SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED ON PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ORTHODONTIC CENTERS OF AMERICA, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[ ] Fee paid previously with preliminary materials.
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[ORTHODONTIC CENTERS OF AMERICA, INC. LOGO]
3850 N. CAUSEWAY BOULEVARD
SUITE 800
METAIRIE, LOUISIANA 70002
April 15, 2002
To the Stockholders of
Orthodontic Centers of America, Inc.:
You are cordially invited to attend the 2002 Annual Meeting of Stockholders
of Orthodontic Centers of America, Inc., to be held on Friday, May 17, 2002, at
10:00 a.m. (Central Time) at the Doubletree Hotel Lakeside, 3838 N. Causeway
Boulevard, Metairie, Louisiana.
Whether or not you plan to attend the Annual Meeting, please vote your
proxy by: (i) the Internet, (ii) touch-tone telephone or (iii) completing,
signing, dating and returning the enclosed proxy card as soon as possible so
that your vote will be recorded. If you attend the Annual Meeting and desire to
vote your shares personally, you may withdraw your proxy and vote your shares at
any time before the proxy is exercised.
The attached Proxy Statement and the enclosed Annual Report to Stockholders
contain important information about your company and the matters to be addressed
at the Annual Meeting. We encourage you to read them.
We look forward to seeing you in Metairie, Louisiana at this year's Annual
Meeting.
Sincerely,
/s/ BARTHOLOMEW F. PALMISANO, SR.
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President and
Chief Executive Officer
IMPORTANT:
PLEASE VOTE YOUR PROXY BY: (i) THE INTERNET, (ii) TOUCH-TONE TELEPHONE OR (iii)
COMPLETING, SIGNING AND DATING THE ENCLOSED PROXY CARD
AND RETURNING IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
[OCA LOGO]
3850 N. CAUSEWAY BOULEVARD
SUITE 800
METAIRIE, LOUISIANA 70002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 2002
To the Stockholders of
Orthodontic Centers of America, Inc.:
The Annual Meeting of Stockholders of Orthodontic Centers of America, Inc.
(the "Company") will be held on May 17, 2002, at 10:00 a.m. (Central Time) at
the Doubletree Hotel Lakeside, 3838 N. Causeway Boulevard, Metairie, Louisiana
for the following purposes:
(1) To elect three nominees as Class II directors;
(2) To approve an amendment and restatement of the Company's 1994
Incentive Stock Plan;
(3) To ratify the appointment of the accounting firm of Ernst & Young
LLP as independent auditors of the Company and its subsidiaries
for the year ending December 31, 2002; and
(4) To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 22, 2002 as
the record date for determining stockholders entitled to notice of, and to vote
at, the Annual Meeting and any adjournment thereof.
By order of the Board of Directors,
/s/ Bartholomew F. Palmisano, Jr.
Bartholomew F. Palmisano, Jr.
Corporate Secretary
Metairie, Louisiana
April 15, 2002
IMPORTANT:
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, TO ASSURE
THE PRESENCE OF A QUORUM, PLEASE VOTE YOUR PROXY BY THE INTERNET, BY TOUCH-TONE
TELEPHONE OR BY COMPLETING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND
RETURNING IT IN THE ENCLOSED RETURN ENVELOPE AS SOON AS POSSIBLE. IF YOU ATTEND
THE ANNUAL MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT ANY
TIME BEFORE THE PROXY IS EXERCISED.
[OCA LOGO]
3850 N. CAUSEWAY BOULEVARD
SUITE 800
METAIRIE, LOUISIANA 70002
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PROXY STATEMENT
---------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board of Directors") of Orthodontic
Centers of America, Inc. (the "Company"), to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the Doubletree Hotel Lakeside,
3838 N. Causeway Boulevard, Metairie, Louisiana, on May 17, 2002 at 10:00 a.m.
(Central Time) for the purposes set forth in the attached Notice of Annual
Meeting of Stockholders, and at any adjournment thereof. This Proxy Statement
and the accompanying form of proxy card are first being mailed or given to
stockholders of the Company on or about April 15, 2002.
If the enclosed proxy card is properly given and not revoked, it will be
voted in accordance with the instructions, if any, given by the stockholder, and
if no instructions are given, it will be voted (1) FOR the election as Class II
directors of the nominees listed on the proxy card and described in this Proxy
Statement, (2) FOR approval of the amendment and restatement of the Company's
1994 Incentive Stock Plan, (3) FOR ratification of the appointment of the
accounting firm of Ernst & Young LLP as independent auditors of the Company and
its subsidiaries for the year ending December 31, 2002, and (4) in accordance
with the recommendations of the Board of Directors on any other proposal that
may properly come before the Annual Meeting. The persons named as proxies in the
enclosed form of proxy card were selected by the Board of Directors.
Stockholders are encouraged to vote their proxies by (i) the Internet, (ii)
touch-tone telephone or (iii) completing, signing, dating and returning the
enclosed proxy card, but NOT by more than one method. If you do vote by more
than one method, only the last vote that is submitted will be counted and each
previous vote will be disregarded. Pursuant to the Delaware General Corporation
Law and the Company's governing documents, a proxy voted by the Internet or by
touch-tone telephone has the same validity as one voted by mail. To vote by the
Internet or by touch-tone telephone, you need to follow the instructions on the
enclosed proxy card.
Stockholders who sign proxies have the right to revoke them at any time
before they are voted by providing written notice to the Corporate Secretary of
the Company or delivering a valid, later dated proxy. The giving of the proxy
will not affect the right of any stockholder to attend the Annual Meeting and
vote in person.
The close of business on March 22, 2002 has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting. As of the close of business on March 22, 2002, the Company had
authorized 100,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), of which about 51,540,000 shares were outstanding and entitled
to vote. The Common Stock is the Company's only class of voting stock with
shares outstanding.
PROPOSAL 1:
ELECTION OF DIRECTORS
INTRODUCTION
In accordance with the Restated Certificate of Incorporation and Bylaws of
the Company, the Board of Directors has divided the current Board of Directors
into three classes, with each class consisting of three directors. One class of
directors is elected each year for a term of three years. A director of the
Company is elected by the affirmative vote of a plurality of the votes present
or represented at the Annual Meeting and entitled to vote. The Company's
Restated Certificate of Incorporation does not provide for cumulative voting
and, accordingly, each stockholder may cast one vote per share for each nominee.
Unless a proxy specifies otherwise, the persons named in the proxy shall
vote the shares covered thereby for the nominees listed below. Should a nominee
become unavailable for election, shares covered by a proxy will be voted for a
substitute nominee selected by the current Board of Directors.
CLASS II NOMINEES
The term of each of the Company's current Class II directors, Ashton J.
Ryan, Jr., W. Dennis Summers and Edward J. Walters, Jr., expires at the Annual
Meeting. The Board of Directors has nominated Mr. Ryan, Mr. Summers and Mr.
Walters for election at the Annual Meeting as Class II directors to serve until
the Company's Annual Meeting of Stockholders in 2005 and until their respective
successors have been elected and qualified. Mr. Ryan, Mr. Summers and Mr.
Walters have each consented to be a candidate and to serve as a director of the
Company, if elected.
The following table shows the names, ages and principal occupations of each
of the Class II nominees and the year in which each was first elected to the
Board of Directors. The Board of Directors unanimously recommends that
stockholders vote FOR election of the following nominees as Class II directors
of the Company:
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---- --- -------------------- --------------
CLASS II -- TERM EXPIRING IN 2005
Ashton J. Ryan, Jr. ............. 54 President and Chief Executive 1996
Officer, FirsTrust Corp. and
First Bank and Trust, New
Orleans, Louisiana
(1998-Present); Senior Executive
Vice President, First Commerce
Corporation, New Orleans,
Louisiana (1995-1998)
W. Dennis Summers................ 53 Attorney, McGuireWoods LLP, 2001
Atlanta, Georgia (1999-2000;
2001-Present); President,
OrthAlliance, Inc.
(2000-Present); Chairman,
OrthAlliance, Inc. (1999-2001);
Interim Chief Executive Officer,
OrthAlliance, Inc. (2000-2001);
Attorney, Roberts, Isof &
Summers, P.C. (1997-1999)
Edward J. Walters, Jr. .......... 55 Attorney, Moore, Walters, 1994
Thompson, Hoover, Thomas,
Papillion & Cullens, A
Professional Corporation, Baton
Rouge, Louisiana (1976-Present)
2
CONTINUING DIRECTORS
The persons named below will continue to serve as directors of the Company
until the annual meeting of stockholders in the year indicated below and until
their successors are elected and take office. Stockholders are not voting on the
election of the Class I and Class III directors. The following table shows the
names, ages and principal occupations of each continuing director and the year
in which each was first elected to the Board of Directors.
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---- ---- -------------------- --------------
CLASS III -- TERM EXPIRING IN 2003
Bartholomew F. Palmisano, Sr. ........ 55 Chairman of the Board of 1994
the Company
(2001-Present); Chief
Executive Officer of the
Company (2000-Present);
President of the Company
(1999-Present); Co-Chief
Executive Officer of the
Company (1998-2000);
Chief Financial Officer,
Senior Vice President and
Secretary of the Company
(1994-1998)
Hector M. Bush, D.M.D................. 37 Orthodontist, Macon and 2001
Atlanta, Georgia
(1994-Present)
Jack P. Devereux, Jr., D.D.S., M.S.... 44 Orthodontist, Slidell, 2001
Louisiana (1985-Present)
CLASS I -- TERM EXPIRING IN 2004
Dennis J. L. Buchman, D.M.D., M.S..... 49 Senior Vice President of 2001
the Company
(2001-Present); Doctor
Liaison of the Company
(2000-2001);
Orthodontist,
Jacksonville, Florida
(1979-2000)
John J. Sheridan, D.D.S., M.S.D....... 70 Professor Emeritus of 2001
Orthodontics, Louisiana
State University (1996-
Present)
David W. Vignes....................... 42 Partner, Vignes & 2001
Macaluso, CPAs, Metairie,
Louisiana (1997-Present)
Except as indicated above, the nominees and continuing directors have had
the principal occupations indicated for more than five years.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" EACH OF THE CLASS II NOMINEES.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During 2001, the Board of Directors held four regularly scheduled meetings
and three special meetings. Each director attended at least 75% of the meetings
of the Board of Directors and committees on which such director served during
the period for which he was a director and/or served on the committee.
The Board of Directors has established the following standing committees:
The Executive Committee is authorized to act on behalf of the Board of
Directors on all matters concerning the management and conduct of the business
and affairs of the Company except those matters that cannot by law be delegated
by the Board of Directors. The Executive Committee is currently comprised of Mr.
