S. holder in light of its particular circumstances, or that may apply to U.S. holders subject to special treatment under U.S. federal income tax laws (including, for example, insurance companies, dealers or brokers in securities or non-U.S. currencies, traders in securities who elect the mark-to-market method of accounting, holders subject to the alternative minimum tax, U.S. holders that have a functional currency other than the U.S. dollar, tax-exempt organizations, tax-qualified retirement plans, banks and other financial institutions, mutual funds, U.S.

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expatriates or former citizens or long term residents of the United States, S corporations, or other pass-through entities, or investors in such S corporations or other pass-through entities, real estate investment trusts, regulated investment companies, U.S. holders who hold shares of our common stock as part of a hedge, straddle, constructive sale, conversion or other risk reduction strategy or integrated transaction, U.S. holders who will hold (actually or constructively) an equity interest in Mid-Atlantic Dental immediately after the merger, U.S. holders who acquired their shares of our common stock through the exercise of employee stock options, through a tax qualified retirement plan or other compensation arrangements, and dissenters (as defined under “Dissenters’ Rights” below)).

If a partnership (including for this purpose any entity or arrangement treated as a partnership or flow-through entity for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a partner in such partnership will generally depend on the status of the partners and the activities of the partnership. If you are, for U.S. federal income tax purposes, a partner in a partnership holding shares of our common stock, you should consult your tax advisor.

This summary of U.S. federal income tax consequences is intended only as a general summary of certain material U.S. federal income tax consequences of the merger to U.S. holders and is not tax advice. Holders of our stock are urged to consult their own tax advisors to determine the particular tax consequences to them of the merger, including federal estate, gift and other non-income tax consequences, the applicability and effect of the alternative minimum tax, the unearned income Medicare contribution tax and any other U.S. federal, and tax consequences under state, local, non-U.S. or other tax laws, including tax treaties.

Tax Consequences of the Merger

The receipt of cash and CVRs by U.S. holders in exchange for shares of our common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes.

The amount of gain or loss a stockholder recognizes, and the timing and potentially the character of a portion of such gain or loss, depends in part on the U.S. federal income tax treatment of the CVRs, with respect to which there is substantial uncertainty.

Because of the CVRs, the receipt of the per share merger consideration may be treated as either a “closed transaction” or an “open transaction” for U.S. federal income tax purposes. It is the position of the IRS, reflected by Treasury Regulations, that only in “rare and extraordinary cases” is the value of property so uncertain that open transaction treatment is available. Birner Dental intends to take the position, and the following discussion assumes, that the merger will be treated as a “closed transaction” for U.S. federal income tax purposes.

Because the U.S. federal income tax treatment of the CVRs is unclear, Birner Dental urges you to consult your tax advisor with respect to the proper characterization of the receipt of the CVRs. In general, for U.S. federal income tax purposes, a U.S. holder who receives cash and CVRs in exchange for shares of our common stock pursuant to the merger will recognize capital gain or loss in an amount equal to the difference, if any, between (1) the amount of cash received, the fair market value of the CVRs as of the date of the consummation of the merger plus the amount used to satisfy any applicable withholding taxes and (2) the U.S. holder’s adjusted tax basis in such shares. Birner Dental is not obtaining a ruling or a valuation of the fair market value of the CVRs as of the date of the consummation of the merger and intends to take the position that the fair market value of the CVRs as of the date of the consummation of the merger is $0.00. You should consult your tax advisor if you intend to take a position that the fair market value of the CVRs as of the date of the consummation of the merger is anything other than $0.00.

Any such gain or loss will be long-term capital gain or loss if a U.S. holder’s holding period in the shares of our common stock surrendered in the merger is greater than one year as of the date of the merger. Long-term capital gains of certain non-corporate holders, including individuals, are generally subject to U.S. federal income tax at preferential rates. The deductibility of capital losses is subject to limitations. If a U.S. holder acquired different blocks of our common stock at different times and different prices, such U.S. holder must determine its adjusted tax basis, gain or loss and holding period separately with respect to each block of our common stock.

The installment method of reporting any gain attributable to the receipt of a CVR will not be available because Birner Dental common stock is traded on an established securities market.