Palmisano, Dr. Buchman, Dr. Bush and Dr. Devereux. The Executive Committee held
four meetings during 2001.
The Audit Committee selects and engages on behalf of the Company, subject
to the appointment by the Board of Directors and the ratification of the
appointment by the stockholders, and fixes the compensation of, a firm of
independent certified public accountants whose duty it is to audit the books and
accounts of the
3
Company and its subsidiaries for the fiscal year in which they are appointed,
and who also report to the Audit Committee. The Audit Committee confers with the
auditors and determines the scope of the auditing of the books and accounts of
the Company and its subsidiaries. The Audit Committee is currently comprised of
Messrs. Ryan, Walters and Vignes. The Audit Committee held four meetings during
2001.
The Compensation Committee establishes a general compensation policy for
the Company and has the responsibility for the approval of increases in
directors' fees and in salaries paid to the Company's executive officers and
senior employees. The Compensation Committee also possesses all of the powers of
administration under all of the Company's employee benefit plans, including any
stock option plans, bonus plans, retirement plans, stock purchase plans and
medical, dental and insurance plans. In connection therewith, the Compensation
Committee determines, subject to the provisions of the Company's plans, the
directors, officers and employees of the Company eligible to participate in any
of the plans, the extent of such participation and terms and conditions under
which benefits may be vested, received or exercised. The Compensation Committee
is currently comprised of Mr. Walters, Dr. Sheridan and Mr. Vignes. The
Compensation Committee held one meeting during 2001.
The Board of Directors currently has no standing nominating committee.
COMPENSATION OF DIRECTORS
Directors of the Company are paid compensation of $6,250 per quarter. All
directors receive reimbursement for necessary travel expenses incurred in
attending Board of Directors or committee meetings.
The Company's 1994 Non-Qualified Stock Option Plan for Non-Employee
Directors (the "Director Plan") provides that directors who are not employees of
the Company will automatically receive options to purchase 2,400 shares of
Common Stock on the first trading date of each year at an exercise price equal
to the market price of the Common Stock on the date of grant. The options became
exercisable as to 25% of the shares beginning 24 months after the date of grant,
and as to an additional 25% of the shares in each of the following three
12-month periods. The options terminate, unless earlier exercised, ten years
after the date of grant. In addition, the options terminate if not exercised
within 90 days after the director ceases to be a member of the Board of
Directors unless the director dies, becomes disabled, retires or is terminated
other than for cause. At March 22, 2002, options to purchase an aggregate of
52,735 shares of Common Stock were outstanding under the Director Plan, of which
21,600 were exercisable.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who own more than 10% of the Common Stock to file with the Securities
and Exchange Commission ("SEC") initial reports of ownership and reports of
changes in ownership of the Common Stock. These officers, directors and
stockholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) reports they file. There are specific dates by which these
reports are to be filed, and the Company is required to report in this Proxy
Statement any failure to file reports as required for 2001.
Based solely upon its review of the copies of reports furnished to the
Company and written representations from certain of the Company's directors and
executive officers that no other reports were required, the Company believes
that all Section 16(a) reporting and filing requirements relating to ownership
of the Common Stock were complied with for 2001.
4
PROPOSAL 2:
AMENDMENT AND RESTATEMENT OF THE COMPANY'S 1994 INCENTIVE STOCK PLAN
The Board of Directors has adopted an amendment and restatement of the
Company's 1994 Incentive Stock Plan (the "Plan"). As further described below,
the primary purposes of this amendment and restatement are to conform the Plan
to recent changes in federal securities and tax laws. The amendment does not
increase the number of shares authorized for issuance under the Plan. A summary
of the amendment and restatement follows. This summary is qualified in its
entirety by reference to the full text of the amended and restated Plan, which
is attached to this Proxy Statement as Appendix A.
A total of 3,400,000 shares of Common Stock had been reserved for issuance
under the Plan, of which approximately 2,950,000 shares were either subject to
outstanding awards under the Plan or had already been issued pursuant to the
Plan. The Plan permits awards of (i) incentive stock options ("ISOs") described
in Section 422 of the Internal Revenue Code (the "Code"), (ii) non-qualified
stock options which are not qualified under the Code ("NQSOs"), and (iii) shares
of Common Stock that are subject to restrictions on transfer and/or risk of
forfeiture. The Plan is administered by the Compensation Committee of the Board
of Directors (the "Compensation Committee") and was designed to comply with Rule
16b-3 under the Exchange Act.
DESCRIPTION OF AMENDMENTS TO THE PLAN
The material terms of the changes effected by the amendment and restatement
of the Plan are as follows:
Limit on Individual Awards. As amended, the Plan provides that no employee
of the Company or its subsidiaries may receive awards under the Plan with
respect to more than 500,000 shares of Common Stock during any calendar year.
The Plan contained no limits on individual awards prior to the amendment. This
modification relates to Section 162(m) of the Code, which limits the ability of
the Company to deduct compensation expenses on payments to certain executive
officers. This limit does not apply to stock options that qualify as
"performance-based compensation" under Section 162(m). The annual share limit is
included in the Plan so that compensation realized upon exercise of awards will
qualify as performance-based compensation.
Stockholder Approval Requirements. Under the Plan as amended, stockholder
approval is required for amendments that (i) increase the number of shares
available under the Plan, (ii) increase the number of shares subject to an award
that may be granted to any person during any one year, (iii) increase the period
during which ISOs may be granted or exercised, or (iv) change the class of
employees eligible to receive ISOs. Prior to the amendment, stockholder approval
was also required for amendments that could materially increase benefits
accruing under awards to officers of the Company. In many situations, the broad
definition of "material" would necessitate approval for amendments that are
purely administrative. The Board of Directors believes that the cost and time
required to obtain stockholder approval so frequently far outweighs any value
stockholders may derive from reviewing such amendments. The current restrictions
preserve stockholder rights to review amendments on matters that are considered
to be of most significance to stockholders. These changes are possible because
Rule 16b-3 has been revised to eliminate stockholder approval as a requirement.
The stockholder approval provisions in the amended Plan reflect the requirements
of the Code and the listing requirements of the New York Stock Exchange.
Ability to Transfer Awards. Prior to amendment of the Plan, a participant
could not transfer during his or her lifetime any award granted under the Plan.
The amended Plan permits the transfer of awards in limited circumstances. Under
the amended Plan, an NQSO and a share of restricted stock may be transferred if
the transfer is authorized in the applicable option or restricted stock
agreement or if it is approved by the Compensation Committee, and an ISO may be
transferred if the transfer is approved by the Compensation Committee and the
participant and the Compensation Committee intend that the ISO will not retain
its status as an incentive stock option. The ability to permit the transfer of
awards is possible due to recent amendments to Rule 16b-3. The Board of
Directors believes that this change will give participants in the Plan greater
5
flexibility in their financial, estate and tax planning, while allowing the
Company to maintain control over the ability to transfer awards.
Vesting Upon a Change in Control. In the amended Plan, awards become fully
vested and exercisable for the term of the award if the Company experiences a
"change in control," as defined in the Plan. Prior to the amendment of the Plan,
awards would become fully exercisable upon a change in control, but only for a
period of 30 days. This vesting feature is also modified in the amended Plan so
that awards will be only partially vested in situations in which an individual
would realize less net income under the award after payment of "golden
parachute" excise taxes under Section 4999 of the Code. Without this
modification, individuals who become liable for excise taxes under Section 4999
on the occurrence of a change in corporate control may realize less net
after-tax income and the Company would lose the ability to deduct these payments
from its income pursuant to Section 280G of the Code. This change is primarily a
matter of tax planning and is necessary to minimize the potentially negative tax
impact on both the Company and the individual in the event that the Company
undergoes a change in control. The amended Plan also amends the definition of a
"change in control" to include shareholder approval of dissolution of the
Company and a change in a majority of the incumbent Board members during a two
year period (other than due to death, disability or resignation), and to provide
that a change of control would occur upon a merger or similar transaction in
which the Company does not survive or becomes a subsidiary of another company,
or sells all or substantially all of its assets, rather than upon shareholder
approval of such a transaction, as previously provided in the Plan.
Termination of Plan. Prior to the amendment, the Plan could be terminated
by the Board of Directors, and would automatically terminate in 2004. The
amended Plan has no set termination date except that the 3,400,000 shares
originally available for awards under the Plan could not be used for purposes of
granting ISOs after 2004, the tenth anniversary of the original adoption of the
Plan. Otherwise, the Plan will continue until the Board of Directors terminates
it. This ten-year limitation is necessitated by Section 422 of the Code so that
options granted under the Plan can qualify as ISOs. However, this Code provision
does not require termination of the Plan. The prior practice of terminating an
option plan and establishing a new plan every ten years created significant
administrative complexities and did not protect any significant stockholder
interest. Therefore, the Company believes that this change is an important
enhancement to the administration of the Plan.
GENERAL DESCRIPTION OF THE AMENDED AND RESTATED PLAN
The purpose of the Plan is to provide a performance incentive to employees
and others who perform services that enhance the value of the Company. The
Compensation Committee is authorized to administer the Plan and to grant awards
to Company employees and to certain others who provide significant services to
the Company. The Plan provides for the award of ISOs, NQSOs and restricted
stock. ISOs may be granted only to employees of the Company and its
subsidiaries. As of December 31, 2001, the Company and its subsidiaries had
approximately 3,500 employees. The Plan will continue indefinitely until
terminated by the Board of Directors.
The Compensation Committee determines which individuals are to receive
awards under the Plan, the type of award to be granted (i.e., ISOs, NQSOs or
restricted stock) and the exercise prices and vesting dates of each Award. The
exercise price of ISOs may not be less than 100% of the fair market value of the
Common Stock on the date of grant. The aggregate fair market value of Common
Stock with regard to which ISOs are exercisable by an individual for the first
time during any calendar year may not exceed $100,000. ISOs must expire on the
earlier to occur of ten years from the date the ISOs were granted, or three
months after termination of employment (one year in the case of death or
disability). Additional limitations apply to ISOs granted to individuals who own
more than 10% of the total outstanding shares of Common Stock. These and other
terms are generally set forth in a written agreement between the Company and the
individual receiving the award.
The Company currently has options outstanding to purchase approximately
2,120,000 shares of Common Stock under the Plan. No restricted stock has been
awarded under the Plan. Based upon the closing sale price of the Common Stock
reported on the New York Stock Exchange on April 9, 2002, the aggregate market
6
value of the approximately 2,120,000 shares of Common Stock currently underlying
outstanding options granted pursuant to the Plan was approximately $60.9
million.
Once an option has become exercisable, the individual may purchase shares
of Common Stock from the Company by paying the exercise price in cash or in
other consideration, including shares of Common Stock, acceptable to the
Compensation Committee. Subject to limitations on "golden parachute" payments
described in Sections 280G and 4999 of the Code, awards become fully vested upon
the occurrence of a merger or certain other corporate events in which the
control of the Company is changed.
The amount of any award under the Plan is subject to the discretion of the
Compensation Committee and, therefore, cannot be determined in advance.
Similarly, the dollar value of such awards cannot be determined prior to their
grant. The table below provides information for 2001 regarding the dollar value
and the number of shares of Common Stock underlying awards granted under the
Plan during 2001:
1994 INCENTIVE STOCK PLAN BENEFITS
NUMBER OF
DOLLAR VALUE OF SHARES SHARES
UNDERLYING STOCK UNDERLYING STOCK
NAME AND POSITION OPTIONS(1)(2) OPTIONS(1)
----------------- ---------------------- ----------------
Bartholomew F. Palmisano, Sr., Chairman of the
Board, President and Chief Executive Officer.... $ 464,166 92,648
Bartholomew F. Palmisano, Jr., Chief Operating
Officer......................................... 93,647 18,692
John C. Glover, Chief Financial Officer........... 93,647 18,692
Michael C. Johnsen, Former Chief Operating
Officer......................................... -- --
Executive Officer Group (3 persons)............... 651,460 130,032
Non-Executive Director Group (8 persons).......... -- --
Non-Executive Officer Employee Group (71
persons)........................................ 87,536 54,986
---------------
(1) Based upon the number of shares of Common Stock subject to options granted
under the Plan during 2001 to the relevant person or group.
(2) Based upon the closing sale price of the Company's Common Stock of $28.74
per share as reported on the New York Stock Exchange on April 9, 2002, less
the exercise price of the options. The actual value of these options, if
any, will depend on the market price of the Common Stock on the date or
dates, if any, on which these options are exercised.
FEDERAL INCOME TAX CONSEQUENCES
Tax consequences to the Company and to individuals receiving awards under
the Plan will vary with the type of award. Generally, a participant will not
recognize income upon the grant of an ISO, an NQSO or restricted stock under the
Plan. An individual who exercises an ISO will not recognize income on its
exercise if he or she does not sell the Common Stock acquired thereby for at
least two years after the date of grant and one year after exercise. The
exercise of an ISO does, however, give rise to an adjustment under the
alternative minimum tax rules. Any gain or loss on the sale of the Common Stock
after these statutory holding periods would be subject to capital gains
treatment. The exercise price of the ISO is the basis for purposes of
determining capital gains. Reduced capital gains rates apply if the Common Stock
is held for at least five years after the date of exercise.
An individual who disposes of the Common Stock before these statutory
holding periods are satisfied will have engaged in a "disqualifying disposition"
and will recognize ordinary compensation income on the difference between the
exercise price of the ISO and the fair market value of the Common Stock at the
time the ISO was exercised. The individual's basis in the Common Stock after a
disqualifying disposition is its fair market value at the time of exercise. The
individual will also be subject to tax on capital gain, if any, upon the sale of
the Common Stock on the amount realized in excess of the basis.
7
Upon exercise of a NQSO, the individual recognizes ordinary income on the
difference between the fair market value of the Common Stock and the exercise
price paid. For restricted stock, an individual will recognize ordinary income
on the fair market value of the Common Stock at the time shares become vested,
unless the individual makes an election under Section 83(b) of the Code to be
taxed at the time of grant. The individual is also subject to capital gains
treatment on the subsequent sale of the Common Stock acquired through an NQSO or
restricted stock. For this purpose, the individual's basis in the Common Stock
is its fair market value at the time the NQSO is exercised or the restricted
stock becomes vested (or transferred, if an election under Section 83(b) is
made).
Generally, the Company is not entitled to a tax deduction upon the grant of
an option, the exercise of an ISO, or the granting of restricted stock under the
Plan. The Company is entitled to take a tax deduction upon the exercise of a
NQSO, the disqualifying disposition of an ISO, the vesting of restricted stock,
or upon the transfer of restricted stock if the individual makes an election
under Section 83(b). The deduction is generally for the amount of ordinary
income recognized by the individual.
REQUIRED VOTE
Approval of the amendment and restatement of the Plan requires the
affirmative vote of the holders of a majority of the shares present or
represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE AMENDMENT AND RESTATEMENT
OF THE COMPANY'S 1994 INCENTIVE STOCK PLAN.
PROPOSAL 3:
SELECTION OF AUDITORS
The Audit Committee of the Board of Directors has selected the accounting
firm of Ernst & Young LLP as independent auditors of the Company and its
subsidiaries for the year ending December 31, 2002, subject to the approval of
the stockholders. This firm has served as the independent auditors of the
Company since the Company's incorporation in 1994. Representatives of Ernst &
Young LLP are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they desire and will be available to respond
to appropriate questions.
The Company has been billed the following fees for services rendered by
Ernst & Young LLP for the year ended December 31, 2001:
Audit Fees.................................................. $200,000
Financial Information Systems Design and Implementation
Fees...................................................... --
All Other Fees (including fees related to registration
statements, SEC reports, the Company's change in revenue
recognition policy and the audit of the Company's
retirement plan).......................................... $449,281
The Audit Committee has considered whether the provision of non-audit
services to the Company by Ernst & Young LLP is compatible with maintaining
Ernst & Young LLP's independence.
The affirmative vote of the holders of a majority of the shares present or
represented and entitled to vote at the Annual Meeting is needed to ratify the
appointment of Ernst & Young LLP as auditors of the Company and its subsidiaries
for 2002. If the appointment is not approved, the matter will be referred to the
Audit Committee for further review.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to ownership of
shares of Common Stock at April 9, 2002 by each of the Company's directors and
Named Executive Officers (as defined below) and by all directors and executive
officers of the Company as a group. Unless otherwise indicated in a footnote to
the following table, each of the stockholders listed below has sole voting and
investment power with respect to the shares of Common Stock shown as
beneficially owned by them.
NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
---------------- --------------------- ---------------------
Bartholomew F. Palmisano, Sr.(2)................ 3,638,923 7.1%
Bartholomew F. Palmisano, Jr.(3)................ 757,550 1.4
John C. Glover.................................. 750 *
Dennis J. L. Buchman, D.M.D., M.S.(4)........... 207,376 *
Hector M. Bush, D.M.D.(5)....................... 2,331 *
Jack P. Devereux, Jr., D.D.S., M.S. ............ 15,859 *
Ashton J. Ryan, Jr.(6).......................... 7,400 *
John J. Sheridan, D.D.S., M.S.D.(7)............. 837 *
W. Dennis Summers(8)............................ 15,203 *
David W. Vignes(9).............................. 10,120 *
Edward J. Walters, Jr.(10)...................... 17,600 *
Michael C. Johnsen.............................. -- --
All Named Executive Officers and directors as a
group (12 persons)............................ 3,966,933 7.7
---------------
* Less than 1%.
(1) In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person which are currently exercisable or which will
become exercisable within 60 days following April 9, 2002, are deemed to be
outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person.
(2) Includes options currently exercisable to purchase 812,469 shares of Common
Stock. Of the shares deemed beneficially owned by Mr. Palmisano, an
aggregate of 707,016 shares are held in trusts, of which Bartholomew F.
Palmisano, Jr. is co-trustee, for the benefit of each of Mr. Palmisano's
children. These shares are also included in the number of shares
beneficially owned by Bartholomew F. Palmisano, Jr. Mr. Palmisano disclaims
beneficial ownership of such shares.
(3) Includes options currently exercisable to purchase 50,534 shares of Common
Stock. Of the shares deemed beneficially owned by Mr. Palmisano, an
aggregate of 707,016 shares are held by Mr. Palmisano as co-trustee of
trusts for the benefit of Mr. Palmisano and his siblings. These shares are
also included in the number of shares beneficially owned by Bartholomew F.
Palmisano, Sr. Mr. Palmisano disclaims beneficial ownership of such shares.
(4) Includes options currently exercisable to purchase 156,647 shares of Common
Stock.
(5) Includes options currently exercisable to purchase 2,331 shares of Common
Stock.
(6) Includes options currently exercisable to purchase 6,000 shares of Common
Stock.
(7) Includes options currently exercisable to purchase 837 shares of Common
Stock.
(8) Includes options currently exercisable to purchase 15,203 shares of Common
Stock.
(9) Of the shares deemed beneficially owned by Mr. Vignes, an aggregate of
3,520 shares are owned by a partnership in which Mr. Vignes owns a 20%
interest.
(10) Includes options currently exercisable to purchase 15,600 shares of Common
Stock. Of the shares deemed beneficially owned by Mr. Walters, 2,000 shares
are held in trusts of which Mr. Walters is the trustee. Mr. Walters
disclaims beneficial ownership of such shares.
9
The following table sets forth information with respect to ownership of
shares of Common Stock at April 9, 2002, by each person not listed in the table
above that is known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock. Unless otherwise indicated in a footnote
to the following table, each of the stockholders listed below has sole voting
and investment power with respect to the shares beneficially owned.
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
------------------------------------ --------------------- ---------------------
Merrill Lynch & Co., Inc. ...................... 2,511,400(2) 4.9%
(on behalf of Merrill Lynch Investment
Managers)
World Financial Center, North Tower,
250 Vesey Street
New York, NY 10381
T. Rowe Price Associates, Inc. ................. 3,033,700(3)(4) 5.9
100 East Pratt Street,
Baltimore, MD 21202
T. Rowe Price New Horizons Fund, Inc. .......... 2,500,000 4.9
100 East Pratt Street,
Baltimore, MD 21202
Thomas W. Smith................................. 3,120,820(5) 6.1
323 Railroad Avenue,
Greenwich, CT 06830
Thomas N. Tryfores.............................. 2,506,200(5) 4.9
323 Railroad Avenue
Greenwich, CT 06830
Wasatch Advisors, Inc. ......................... 5,630,821 10.9
150 Social Hall Avenue
Salt Lake City, UT 84111
---------------
(1) As disclosed in Schedule 13G or an amendment thereto filed with the SEC.
(2) Voting power is shared with respect to all of the 2,511,400 shares.
(3) T. Rowe Price Associates, Inc. ("T. Rowe Price Associates") has advised the
Company that the shares of Common Stock reflected in the table above are
owned by various individuals and institutional investors which T. Rowe Price
Associates serves as investment adviser with power to direct investments
and/or sole power to vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, as amended, T. Rowe
Price Associates has advised the Company that T. Rowe Price Associates is
deemed to be a beneficial owner of such securities; however, T. Rowe Price
Associates has expressly disclaimed that it is, in fact, the beneficial
owner of such securities.