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A U.S. holder's initial tax basis in the CVRs will equal the fair market value of the CVRs on the date of the consummation of the merger. The holding period of the CVRs will begin on the day following the date of the consummation of the merger.

There is no direct authority with respect to the treatment of payments similar to a payment in respect of the CVRs. You should therefore consult your tax advisor as to the taxation of such a payment. Subject to the discussion below of Section 483 of the tax code, a payment with respect to each CVR would likely be treated as a non-taxable return of a U.S. holder's adjusted tax basis in the CVR to the extent thereof. A payment in excess of such amount may be treated as: (i) payment with respect to a sale of a capital asset; (ii) income taxed at ordinary rates; or (iii) dividends. Subject to the discussion of Section 483 of the tax code below, a U.S. holder whose adjusted tax basis exceeds the amount of the payment (if any) with respect to the CVR such U.S. holder receives likely would recognize a loss equal to such excess. Such loss may be capital or ordinary.

Although not entirely clear, it is possible that a portion of the payment, if any, in respect of a CVR will be characterized as interest under Section 483 of the tax code. The interest amount will equal the excess of the amount received over its present value at the consummation of the merger, calculated using the applicable federal rate as the discount rate. If Section 483 of the tax code applies, the U.S. holder of a CVR must include in its taxable income interest pursuant to Section 483 of the tax code using such U.S. holder's regular method of accounting for U.S. federal income tax purposes. If Section 483 of the tax code applies, the portion of the payment received that is not treated as interest likely will be treated as “principal” and applied against the U.S. holder's adjusted tax basis in the CVR, with any amount in excess of basis taxable to the holder as capital gain. To the extent that the ultimate amount paid with respect to the CVR that is treated as principal is less than the U.S. holder's tax basis in the CVR, the U.S. holder will likely treat the difference as capital loss.

As discussed above, the U.S. federal income tax treatment of the CVRs is unclear, and it is possible that the IRS might successfully assert that payments with respect to, or sales or other dispositions of, the CVRs should be treated other than described above. If such a position were sustained, all or part of the CVR payment (or payment in exchange for a CVR) could be treated as ordinary income and could be required to be included in income prior to receipt.

Due to the legal and factual uncertainty regarding the valuation and tax treatment of the CVRs, you are urged to consult your tax advisors concerning the tax consequences resulting from the receipt of the CVRs in the merger.

Information Reporting and Backup Withholding

Payments made in exchange for shares of our common stock pursuant to the merger generally will be subject to information reporting and backup withholding at the applicable rate. A U.S. holder can avoid backup withholding if it provides a valid taxpayer identification number and complies with certain certification procedures (generally, by providing a properly completed and executed IRS Form W-9) or otherwise establishes an exemption from backup withholding.

Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be refunded or credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the IRS in a timely manner.

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DISSENTERS’ RIGHTS

The following is a summary of certain material terms of Article 113 of the CBCA. The summary is not complete and must be read together with the actual statutory provisions, copies of which are attached as Appendix E. We encourage you to read Article 113 carefully in its entirety because the rights and obligations of the company and our shareholders are governed by the express terms of these statutory provisions and other applicable law, and not by this summary or any other information contained in this proxy statement. This summary may not contain all the information about these statutory provisions that is important to you.

Applicability

As a Colorado corporation, Birner Dental is governed by the CBCA. The CBCA provides a shareholder who is entitled to vote and who objects to a merger with the right to dissent from such action and instead obtain payment for the “fair value” of his or her shares of our common stock. This right is set forth in Article 113 of the CBCA.

Exercising Dissenters’ Rights

Any shareholder contemplating an attempt to assert and exercise dissenters’ rights in connection with the merger should review carefully the provisions of Article 113 of the CBCA (which is attached as Appendix E), particularly the specific procedural steps required to perfect such rights. Dissenters’ rights are lost if the procedural requirements of Article 113 are not fully and precisely satisfied.

In view of the complexity of these statutory provisions, any shareholders who may wish to pursue dissenters’ rights should consult their legal and financial advisors.