(4) Includes 187,200 shares with respect to which T. Rowe Price Associates has
sole voting power.
(5) Thomas W. Smith and Thomas N. Tryfores share voting power and depositive
power with respect to 2,506,200 shares.
10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table reflects the compensation of Bartholomew F. Palmisano,
Sr., the Company's Chairman of the Board, President and Chief Executive Officer,
Bartholomew F. Palmisano, Jr. and John C. Glover, each of whom is an executive
officer of the Company whose total annual compensation during 2001 exceeded
$100,000, and Michael C. Johnsen, a former executive officer of the Company
whose total annual compensation during 2001 exceeded $100,000 (collectively, the
"Named Executive Officers"):
SUMMARY ANNUAL COMPENSATION
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- ---- -------- ------- ------------ ------------ ------------
Bartholomew F. Palmisano, Sr. ....... 2001 $210,573 -- $20,250 92,648 $14,000(1)
Chairman of the Board, 2000 150,000 -- -- -- 14,000(1)
President and Chief Executive 1999 150,000 -- -- 204,507 14,000(1)
Officer
Bartholomew F. Palmisano, Jr. ....... 2001 $176,746 -- -- 18,692 $ 600(2)
Chief Operating Officer 2000 116,000 -- -- -- 600(2)
1999 105,000 -- -- 15,000 600(2)
John C. Glover....................... 2001 $135,962 $45,000 -- 18,692 --
Chief Financial Officer 2000 109,231 40,000 -- 52,648 --
1999 88,270 25,000 -- 13,000 --
Michael C. Johnsen................... 2001 $366,920 -- $11,250 -- $ 600(2)
Former Chief Operating Officer 2000 275,000 -- -- 50,000 600(2)
1999 200,000 -- 15,000 -- 600(2)
---------------
(1) Represents fees received for serving on the Board of Directors and the
Executive Committee of the Board of Directors.
(2) Represents contributions by the Company under the Company's 401(k)
retirement plan.
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth certain information concerning stock options
exercised by, and granted to, the Named Executive Officers in 2001. The Company
granted no stock appreciation rights in 2001.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------
NAME GRANTED FISCAL YEAR(1) PER SHARE DATE 5% 10%
---- ---------- -------------- ----------- ---------- ------------- -------------
Bartholomew F. $1,382,648 $3,503,902
Palmisano, Sr....... 92,648 50% $23.73 2/14/11
Bartholomew F. 278,953 706,922
Palmisano, Jr....... 18,692 10% 23.73 2/14/11
John C. Glover........ 18,692 10% 23.73 2/14/11 278,953 706,922
Michael C. Johnsen.... -- -- -- -- -- --
---------------
(1) Based on the grant of options to purchase a total of 185,018 shares of
Common Stock.
(2) Represents hypothetical gains that could be achieved with respect to the
grants of options if the options were to be exercised at the end of the
option term, based upon assumed rates of appreciation in the
11
market price of Common Stock of 5% and 10%, compounded annually from the
date of grant to the expiration date. Actual gains, if any, could vary and
will depend upon the actual date or dates, if any, on which the options are
exercised and the actual rates of appreciation, if any, in the price of
Common Stock.
STOCK OPTIONS EXERCISED AND YEAR-END VALUES
The following table provides certain information, with respect to the Named
Executive Officers, concerning the exercise of options during 2001 and with
respect to unexercised options at December 31, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Bartholomew F.
Palmisano, Sr. .... -- -- 812,469 152,648 $13,746,635 $17,114,727
Bartholomew F.
Palmisano, Jr. .... -- -- 50,534 76,557 1,217,261 912,131
John C. Glover....... 7,000 $106,784 -- 71,541 -- 1,098,921
Michael C. Johnsen... -- -- 124,800 319,164 2,526,253 4,266,216
---------------
(1) Based on the closing price per share of the Common Stock of $30.50 on
December 31, 2001, as reported on the New York Stock Exchange, less the
exercise price of the options.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company entered into an employment agreement with Bartholomew F.
Palmisano, Sr. effective as of November 21, 1994. Such employment agreement
provides for a term of three years, which is automatically extended each year
for an additional year. Mr. Palmisano has agreed not to compete with the Company
during the term of his employment agreement and for a period of two years
thereafter. Under his employment agreement, Mr. Palmisano is to receive an
annual base salary of at least $150,000, subject to cost of living adjustments
and annual increases in the discretion of the Compensation Committee of the
Board of Directors, and is entitled to participate in the Company's stock option
plans and other benefit programs generally available to executive officers of
the Company. In addition, Mr. Palmisano is entitled to receive an annual bonus
in the discretion of the Compensation Committee.
If the Company terminates the employment of Mr. Palmisano without "cause,"
as defined in his employment agreement, Mr. Palmisano is to receive any accrued
salary, earned bonus and vested deferred compensation, and any stock options
granted to him by the Company would immediately vest. In addition, he is to
receive continued payment of his annual base salary for a period of three years
(reduced by the amount of any compensation he receives during that time through
other employment) and an amount equal to two times the average annual bonus paid
to him during the two years prior to such termination. Mr. Palmisano may elect
to receive a lump sum amount equal to the present value of such severance
payments, but not less than two times their respective annual base salary.
If Mr. Palmisano terminates his employment upon a "change of control" of
the Company, as defined in his employment agreement, Mr. Palmisano is to receive
any accrued salary, earned bonus and vested deferred compensation, and any stock
options granted to him by the Company would immediately vest. In addition, he is
to receive continued payment of his annual base salary for the remainder of the
term of his employment agreement (reduced by the amount of any compensation he
receives during that time through other employment) and an amount equal to two
times the average annual bonus paid to him during the two years prior to such
termination. Mr. Palmisano may elect to receive a lump sum amount equal to the
present value
12
of such severance payments, but not less than three times his annual base
salary. Severance payments to Mr. Palmisano upon a change of control may not,
however, exceed the maximum amount which the Company may deduct for federal
income tax purposes pursuant to Section 280G of the Internal Revenue Code.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors during
2001 were Edward J. Walters, Jr. and A. Gordon Tunstall. Mr. Tunstall resigned
from the Board of Directors in September 2001. There is no interlock with
respect to Mr. Walters.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The following report is submitted by the Compensation Committee of the
Board of Directors pursuant to rules established by the SEC and provides certain
information regarding compensation of the Company's executive officers. The
Compensation Committee is responsible for establishing and administering a
general compensation policy and program for the Company. The Compensation
Committee approves increases in directors' fees and salaries of the Company's
executive officers. The Compensation Committee also possesses all of the powers
of administration under all of the Company's employee benefit plans, including
any stock option plans, bonus plans, retirement plans, stock purchase plans and
medical, dental and insurance plans. In connection therewith, the Compensation
Committee determines, subject to the provisions of the Company's plans, the
directors, officers and employees of the Company eligible to participate in any
of the plans, the extent of such participation and terms and conditions under
which benefits may be vested, received or exercised.
COMPENSATION POLICIES
The Company's executive compensation policies are designed to complement
the Company's business objectives by motivating and retaining quality members of
senior management, by aligning management's interests with those of the
Company's stockholders and by linking total compensation to the performance of
the Company. The Company's executive compensation policies generally consist of
equity-based long-term incentives, short-term incentives and competitive base
salaries. The Compensation Committee will continue to monitor the performance of
the Company and its executive officers in reassessing executive compensation.
During 2001, the Company retained the services of an independent consultant
to assist the Company in developing a comprehensive executive compensation
policy and to provide recommendations to the Compensation Committee on
compensation of the Company's executive officers. The consultant conducted a
review of the Company's executive compensation and presented a report to the
Compensation Committee assessing the effectiveness of the Company's executive
compensation policies and providing a comparison of base salaries and long term
incentives paid to executive officers of 11 other publicly-traded companies in
the healthcare industry. The consultant generally recommended that the Company
adjust the base salaries of its executive officers to reflect competitive market
practices, tie annual incentive amounts to certain performance criteria and
establish long term incentives that align financial interests of the executives
with increases in value to the Company's stockholders.
BASE SALARY
The Compensation Committee reviews the base salaries of the Company's
executive officers on an annual basis. Base salaries are determined based upon a
subjective assessment of the nature and responsibilities of the position
involved, the performance of the particular officer and of the Company, the
officer's experience and tenure with the Company and base salaries paid to
persons in similar positions with companies comparable to the Company. The base
salary paid to Bartholomew F. Palmisano, Sr. is subject to the terms of his
employment agreement with the Company. Based on a subjective evaluation of his
respective performance and increased responsibilities and the Company's
performance, Bartholomew F. Palmisano, Sr.'s base salary was increased to
$230,000 per year during 2001 from $150,000 per year, Bartholomew F. Palmisano,
Jr.'s base
13
salary was increased to $200,000 per year during 2001 from $116,000 per year,
and John C. Glover's base salary was increased to $200,000 per year during 2001
from $110,000 per year.
ANNUAL BONUS
The Compensation Committee may also authorize annual cash bonuses to reward
executive officers for individual and Company achievements. The employment
agreement with Bartholomew F. Palmisano, Sr. provides for annual bonuses in the
discretion of the Compensation Committee. The Company granted a cash bonus of
$45,000 to John C. Glover for 2001. Bartholomew F. Palmisano, Sr., Bartholomew
F. Palmisano, Jr. and Michael C. Johnsen did not receive a bonus for 2001.
LONG-TERM INCENTIVES
The Company's long-term compensation strategy is focused on the grant of
stock options under the Company's 1994 Incentive Stock Plan, which the
Compensation Committee believes rewards executive officers for their efforts in
improving long-term performance of the Common Stock and creating value for the
Company's stockholders and aligns the financial interests of management with
those of the Company's stockholders.
During 2001, Bartholomew F. Palmisano, Sr., Bartholomew F. Palmisano, Jr.
and John C. Glover were granted options to purchase 92,648, 18,692 and 18,692
shares of Common Stock, respectively, under the 1994 Incentive Stock Plan.
SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction by a publicly-held company for compensation in excess of $1,000,000
paid to the company's chief executive officer and four other most highly
compensated executive officers. Qualifying performance-based compensation is not
subject to the deduction limit if certain requirements are met. The Compensation
Committee considers the deductibility of compensation under Section 162(m) when
structuring the compensation of the Company's executive officers.
CHIEF EXECUTIVE OFFICER COMPENSATION FOR FISCAL YEAR 2001
The compensation during 2001 of Bartholomew F. Palmisano, Sr., who served
as Chairman of the Board from June 2001 and as President and Chief Executive
Officer for all of 2001, was subject to the terms of his employment agreement
with the Company. Mr. Palmisano's base salary was increased to $230,000 per year
during 2001, which reflected an increase of $80,000 from his prior base salary
of $150,000 per year. During 2001, Mr. Palmisano was granted options to purchase
92,648 shares of Common Stock under the 1994 Incentive Stock Plan. During 2001,
Mr. Palmisano did not receive a cash bonus.