Right to Dissent

Our shareholders are entitled to dissent from the merger and obtain payment of the fair value of their shares if and when the merger is consummated. “Fair value,” with respect to a dissenter’s shares, means the value of the shares immediately before the effective date of the merger, excluding any appreciation or depreciation in anticipation of the merger except to the extent that exclusion would be inequitable. Under Article 113 of the CBCA, a shareholder entitled to dissent and obtain payment for his, her or its shares may not also challenge the corporate action creating the right to dissent unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.

Under Section 7-113-103(1) of the CBCA, a record shareholder may assert dissenters’ rights as to fewer than all shares registered in the record shareholder’s name only if the record shareholder dissents with respect to all shares beneficially owned by any one person and causes the corporation to receive written notice which states such dissent and the name, address and federal taxpayer identification number, if any, of each person on whose behalf the record shareholder asserts dissenters’ rights.

Section 7-113-103(2) of the CBCA provides that a beneficial shareholder may assert dissenters’ rights as to the shares held on the beneficial shareholder’s behalf only if (a) the beneficial shareholder causes the corporation to receive the record shareholder’s written consent to the dissent not later than the time the beneficial shareholder asserts dissenters’ rights and (b) the beneficial shareholder dissents with respect to all shares beneficially owned by the beneficial shareholder.

We will require that, when a record shareholder dissents with respect to the shares held by any one or more beneficial shareholders, each such beneficial shareholder must certify to Birner Dental that the beneficial shareholder and record shareholder has asserted, or will timely assert, dissenters’ rights as to all such shares as to which there is no limitation on the ability to exercise dissenters’ rights.

Procedure for Exercise of Dissenters’ Rights

The notice accompanying this proxy statement states that shareholders of Birner Dental are entitled to assert dissenters’ rights under Article 113 of the CBCA. A shareholder who wishes to assert dissenters’ rights shall: (a) cause us to receive before the vote is taken on the merger at the special meeting, written notice of the shareholder’s intention to demand payment for the shareholder’s shares if the merger is effectuated; and (b) not vote the shares in favor of the merger. A shareholder who does not satisfy the foregoing requirements will not be entitled to demand payment for his or her shares under Article 113 of the CBCA.

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Dissenters’ Notice

If the merger and the merger agreement is approved at the special meeting, we will send written notice to dissenters who are entitled to demand payment for their shares. The notice required by us will be given no later than 10 days after the effective date of the merger and will: (a) state that the merger agreement was approved and state the effective date or proposed effective date of the merger, (b) set forth an address at which Birner Dental will receive payment demands and the address of a place where certificates must be deposited, (c) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received, (d) supply a form for demanding payment, which form shall request a dissenter to state an address to which payment is to be made, (e) set the date by which we must receive the payment demand and certificates for shares, which date will not be less than 30 days after the date the notice is given, (f) state that if a record shareholder dissents with respect to the shares held by any one or more beneficial shareholders each such beneficial shareholder must certify to us that the beneficial shareholder and the record shareholder or record shareholders of all shares owned beneficially by the beneficial shareholder have asserted, or will timely assert, dissenters’ rights as to all such shares as to which there is no limitation of the ability to exercise dissenters’ rights, and (g) be accompanied by a copy of Article 113 of the CBCA.

Procedure to Demand Payment

A shareholder who is given a dissenters’ notice to assert dissenters’ rights will, in accordance with the terms of the dissenters’ notice, (a) cause us to receive a payment demand (which may be a demand form supplied by us and duly completed or other acceptable writing) and (b) deposit the shareholder’s stock certificates. A shareholder who demands payment in accordance with the foregoing retains all rights of a shareholder, except the right to transfer the shares until the effective date of the merger, and has only the right to receive payment for the shares after the effective date of the merger. A demand for payment and deposit of certificates is irrevocable except that if the effective date of the merger does not occur within 60 days after the date set by us by which it must receive the payment demand, we will return the deposited certificates and release the transfer restrictions imposed. If the effective date occurs more than 60 days after the date set by us by which it must receive the payment demand, then we will send a new dissenters’ notice. A shareholder who does not demand payment and deposit his or her share certificates as required by the date or dates set forth in the dissenters’ notice will not be entitled to demand payment for his, her or its shares under Article 113 of the CBCA, and he, she or it will receive cash consideration for each of his, her or its shares the same as received by non-dissenting shareholders.

Payment

At the effective date of the merger or upon receipt of a payment demand, whichever is later, we will pay each dissenter who complied with the notice requirements referenced in the preceding paragraph our estimate of the fair value of the dissenter’s shares plus accrued interest. Payment shall be accompanied by an audited balance sheet as of the end of our most recent fiscal year or, an audited income statement for that year, and an audited statement of changes in shareholders’ equity for that year and an audited statement of cash flow for that year, as well as the latest available financial statements, if any, for the interim period, which interim financial statements will be unaudited. Payment will also be accompanied by a statement of our estimate of the fair value of the shares and an explanation of how the interest was calculated, along with a statement of the dissenter’s right to demand payment and a copy of Article 113 of the CBCA. With respect to a dissenter who acquired beneficial ownership of his, her or its shares after our first announcement of the terms of the transaction on October 3, 2018, or who does not certify that his, her or its shares were acquired before that date, we may, in lieu of making the payment described above, offer to make such payment if the dissenter agrees to accept it in full satisfaction of the demand.

If Dissenter is Dissatisfied with Offer

If a dissenter disagrees with our payment or offer, such dissenter (1) may give us notice in writing of the dissenter’s estimate of the fair value of the dissenter’s shares and of the amount of interest due and may demand payment of such estimate, less any payment made prior thereto, or (2) reject our offer and demand payment of the fair value of the shares and interest due if: (a) the dissenter believes that the amount paid or offered is less than the fair value of the shares or that the interest due was incorrectly calculated, (b) we fail to make payment within 60 days after the date we set by which it must receive the payment demand or (c) we do not return deposited certificates and release transfer restrictions if the effective date is more than 60 days after the date we

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set by which the payment demand must be received by the shareholder asserting dissenters’ rights. A dissenter waives the right to demand payment under this paragraph unless he or she causes us to receive the notice referenced in this paragraph within 30 days after we make or offer payment for the shares of the dissenter, in which event, such dissenter will receive all cash for his or her shares in an amount equal to the amount we paid or offered.

Judicial Appraisal of Shares

If a demand for payment made by a dissenter as set forth above is unresolved, we may, within 60 days after receiving the payment demand, commence a proceeding and petition a court to determine the fair value of the shares and accrued interest. If we do not commence the proceeding within the 60-day period, we shall pay to each dissenter whose demand remains unresolved the amount demanded. Birner Dental must commence any proceeding described above in the District Court of the City and County of Denver, Colorado. We shall make all dissenters whose demands remain unresolved parties to the proceeding as in an action against their shares, and all parties shall be served with a copy of the petition. Jurisdiction in which the proceeding is commenced is plenary and exclusive. One or more persons may be appointed by the court as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers will have the power described in the court order appointing them. The parties to the proceeding will be entitled to the same discovery rights as parties in other civil proceedings. Each dissenter made a party to the proceeding will be entitled to judgment for the amount, if any, by which the court finds the fair value of the dissenter’s shares, plus interest, to exceed the amount we paid, or for the fair value, plus interest, of a dissenters’ shares for which we elected to withhold payment.

Court and Counsel Fees

The court in an appraisal proceeding shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court will assess the costs against us; except that the court may assess costs against all or some of the dissenters, in the amount the court finds equitable, to the extent the court finds that the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (a) against us and in favor of the dissenters if the court finds that we did not substantially comply with our obligations under Article 113, or (b) against either us or one or more dissenters, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by Article 113 of the CBCA. If the court finds that the services of counsel for any dissenter were of substantial benefit to the other dissenters similarly situated, and that the fees for those services should not be assessed against us, the court may award to such counsel reasonable fees to be paid out of the amount awarded to the dissenters who were benefited.

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THE MERGER AGREEMENT

The following is a summary of certain material terms of the merger agreement. The summary is not complete and must be read together with the actual merger agreement, a copy of which is attached as Appendix A. We encourage you to read the merger agreement carefully and in its entirety because the rights and obligations of the parties are governed by the express terms of the merger agreement and not by this summary or any other information contained in this proxy statement. This summary may not contain all the information about the merger agreement that is important to you.