COMPENSATION COMMITTEE
Edward J. Walters, Jr., Chairman
John J. Sheridan, D.D.S., M.S.D.
David W. Vignes
14
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors of the Company consists of
three directors, each of whom is "independent" as defined by the listing
standards of the New York Stock Exchange.
The role and responsibilities of the Audit Committee are set forth in a
written Charter adopted by the Company's Board of Directors, which was attached
as Appendix A to the Company's Proxy Statement for its 2001 Annual Meeting of
Stockholders. In fulfilling its responsibilities, the Audit Committee:
- Reviewed and discussed with management the Company's audited financial
statements for the year ended December 31, 2001;
- Discussed with the Company's independent auditors, Ernst & Young LLP, the
matters required to be discussed under Statement on Auditing Standards
No. 61; and
- Received the written disclosures and the letter from Ernst & Young LLP
regarding Ernst & Young LLP's independence as required by Independence
Standards Board Standard No. 1, and discussed with Ernst & Young LLP
their independence.
Based on the Audit Committee's review of the Company's audited financial
statements for the year ended December 31, 2001 and its discussions with
management and Ernst & Young LLP as described above and in reliance thereon, the
Audit Committee recommended to the Company's Board of Directors that the
Company's audited financial statements for the year ended December 31, 2001 be
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Ashton J. Ryan, Jr., Chairman
David W. Vignes
Edward J. Walters, Jr.
15
COMPARATIVE PERFORMANCE GRAPH
The SEC requires the Company to include in this Proxy Statement a line
graph which compares the yearly percentage change in cumulative total
stockholder return on the Common Stock with (i) the performance of a broad
equity market indicator, and (ii) the performance of a published industry index
or peer group index. Set forth below is a line graph comparing the yearly
percentage change in the cumulative total stockholder return on the Common Stock
against the cumulative total return of (i) the S&P 500 Index, as the broad
equity market index, (ii) the Media General Financial Services Specialized
Health Services Index ("Specialized Health Services Index"), and (iii) a
self-determined peer group consisting of ten publicly traded healthcare services
companies selected by the Company for use in the line graph ("Peer Group
Index"). The line graph assumes the investment of $100 on December 31, 1996 and
the reinvestment of all dividends. As permitted by SEC regulations, the Company
established the Peer Group Index as a self-constructed peer group index,
originally consisting of a number of companies in the healthcare practice
management industry. However, over time, several of the companies originally
included in the Peer Group Index ceased to be publicly traded and/or effectively
ceased to conduct operations. Accordingly, the Company is discontinuing the use
of the Peer Group Index in future years, and expects to rely on the Specialized
Health Services Index for comparison for the foreseeable future.
The Peer Group Index includes Castle Dental Centers, Inc., Coast Dental
Services, Inc., Innovative Clinical Solutions, Ltd., PhyAmerica Physician Group,
Inc., Health Grades, Inc., Integra, Inc., Monarch Dental Corp., Pediatrix
Medical Group, Inc., PhyCor, Inc., and US Oncology, Inc. ProMedCo Management
Company was included in the Peer Group Index last year, but has been omitted
from the Peer Group Index this year because it is in bankruptcy proceedings and
no longer publicly traded. OrthAlliance, Inc. was included in the Peer Group
Index last year, but it has been omitted from the Peer Group Index this year
because it became a wholly-owned subsidiary of the Company in November 2001 and
is no longer publicly traded.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
[PERFORMANCE GRAPH]
--------------------------------------------------------------------------------
12/1996 12/1997 12/1998 12/1999 12/2000 12/2001
--------------------------------------------------------------------------------
Orthodontic Centers
of America, Inc. 100.00 103.91 121.48 74.61 195.31 190.63
Peer Group Index 100.00 109.81 72.42 17.22 23.53 30.82
S&P 500 Index 100.00 133.36 171.47 207.56 188.66 166.24
Specialized Health
Services 100.00 124.52 86.37 47.34 93.54 100.91
16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's 1997 Key Employee Stock Purchase Plan (the
"Key Employee Plan"), the Company financed the purchase price for each employee
who purchased shares of Common Stock pursuant to the Key Employee Plan. Among
those employees participating in the Key Employee Plan was Bartholomew F.
Palmisano, Jr., the Chief Operating Officer of the Company. The loan to Mr.
Palmisano is evidenced by a promissory note, is a full recourse obligation of
Mr. Palmisano secured by all of the shares of Common Stock that he acquired in
connection with the loan, and bears interest at 6.01% per annum. Mr. Palmisano
purchased 15,211 shares of Common Stock under the Key Employee Plan for a total
purchase price of $269,996. The outstanding principal and accrued interest under
this loan is payable, in one lump-sum payment, on the earlier of November 3,
2002 or termination of Mr. Palmisano's employment with the Company. If Mr.
Palmisano sells or transfers any of the shares of Common Stock purchased under
the Key Employee Plan prior to that date, a proportionate amount of the loans
and accrued interest will become due and payable. If Mr. Palmisano holds the
shares of Common Stock purchased under the Key Employee Plan for three to five
years, he will be entitled to 100% of any gains from a sale of the shares, and
the Company will reduce the balance amount of its loan to Mr. Palmisano by 50%
of the losses from such a sale or transfer. At December 31, 2001, the principal
amount and accrued interest outstanding under such loan to Mr. Palmisano totaled
$337,437.
In October 1999, Bartholomew F. Palmisano, Sr., Chairman of the Board,
President and Chief Executive Officer of the Company, assumed 50% of the
indebtedness owed to the Company by a former employee under the Key Employee
Plan, in exchange for the transfer of 50% of the shares of Common Stock that had
been acquired by the former employee under the Key Employee Plan. This
indebtedness bears interest at 6.01% per annum. The outstanding principal amount
of the indebtedness owed by Mr. Palmisano with respect to the Key Employee Plan
and accrued interest thereon totaled $624,893 at December 31, 2001, and has now
been paid in full.
Dr. Jack P. Devereux, Jr., a director of the Company, and his wholly-owned
professional corporation are parties to a service agreement, dated as of October
1, 1996, with Orthodontic Centers of Louisiana, Inc., a subsidiary of the
Company, pursuant to which the Company's subsidiary provides Dr. Devereux and
his professional corporation with a comprehensive range of business services in
exchange for a monthly service fee. The term of the service agreement expires on
October 1, 2036. The Company's subsidiary was paid a total of approximately
$452,000 in service fees in 2001 under this service agreement.
Dr. Hector M. Bush, a director of the Company, and his wholly-owned
professional corporation are parties to a service agreement, dated as of
September 1, 1994, with Orthodontic Centers of Georgia, Inc., a subsidiary of
the Company, pursuant to which the Company's subsidiary provides Dr. Bush and
his professional corporation with a comprehensive range of business services in
exchange for a monthly service fee. The term of the service agreement expires on
September 1, 2014. The Company's subsidiary was paid a total of approximately
$677,000 in service fees in 2001 under this service agreement.
McGuireWoods LLP, a law firm of which W. Dennis Summers, a director of the
Company, is a partner, provided certain legal services to OrthAlliance during
2001. The firm may provide additional legal services to the Company in the
future.
Dr. John J. Sheridan, a director of the Company, provided certain
consulting services to the Company during 2001, for which the Company paid
approximately $75,000, and may provide additional consulting services to the
Company in the future.
John C. Glover, the Chief Financial Officer of the Company, borrowed
$160,000 on a short-term and interest-free basis from the Company in September
2001, in connection with his relocation from the Company's former executive
offices in Ponte Vedra Beach, Florida, to the Company's executive offices in
Metairie, Louisiana. At December 31, 2001, the total amount of this indebtedness
remained outstanding.
17
GENERAL INFORMATION
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Stockholder proposals intended to be presented at the 2003 annual meeting
of stockholders must be received by the Company at its executive offices at 3850
N. Causeway Boulevard, Suite 800, Metairie, Louisiana 70002 not later than
December 16, 2002 in order to be included in the Company's proxy statement and
proxy for the 2003 annual meeting.
DISCRETIONARY AUTHORITY
As to any proposal(s) that a stockholder intends to present for
consideration by stockholders at the Company's 2003 annual meeting of
stockholders other than by including the proposal(s) in the Company's proxy
statement, the individuals named as proxies on the proxy card for the 2003
annual meeting may exercise their discretionary authority in voting such proxies
unless the Company receives notice of the matter(s) to be proposed not later
than March 1, 2003. Even if proper notice is received on or prior to March 1,
2003, the individuals named as proxies on the proxy card for that meeting may
nevertheless exercise their discretionary authority in voting such proxies with
respect to such matter(s) by advising stockholders of the proposal(s) and how
the proxies intend to exercise their discretion to vote on these matter(s),
unless the stockholder making the proposal(s) solicits proxies with respect to
the proposal(s) to the extent required by Rule 14a-4(c)(2) under the Securities
Exchange Act of 1934, as amended.
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at the
Annual Meeting other than that described in the accompanying Notice of Annual
Meeting of Stockholders. If other matters do properly come before the Annual
Meeting, it is intended that the persons named on the enclosed proxy card will
vote on such matters in accordance with the recommendation of the Board of
Directors.
COUNTING OF VOTES
All matters specified in this Proxy Statement that are to be voted on at
the Annual Meeting will be by written ballot. Inspectors of election will be
appointed to, among other things, determine the number of shares outstanding,
the shares represented at the annual meeting, the existence of a quorum and the
authenticity, validity and effect of proxies, to receive votes of ballots, to
hear and determine all challenges and questions in any way arising in connection
with the right to vote, to count and tabulate all votes and to determine the
result. Each item presented herein to be voted on at the Annual Meeting must be
approved by the affirmative vote of the holders of the number of shares
described under each such item. The inspectors of election will treat shares
represented by proxies that reflect abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
Abstentions, however, do not constitute a vote "for" or "against" any matter and
thus will be disregarded in the calculation of a plurality or of "votes cast."
Inspectors of election will treat shares referred to as "broker non-votes"
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum. However, for purposes of determining the outcome of any
matter as to which the broker has physically indicated on the proxy that it does
not have discretionary authority to vote, those shares will be treated as not
present and not entitled to vote with respect to that matter (even though those
shares are considered entitled to vote for quorum purposes and may be entitled
to vote on other matters).
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MISCELLANEOUS
The Company will bear the cost of printing, mailing and other expenses in
connection with this solicitation of proxies and will also reimburse brokers and
other persons holding shares in their names or in the names of nominees for
their expenses in forwarding this proxy material to the beneficial owners of
such shares. Certain of the directors, officers and employees of the Company
may, without any additional compensation, solicit proxies in person or by
telephone.
A copy of the Company's 2001 Annual Report to Stockholders has been mailed
to all stockholders entitled to notice of and to vote at the Annual Meeting.
April 15, 2002
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APPENDIX A
ORTHODONTIC CENTERS OF AMERICA, INC.
1994 INCENTIVE STOCK PLAN
AMENDED AND RESTATED
EFFECTIVE APRIL 10, 2002
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ORTHODONTIC CENTERS OF AMERICA, INC.
1994 INCENTIVE STOCK PLAN
PREAMBLE
WHEREAS, on October 10, 1994, Orthodontic Centers of America, Inc. (the
"Company") established the Orthodontic Centers of America, Inc. 1994 Incentive
Stock Plan (the "Plan") through which the Company may award options to purchase
shares of the Common Stock of the Company, and restricted shares of Common
Stock, to directors, officers, employees and consultants of the Company and its
affiliates;
WHEREAS, the Company intends that the Plan provide for the granting of
options that qualify as "incentive stock options" within the meaning of section
422 of the Code, as well as options that are not so qualified;
WHEREAS, the Company intends that the Plan provide for the grant of Stock
that is subject to certain restrictions on transfer and/or a risk of forfeiture;
WHEREAS, the Company intends that this Plan and Awards granted hereunder
(i) qualify as "performance-based compensation" described in section
162(m)(4)(C) of the Code, and (ii) conform to the requirements for exemption set
forth under Securities and Exchange Commission Rule 16b-3; and
WHEREAS, the Company wishes to amend and restate the Plan to, among other
things, (i) limit Awards for Participants during any one year period, (ii) limit
the types of Plan amendments that require shareholder approval, (iii) limit
vesting upon a Change in Control in situations where such vesting would result
in an excise tax under section 4999 of the Code, and (iv) eliminate the
automatic termination of the Plan after the passage of a certain amount of time.
NOW, THEREFORE, the Company hereby amends and restates in its entirety the
Orthodontic Centers of America, Inc. 1994 Incentive Stock Plan effective on the
date described in Section 10.8 herein.
ARTICLE I.
DEFINITIONS
The following terms shall have the following meanings ascribed thereto for
purposes of the Plan:
1.1 Affiliate. A corporate parent, corporate subsidiary, limited
liability company, partnership or other business entity that is wholly-owned or
controlled by the Company.
1.2 Agreement. A written agreement (including any amendment or supplement
thereto) between the Company or Affiliate and a Participant specifying the terms
and conditions of an Award granted to such Participant.
1.3 Award. A right that is granted under the Plan to a Participant by the
Company, which may be in the form of Options or Restricted Stock.
1.4 Board. The Board of Directors of the Company.
1.5 Code. The U.S. Internal Revenue Code of 1986, as amended.
1.6 Committee. The Board or any committee of Board members that is
designated by the Board to serve as the administrator of the Plan. The Committee
shall be composed of at least two individuals (or such number that satisfies
section 162(m)(4)(C) of the Code and Rule 16b-3 of the Exchange Act) who are
members of the Board and are not employees of the Company or an Affiliate, and
who are designated by the Board as the "compensation committee" or are otherwise
designated to administer the Plan. In the absence of a designation of a
Committee by the Board, the Board shall be the Committee.
1.7 Company. Orthodontic Centers of America, Inc. and its successors.
1.8 Date of Exercise. The date that the Company accepts tender of the
exercise price of an Option.
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1.9 Exchange Act. The Securities Exchange Act of 1934, as amended.
1.10 Fair Market Value. On any given date, Fair Market Value shall be the
applicable description below:
(a) If the Stock is traded on a trading exchange (e.g., the New York
Stock Exchange) or is reported on the Nasdaq National Market System or
another Nasdaq automated quotation system, or the OTC Bulletin Board
System, Fair Market Value shall be determined by reference to the price of
the Stock on such exchange or system with respect to the date for which
Fair Market Value is being determined, unless the Committee determines in
good faith the fair market value to be otherwise.
(b) If the Stock is not traded on a recognized exchange or automated
trading system, Fair Market Value shall be the value determined in good
faith by the Committee or the Board.
1.11 Incentive Option. An Option that qualifies and is treated as an
"incentive stock option" under section 422 of the Code. An Incentive Option, or
a portion thereof, shall not be invalid for failure to qualify under section 422
of the Code, but shall be treated as a Nonqualified Option.
1.12 Nonqualified Option. An Option that is not an Incentive Option.
1.13 Option. The right that is granted hereunder to a Participant to
purchase from the Company a stated number of shares of Stock at the price set
forth in an Agreement. As used herein, an Option includes both Incentive Options
and Nonqualified Options.
1.14 Participant. A director, officer, employee, consultant or advisor of
the Company or of an Affiliate who satisfies the requirements of Article IV and
is selected by the Committee to receive an Award.
1.15 Plan. The Orthodontic Centers of America, Inc. 1994 Incentive Stock
Plan, as amended and restated.
1.16 Restricted Stock. A grant of Stock that is subject to restrictions
on transfer and/or a risk of forfeiture by and to the Participant, as described
in Section 4.4. Restricted Stock is awarded to a Participant shall cease to be
Restricted Stock at the time that such restrictions and risks of forfeiture
lapse in accordance with the terms of the Agreement or Plan.
1.17 Stock. The Common Stock of the Company.
1.18 Ten Percent Shareholder. An individual who owns more than 10% of the
total combined voting power of all classes of stock of the Company or an
Affiliate at the time he is granted an Incentive Option. For the purpose of
determining if an individual is a Ten Percent Shareholder, he shall be deemed to
own any voting stock owned (directly or indirectly) by or for his brothers and
sisters (whether by whole or half blood), spouse, ancestors or lineal
descendants and shall be considered to own proportionately any voting stock
owned (directly or indirectly) by or for a corporation, partnership, estate or
trust of which such individual is a shareholder, partner or beneficiary.
ARTICLE II.
PURPOSE
The purpose of this Plan is to encourage ownership of Stock of the Company
by directors, officers, employees, consultants and advisors of the Company and
any current or future Affiliate. This Plan is intended to provide an incentive
and bonus for maximum effort in the successful operation of the Company and is
expected to benefit the shareholders by associating the interests of the
Company's employees with those of its shareholders and by enabling the Company
to attract and retain personnel of the best available talent through the
opportunity to share, by the proprietary interests created by this Plan, in the
increased value of the Company's Stock to which such personnel have contributed.
The benefits of this Plan are not a substitute for compensation otherwise
payable to Company employees pursuant to the terms of their employment. Proceeds
from the purchase of Stock pursuant to this Plan shall be used for the general
business purposes of the Company.
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ARTICLE III.
ADMINISTRATION
3.1 Administration of Plan. The Plan shall be administered by the
Committee. The express grant in the Plan of any specific power to the Committee
shall not be construed as limiting any power or authority of the Committee. Any
decision made or action taken by the Committee to administer the Plan shall be
final and conclusive. No member of the Committee shall be liable for any act
done in good faith with respect to this Plan or any Agreement or Award. The
Company shall bear all expenses of Plan administration. In addition to all other
authority vested with the Committee under the Plan, the Committee shall have
complete authority to:
(a) Interpret all provisions of this Plan;
(b) Prescribe the form of any Agreement and notice and manner for
executing or giving the same;
(c) Make amendments to all Agreements;
(d) Adopt, amend and rescind rules for Plan administration; and
(e) Make all determinations it deems advisable for the administration
of this Plan.
3.2 Authority to Grant Awards. The Committee shall have authority to
grant Awards upon such terms the Committee deems appropriate and that are not
inconsistent with the provisions of this Plan. Such terms may include conditions
on the exercise of all or any part of an Option.
3.3 Persons Subject to Section 16(b). Notwithstanding anything in the
Plan to the contrary, the Committee, in its absolute discretion, may bifurcate
the Plan so as to restrict, limit or condition the use of any provision of the
Plan to participants who are officers and directors subject to section 16(b) of
the Exchange Act, without so restricting, limiting or conditioning the Plan with
respect to other Participants.
ARTICLE IV.
AWARD ELIGIBILITY AND LIMITATIONS
4.1 Participation. The Committee may from time to time designate
directors, officers, employees, consultants and advisors to whom Awards are to
be granted and who are eligible to become Participants. All Awards granted under
this Plan shall be evidenced by Agreements that shall be subject to applicable
provisions of this Plan or such other provisions as the Committee may adopt that
are not inconsistent with the Plan.
4.2 Grant of Awards. An Award shall be deemed to be granted to a
Participant at the time that the Committee designates in a writing that is
adopted by the Committee as the grant of an Award, and that makes reference to
the name or identity of the Participant and the number of shares of Stock that
are subject to the Award, the term of the Award and the exercise price thereof
(if any). Accordingly, an Award may be deemed to be granted prior to the time
that an Agreement is executed by the Participant and the Company. The Agreement
shall incorporate the terms specified in the grant by the Committee.
4.3 Limitations on Incentive Options.
(a) To receive Incentive Options, an individual must be (i) an
employee of the Company, (ii) an employee of an Affiliate that is a "parent
corporation" of the Company, as defined in section 424(e) of the Code, or
"subsidiary corporation" of the Company, as defined in section 424(f) of
the Code, or (iii) deemed to be an employee of an entity described in
clause (i) or (ii) because such individual's employer is an Affiliate that
is disregarded pursuant to Treasury Regulation sec.301.7701-2(a).
(b) To the extent that the aggregate Fair Market Value of Stock with
respect to which Incentive Options are exercisable for the first time by a
Participant during any calendar year (under all stock incentive plans of
the Company and its Affiliates) exceeds $100,000 (or the amount specified
in section 422 of the Code), determined as of the date an Incentive Option
is granted, such Options shall
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(without further action) be treated as Nonqualified Options. This provision
shall be applied by taking Incentive Options into account in the order in
which they were granted.
(c) Awards of Incentive Options are subject to further limitations on
the price for exercise, described in Section 6.1, and the maximum period
for exercise, described in Section 6.3. Incentive Options are not
transferable, except as described in Section 6.4.
4.4 Restricted Stock. An award of Restricted Stock to a Participant is a
grant of Stock that is subject to forfeiture and/or restrictions on transfer
that are identified in an Agreement or a shareholders agreement described in
Section 9.3 that is executed by such Participant as a condition to such grant.