Please note that the representations, warranties, covenants, and agreements in the merger agreement were made only for purposes of the merger agreement and may not represent the actual state of facts. See “Legal and Cautionary DisclosuresContext for Assertions Embodied in Agreements” on page 75.

STRUCTURE AND CORPORATE EFFECTS OF THE MERGER

At the effective time of the merger, Merger Sub will merge with and into Birner Dental, and the separate corporate existence of Merger Sub will cease. Birner Dental will be the surviving corporation in the merger and will continue its corporate existence as a Colorado corporation and a wholly owned subsidiary of Mid-Atlantic Dental.

At the effective time of the merger, the articles of incorporation of the company will be amended and restated in their entirety. Also, at the effective time of the merger, the bylaws of the company will be amended and restated in their entirety.

At the effective time of the merger, the individuals holding positions as directors of Merger Sub immediately before the effective time of the merger will become the directors of the surviving corporation, and the individuals holding positions as officers of the company immediately before the effective time of the merger will continue as the officers of the surviving corporation, in each case until their resignation or removal or their respective successors are duly elected and qualified.

TIMING OF THE MERGER

The closing of the merger is to take place on the third business day after the satisfaction or waiver (to the extent permitted by applicable law) of the conditions set forth in the merger agreement (other than those conditions that by their nature are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of such conditions). These conditions are described under “Conditions to Completion of the Merger” on page 59). We and Mid-Atlantic Dental may mutually agree on another date or time for the closing to take place. The date on which the closing occurs is sometimes referred to as the closing date.

On the closing date, we will file a statement of merger with the Secretary of State of the State of Colorado and a certificate of merger with the Secretary of State of the State of Delaware. The merger will become effective at the time when the articles of merger are filed or at such later date or time as may be agreed by us and Mid-Atlantic Dental and specified in the statement of merger and certificate of merger.

As of the date of the filing of this proxy statement, we expect to complete the merger in the first quarter of 2019. However, completion of the merger is subject to the satisfaction or waiver of the conditions to the completion of the merger, and factors outside of our control or the control of Mid-Atlantic Dental may delay the completion of the merger or prevent it from being completed at all. There can be no assurances as to whether or when the merger will be completed.

EFFECT OF THE MERGER ON OUR COMMON STOCK

Each share of our common stock that is issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive (i) $10.62 in cash, without interest and less any applicable withholding taxes (the ”cash consideration”) and (ii) one contractual contingent value right representing the right to receive a contingent payment in cash, without interest and less any applicable withholding taxes (the “CVR,” and together with the cash consideration, the “merger consideration”), except for (1) any shares held in our treasury, owned by Mid-Atlantic Dental, any of its wholly owned subsidiaries, other than, in each case, shares of common stock held on behalf of third parties) (all of which we refer to as cancelled shares), (2) any dissenting shares or (3) any shares subject to vesting, repurchase or other lapse of restrictions. At the effective time of the

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merger, the shares will no longer be outstanding and will automatically be cancelled and will cease to exist, and each holder thereof will cease to have any rights with respect thereto, except the right to receive the merger consideration.

Any shares subject to vesting, repurchase or other lapse of restrictions will be treated as described under “Treatment of Birner Dental Equity Awards” on page 48.

At the effective time of the merger, each cancelled share will be cancelled and cease to exist, and no consideration will be delivered in exchange for such cancellation.