The Committee may grant Restricted Stock to a Participant as part of a "deposit
share," "performance award" or any other arrangement established by the
Committee and specified in an Agreement. A Participant who receives Restricted
Stock shall be treated as a shareholder of the Company for all purposes, except
that the rights of the Participant may be limited under the terms of the
Agreement. Unless otherwise specified in an Agreement, Participants shall be
entitled to receive dividends on and exercise voting rights with respect to
shares of Restricted Stock.
4.5 Overall Limitation on Awards. No person may receive an Award with
respect to more than 500,000 shares of Stock (subject to increase and
adjustments as provided in Article VIII) in any one calendar year period.
ARTICLE V.
STOCK SUBJECT TO PLAN
5.1 Source of Shares. Upon the exercise of an Option or the grant of
Restricted Stock, the Company shall deliver to the Participant authorized but
previously unissued Stock or Stock that is held by the Company as treasury stock
or acquired by the Company.
5.2 Maximum Number of Shares. The maximum aggregate number of shares of
Stock that may be issued pursuant to the Plan is 3,400,000, subject to increases
and adjustments as provided in Article VIII. However, no more than 500,000 of
those shares may be used for purposes of issuing Restricted Stock or made
subject to Options with an exercise price lower than Fair Market Value on the
Date of Grant.
5.3 Forfeitures. If any Option granted hereunder expires or terminates
for any reason without having been exercised in full, or Restricted Stock is
forfeited, the shares of Stock subject thereto shall again be available for
issuance of an Award under this Plan.
ARTICLE VI.
OPTION EXERCISE AND SHAREHOLDER RIGHTS
6.1 Exercise Price. The exercise price of an Incentive Option shall not
be less than 100% of the Fair Market Value of a share of Stock on the date the
Incentive Option is granted. In the case of a Ten Percent Shareholder, however,
the exercise price of an Incentive Option shall not be less than 110% of the
Fair Market Value of a share of Stock on the date the Incentive Option is
granted. The exercise price of a Nonqualified Option shall be the price
determined by the Committee at the time that such Award is granted.
6.2 Right to Exercise. An Option shall be exercisable on the date of
grant or on any other date established by the Committee or provided for in an
Agreement; provided, however, that Options granted to officers or directors
subject to section 16 of the Exchange Act shall not be exercisable or
transferable, and restrictions on Restricted Stock shall not lapse, until at
least six months after the Award is granted.
6.3 Maximum Exercise Period. The maximum period in which an Option may be
exercised shall be 10 years (five years in the case of Incentive Options granted
to a Ten Percent Shareholder) from the date such Option was granted; provided,
however, that, the Committee may specify a shorter or longer period with respect
to a Nonqualified Option and may specify a shorter period with respect to an
Incentive Option. A
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Participant must exercise an Incentive Option while he is an employee of the
Company or an Affiliate, or within three months after termination of employment
with the Company and its Affiliates (one year in the case of termination due to
disability or death).
6.4 Transferability. Any Award granted under this Plan shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the Participant only by the
Participant; provided, however, that a Nonqualified Option or Restricted Stock
grant may be transferable to the extent provided in the Agreement or approved by
the Committee, in its sole discretion, and an Incentive Option may be
transferred to the extent approved by the Committee, in its sole discretion, if
the Committee and the applicable Participant intend that such Incentive Option
shall not retain its status as an Incentive Option. No right or interest of a
Participant in any Award shall be liable for, or subject to, any lien,
obligation or liability of such Participant.
6.5 Shareholder Rights. No Participant shall have any rights as a
shareholder with respect to shares subject to Options prior to the Date of
Exercise of such Option; and, if requested, has given the representation
described in Section 9.2 and/or executed a shareholders agreement described in
Section 9.3. A Participant's rights as a shareholder with respect to Restricted
Stock shall be determined as provided in Section 4.4.
6.6 Employee Status. The Committee shall determine the extent to which a
leave of absence for military or government service, illness, temporary
disability, or other reasons shall be treated as a termination or interruption
of employment for purposes of determining questions of forfeiture and exercise
of an Award after termination of employment. With respect to an Incentive
Option, such period of unemployment that is longer than three months following
termination may be treated as employment if consistent with section 422 of the
Code pursuant to a federal statute, Treasury Regulation, or a published ruling
of the Internal Revenue Service that has general application.
ARTICLE VII.
METHOD OF EXERCISE
7.1 Exercise. Subject to the provisions of Articles VI and IX, an Option
may be exercised in whole or in part at such times and in compliance with such
requirements as the Committee shall determine. Unless it is clear from the
context, a Participant must specify the particular Option and the portion of an
Option that he wishes to exercise in a written notice of exercise. An Option
granted hereunder shall be deemed to have been exercised on the Date of
Exercise.
7.2 Payment. Except as otherwise provided by the Agreement, payment of
the Option price shall be made in cash (including an exercise involving the
pledge of shares and a loan through a broker described in Securities and
Exchange Commission Regulation T), actual or constructive delivery of Stock that
was acquired at least six months prior to the exercise of the Option, other
consideration acceptable to the Committee, or a combination thereof; provided,
however, that a form of payment other than cash is only acceptable to the extent
that the same is expressly approved by the Committee. Payment of the exercise
price shall include amounts required for tax withholdings, as described in
Section 7.3, in cash, unless the Committee consents to alternate arrangements
for withholdings.
7.3 Withholding Tax Requirements. For a Participant who is an employee of
the Company or an Affiliate, upon the exercise of a Nonqualified Option or the
lapse of restrictions on Restricted Stock, the Participant shall, upon
notification of the amount due, pay to the Company amounts necessary to satisfy
applicable federal, state and local withholding tax requirements or shall
otherwise make arrangements satisfactory to the Company for such requirements.
Such withholding requirements shall not apply to the exercise of an Incentive
Option, or to a disqualifying disposition of Stock that is acquired with an
Incentive Option, unless the Company or the Committee gives the Participant
notice that withholding described in this Section is required.
7.4 Issuance and Delivery of Shares. Shares of stock issued pursuant to
the exercise of Options hereunder shall be delivered to Participants by the
Company (or its transfer agent) as soon as administratively
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feasible after a Participant exercises an Option hereunder, or is granted
Restricted Stock, and executes any applicable shareholders agreement described
in Section 9.3 or any agreement described in Section 9.2 that the Company
requires at the time of exercise.
ARTICLE VIII.
ADJUSTMENT UPON CORPORATE CHANGES
8.1 Adjustments to Shares. The number and kind of shares of Stock with
respect to which Awards hereunder may be granted (both overall and individual
limitations) and which are the subject of outstanding Awards, and the maximum
number and exercise price thereof, shall be adjusted as the Committee determines
(in its sole discretion) to be appropriate, in the event that:
(a) the Company or an Affiliate effects one or more Stock dividends,
Stock splits, reverse Stock splits, subdivisions, consolidations or other
similar events;
(b) the Company or an Affiliate engages in a transaction to which
section 424 of the Code applies; or
(c) there occurs any other event that in the judgment of the Committee
necessitates such action;
provided, however, that if an event described in paragraph (a) or (b) occurs,
the Committee shall make adjustments to the limits on Awards specified in
Sections 4.5 and 5.2 that are proportionate to the modifications of the Stock
that are on account of such corporate changes. If any capital reorganization or
reclassification of the capital stock of the Company or any consolidation or
merger of the Company with another person, or the sale of all or substantially
all the Company's assets to another person, shall be effected such that holders
of Stock shall be entitled to receive stock, securities or other property
(including, without limitation, cash) with respect to or in exchange for Stock,
then each holder of an Option shall thereafter have the right to purchase, upon
the exercise of the Option in accordance with the terms and conditions specified
herein and in the Agreement governing such Option and in lieu of the shares of
Stock immediately theretofore receivable upon the exercise of such Option, such
shares of stock, securities or other property (including, without limitation,
cash) as would be issuable or payable in such reorganization, reclassification,
consolidation, merger or sale with respect to or in exchange for a number of
outstanding shares of Stock equal to the number of shares of Stock that would
have been immediately theretofore so receivable with respect to such Option had
such reorganization, reclassification, consolidation, merger or sale not taken
place, subject to such adjustments as the Committee, in its sole discretion,
shall determine to be appropriate.
8.2 Substitution of Awards on Merger or Acquisition. The Committee may
grant Awards in substitution for stock awards, stock options, stock appreciation
rights or similar awards held by an individual who becomes an employee of the
Company or an Affiliate in connection with a transaction to which section 424(a)
of the Code applies. The terms of such substituted Options shall be determined
by the Committee in its sole discretion, subject only to the limitations of
Article V.
8.3 Effect of Certain Transactions. The provisions of this Section shall
apply to the extent that an Agreement does not otherwise expressly address the
matters contained herein. If the Company experiences an event which results in a
"Change in Control," as defined in Section 8.3(a), then, whether or not the
vesting requirements set forth in any Agreement have been satisfied, (i) all
shares of Restricted Stock that are outstanding at the time of such Change in
Control shall become fully vested and all restrictions shall lapse upon the
Change in Control, and (ii) all Options that are outstanding at the time of such
Change in Control shall become fully vested and exercisable immediately prior to
the Change in Control.
(a) For purposes hereof, a "Change in Control" shall be deemed to have
occurred upon the occurrence of any of the following events:
(i) Any merger, acquisition, consolidation, reorganization,
liquidation or similar transaction in which the Company is not the
survivor of the transaction, survives only as a subsidiary or is
otherwise under the control of an acquiring person or entity;
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(ii) An acquisition (other than directly from the Company) of
beneficial ownership, within the meaning of Rule 13d-3 promulgated under
the Exchange Act ("Beneficial Ownership"), of voting securities of the
Company (the "Voting Securities") by any person, individual, entity or
group, within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act (each, a "Person"), immediately following which such Person
has Beneficial Ownership of 50% or more of the combined voting power of
the then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, the acquisition of
Beneficial Ownership of Voting Securities in a Non-Control Acquisition
(as hereinafter defined) shall not constitute an acquisition which would
cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a trust forming a part
thereof) maintained by (A) the Company or (B) any corporation or other
Person of which a majority of the voting power or the equity securities
or equity interests is owned directly or indirectly by the Company (a
"Control Subsidiary"), or (ii) the Company or any Control Subsidiary;
(iii) At any time during a period of two consecutive years or less,
individuals who, at the beginning of such period, constitute the members
of the Board, and any new directors of the Company whose election to
such positions by the Board or whose nomination for election by the
stockholders of the Company to such positions was approved by a vote of
at least two-thirds of the directors then still in office who either
were directors of the Company at the beginning of such period or whose
election or nomination for election to such positions was previously so
approved, cease for any reason (other than death, disability or
voluntary resignation) to constitute a majority of the Board;
(iv) the sale or disposition of all or substantially all of the
assets of the Company and its subsidiaries; or
(v) the approval by the stockholders of the Company of a
dissolution of the Company.
(b) Notwithstanding the foregoing, a portion of the acceleration of
vesting described in this Section shall not occur with respect to an Award
to the extent such acceleration of vesting would cause the Participant or
holder of such Award to realize less income, net of taxes, after deducting
the amount of excise taxes that would be imposed pursuant to section 4999
of the Code, than if accelerated vesting of that portion of the Award did
not occur. This limitation shall not apply (i) to the extent that the
Company, an Affiliate or the acquirer are obligated to indemnify the
Participant or holder for such excise tax liability under an enforceable
"golden parachute" indemnification agreement, or (ii) the shareholder
approval described in Q&A-7 of Prop. Treas. Reg. sec. 1.280G-1 issued under
section 280G of the Code is obtained to permit the acceleration of vesting
described in this Section (applied as if the shareholder approval date was
the date of the Change in Control).
(c) Notwithstanding anything to the contrary contained herein, a
change in ownership that occurs as a result of a public offering of the
Company's equity securities that is approved by the Board shall not alone
constitute a Change in Control.
8.4 No Adjustment upon Certain Transactions. The issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, for cash or property, or for labor or services rendered, either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, outstanding Awards.
8.5 Fractional Shares. Only whole shares of Stock may be acquired through
the exercise of an Option. Any amounts tendered in the exercise of an Option
remaining after the maximum number of whole shares have been purchased will be
returned to the Participant.
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ARTICLE IX.
LEGAL COMPLIANCE CONDITIONS
9.1 General. No Award shall be exercisable, no Stock or Restricted Stock
shall be issued, no certificates for shares of Stock shall be delivered, and no
payment shall be made under this Plan except in compliance with all federal or
state laws and regulations (including, without limitation, withholding tax
requirements), federal and state securities laws and regulations and the rules
of all securities exchanges or self-regulatory organizations on which the
Company's Stock may be listed. The Company shall have the right to rely on an
opinion of its counsel as to such compliance. Any certificate issued to evidence
shares of Stock issued pursuant to this Plan may bear such legends and
statements as the Committee upon advice of counsel may deem advisable to assure
compliance with federal or state laws and regulations. No Award shall be
exercisable, no Stock or Restricted Stock shall be issued, no certificate for
shares shall be delivered and no payment shall be made under this Plan until the
Company has obtained such consent or approval as the Committee may deem
advisable from any regulatory bodies having jurisdiction over such matters.
9.2 Representations by Participants. As a condition to the exercise of an
Award, the Company may require a Participant to represent and warrant at the
time of any such exercise that the shares of Stock are being purchased only for
investment and without any present intention to sell or distribute such shares.
At the option of the Company, a stop transfer order against any shares of Stock
may be placed on the official Stock books and records of the Company, and a
legend indicating that the Stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel was provided (concurred in by counsel
for the Company) and stating that such transfer is not in violation of any
applicable law or regulation may be stamped on the stock certificate in order to
assure exemption from registration. The Committee may also require such other
action or agreement by the Participants as may from time to time be necessary to
comply with federal or state securities laws. This provision shall not obligate
the Company or any Affiliate to undertake registration of options or stock
hereunder.
9.3 Shareholders Agreement. At the time of grant of an Award or the
exercise of an Option, the Company may require the Participant, as a condition
of such grant or exercise, to execute a shareholders agreement containing terms
and conditions generally applicable to some or all shareholders of the Company.
ARTICLE X.
GENERAL PROVISIONS
10.1 Effect on Employment. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any employee any right to continue in the employ of
the Company or an Affiliate or in any way affect any right and power of the
Company or an Affiliate to terminate the employment of any employee at any time
with or without assigning a reason therefor.
10.2 Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon contractual obligations that may be created hereunder. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
10.3 Rules of Construction. Headings are given to the articles and
sections of this Plan solely as a convenience to facilitate reference. The
masculine gender when used herein refers to both masculine and feminine. The
reference to any statute, regulation or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
10.4 Governing Law. The internal laws of the State of Louisiana (without
regard to the choice of law provisions of Louisiana) shall apply to all matters
arising under this Plan, to the extent that federal law does not apply.
A-9
10.5 Compliance with Section 16 of the Exchange Act. If any common class
of equity securities of the Company is subject to registration under section 12
of the Exchange Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provision of this Plan or action by Committee fails to so
comply, it shall be deemed null and void to the extent permitted by law and
deemed advisable by the Committee.
10.6 Duration and Amendment of Plan. The Plan shall continue in effect
until terminated by the Board. The Board may amend or terminate this Plan at any
time; provided, however, an amendment that would have a material adverse effect
on the rights of a Participant under an outstanding Award is not valid with
respect to such Award without the Participant's consent, except as necessary for
Incentive Options to maintain qualification under the Code; and provided,
further, that the shareholders of the Company must approve the following:
(a) 12 months before or after the date of adoption, any amendment that
changes the employees or class of employees eligible to receive Incentive
Options;
(b) before the effective date thereof, any amendment that increases
the period during which Incentive Options may be granted or exercised;
(c) before the effective date thereof, any amendment that changes the
maximum number of shares with respect to which Options may be granted
during a specified period to any Participant; and
(d) any amendment that changes the number of shares in the aggregate
which may be issued pursuant to Awards granted under the Plan except
pursuant to Article VIII.
10.7 Duration of Incentive Options. Incentive Option Awards shall not be
made with respect to the shares of Stock specified in Section 5.2 more than ten
years after the earlier of the date that the Plan is adopted by the Board or the
date that the Plan is approved by shareholders. If the number of shares
specified in Section 5.2 is increased by an amendment to this Plan, Incentive
Options may be awarded with respect to such increased shares for a period of ten
years after the earlier of the date that the amendment to the Plan is adopted by
the Board or the date that the amendment is approved by shareholders in a manner
that satisfies Treasury Regulation section 1.422-5. Incentive Options granted
before such dates shall remain valid in accordance with their terms.
10.8 Effective Date of Plan. This Plan was adopted by the Board and
became effective on October 10, 1994, and was subsequently approved by the
shareholders of the Company. The effective date of this amendment and
restatement of the Plan is April 10, 2002, the date of Board approval. All
Options hereunder shall be governed by the terms of this amended and restated
Plan; provided, however, that the terms of the Plan prior to this amendment and
restatement shall apply to the extent that the terms of this amendment and
restatement would have a material adverse effect on the right of a Participant
under an Option outstanding prior to such amendment and restatement, unless the
Participant has given consent to the change.
A-10
EXECUTION
IN WITNESS WHEREOF, the undersigned officer has executed this Plan on this
the 10th day of April, 2002.
ORTHODONTIC CENTERS OF AMERICA, INC.
By:
/s/ BARTHOLOMEW F. PALMISANO, SR.
------------------------------------
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President and
Chief Executive Officer
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PROXY CARD
ORTHODONTIC CENTERS OF AMERICA, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Bartholomew F. Palmisano, Sr. and John
C. Glover, and either of them, as proxies, with full power of substitution and
resubstitution, to vote all of the shares of Common Stock which the undersigned
is entitled to vote at the Annual Meeting of Stockholders of Orthodontic Centers
of America, Inc. (the "Company") to be held at the Doubletree Hotel Lakeside,
3838 N. Causeway Boulevard, Metairie, Louisiana on Friday, May 17, 2002, at
10:00 a.m. (Central Time), and at any adjournment thereof.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT
THEREOF.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE
VOTED AS SPECIFIED. IF NOT OTHERWISE SPECIFIED, THE ABOVE NAMED PROXIES WILL
VOTE (1) FOR THE ELECTION AS CLASS II DIRECTORS OF THE NOMINEES NAMED ON THIS
CARD, (2) FOR APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S 1994
INCENTIVE STOCK PLAN, (3) FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY AND ITS SUBSIDIARIES FOR THE
YEAR ENDING DECEMBER 31, 2002 AND (4) IN ACCORDANCE WITH THE RECOMMENDATIONS OF
THE BOARD OF DIRECTORS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
ANNUAL MEETING. IF THIS PROXY IS EXECUTED IN SUCH MANNER AS NOT TO WITHHOLD
AUTHORITY TO VOTE FOR THE ELECTION OF ANY NOMINEE, IT SHALL BE DEEMED TO GRANT
SUCH AUTHORITY.
(Continued on reverse side)
[ORTHODONTIC CENTERS OF AMERICA LOGO]
ORTHODONTIC CENTERS OF AMERICA, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 2002
10:00 A.M. (CENTRAL TIME)
DOUBLETREE HOTEL LAKESIDE
3838 N. CAUSEWAY BOULEVARD
METAIRIE, LA 70002
1. Election of Class II Directors. 3. Proposal to ratify the appointment of Ernst &
Young LLP as independent auditors of the Company
Nominees: Ashton J. Ryan, Jr. and its subsidiaries for the year ending December
W. Dennis Summers 31, 2002.
Edward J. Walters, Jr.
FOR all nominees listed WITHHOLD FOR AGAINST ABSTAIN
(except as marked to the AUTHORITY to vote for
contrary below) all nominees listed [ ] [ ] [ ]
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any Dated: , 2002
individual nominee, write his name or their names in the --------------------------------------------
following space:
Signature:
------------------------------------------------------- ----------------------------------------------
2. Proposal to approve the amendment and restatement of --------------------------------------------------------
the Company's 1994 Incentive Stock Plan. Signature if held jointly
FOR AGAINST ABSTAIN IMPORTANT: Please sign exactly as your name or names
appear on this proxy and mail promptly in the enclosed
[ ] [ ] [ ] envelope. If you sign as agent or in any other capacity,
please state the capacity in which you sign.
Dear Stockholder:
Orthodontic Centers of America, Inc. encourages you to take advantage of
convenient ways by which you can vote your shares. You can vote your shares
electronically through the Internet or the telephone. This eliminates the need
to return the proxy card.
To vote your shares electronically, you must use the control number printed in
the box above, just below the perforation. The series of numbers that appears in
this box must be used to access the system.
If you vote your shares electronically, your vote must be received by 11:59 p.m.
(Eastern Time) on Thursday, May 16, 2002, to be included in the final
tabulation.
1. TO VOTE OVER THE INTERNET
o Log on to the Internet and go to the website http://www.eproxyvote.com/oca
2. TO VOTE OVER THE TELEPHONE
o On a touch-tone telephone, call toll free 1-877-PRX-VOTE (1-877-779-8683)
24 hours a day, 7 days a week; outside the U.S. call 1-201-536-8073.
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, there is no need for you to
mail back your proxy card.