In this proxy statement, we use the term “dissenting shares” to describe shares of our common stock issued and outstanding immediately prior to the effective time of the merger that are held by a company shareholder who (1) has not voted in favor of approval of the merger agreement (or consented thereto in writing), (2) has demanded and perfected such holder’s right to dissent from the merger and to be paid the fair value of such shares in accordance with the provisions of Article 113 of the Colorado Business Corporation Act, and (3) as of the effective time of the merger, has not effectively withdrawn or lost such dissenters’ rights. At the effective time of the merger, any dissenting shares will not be converted into or represent the right to receive the merger consideration, but if such shareholder complies in all respects with the provisions of Article 113 of the Colorado Business Corporation Act, such shareholder will be entitled to the payment of the fair value of such dissenting shares determined in accordance with the provisions of Article 113 of the Colorado Business Corporation Act (including interest determined in accordance with the provisions of Article 113 of the Colorado Business Corporation Act). However, if any such shareholder fails to perfect or otherwise waives, withdraws or loses the right to dissent under such statutory provisions, or if a court of competent jurisdiction determines that such holder is not entitled, to demand or receive the fair value of such shares of our common stock under the applicable provisions of the Colorado Business Corporation Act, then the right of such shareholder to be paid the fair value of such holder’s dissenting shares will cease and such dissenting shares will be deemed to have been converted as of the effective time of the merger into, and to have become exchangeable solely for the right to receive, the merger consideration, without interest thereon and subject to any applicable withholding taxes. For more information regarding dissenters’ rights, see “The MergerDissenters’ Rights” on page 44.

At the effective time of the merger, each share of common stock of Merger Sub outstanding immediately prior to the effective time of the merger will be converted into and become one validly issued, fully paid and nonassessable share of common stock of the surviving corporation.

TREATMENT OF BIRNER DENTAL EQUITY AWARDS

Stock Options. At the effective time of the merger, each unexercised option to acquire shares of our common stock outstanding immediately prior to the effective time of the merger, whether vested or unvested, will automatically vest and accelerate in full and be cancelled with the holder becoming entitled to receive (a) a cash payment, without interest, equal to the product of (1) the excess, if any, of $10.62 over the exercise price per share of our common stock subject to such option multiplied by (2) the number of shares of our common stock subject to such option immediately prior to the effective time of the merger (subject to any applicable withholding tax) and (b) if the exercise price per share of our common stock subject to such option is less than the $10.62, a number of CVRs equal to the total number of shares of our common stock subject to such options. So-called “underwater” or out-of-the-money options, where the exercise price is greater than or equal to $10.62, will be cancelled without consideration.

Restricted Shares. At the effective time of the merger, each restricted share of common stock outstanding immediately prior to the effective time of the merger will be cancelled with the holder becoming entitled to receive a (a) cash payment, without interest, equal to $10.62 and (b) one CVR, in each case, less applicable withholding taxes.

PAYMENT FOR COMMON STOCK IN THE MERGER

At or prior to the effective time of the merger, Mid-Atlantic Dental will deposit cash in U.S. dollars sufficient to pay the aggregate cash consideration with                        or another reputable bank or trust company reasonably acceptable to us, which we refer to as the “paying agent,” in trust for the benefit of the holders of our common stock. Mid-Atlantic Dental will also enter into an agreement with the paying agent in a form reasonably satisfactory to us.

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Promptly after the effective time of the merger, Mid-Atlantic Dental will cause the paying agent to mail to each holder of record of shares of our common stock whose shares were converted into the right to receive the merger consideration (1) the appropriate transmittal materials (including a letter of transmittal) and (2) instructions for effecting the surrender of certificates or book-entry shares formerly representing shares of our common stock in exchange for the merger consideration. Upon surrender of certificates (or effective affidavits of loss in lieu of certificates and, if required, the posting of a bond) or book-entry shares, as applicable, to the paying agent together with the letter of transmittal, completed and executed in accordance with the instructions to the letter of transmittal, and such other documents as may customarily be required by the paying agent, the holder of such certificates (or effective affidavits of loss in lieu of certificates) or book-entry shares will be entitled to receive the merger consideration for all such shares, and such certificates and book-entry shares will be cancelled.

REPRESENTATIONS AND WARRANTIES; MATERIAL ADVERSE EFFECT

The merger agreement contains representations and warranties of ours, subject to certain exceptions in the merger agreement, in the confidential disclosure letter delivered to Mid-Atlantic Dental in connection with the merger agreement and in certain of our public filings, as to, among other things:

organization, good standing, and qualification to do business with respect to us and the professional corporations for which we provide management, administrative, business, marketing or other support services (the “professional corporations”) in each of their jurisdictions of organization;
capital structure, including shares issued and outstanding and obligations pursuant to equity awards;
capitalization and ownership of the professional corporations;