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 ss. 240.14a-11(c) or ss. 240.14a-12
CASTLE DENTAL CENTERS, INC.
(Name of Registrant as Specified in its Charter)
_____________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
[CASTLE DENTAL LETTERHEAD/LOGO]
April 30, 1999
To Our Stockholders:
On behalf of the Board of Directors, I cordially invite
all stockholders to attend the Annual Meeting of Castle Dental Centers,
Inc. to be held on Thursday, May 27, 1999, at 11 a.m. at The Omni
Houston Hotel, Four Riverway, Houston, Texas 77056. Proxy materials,
which include a Notice of the Meeting, Proxy Statement and proxy card,
are enclosed with this letter. The Company's 1998 Annual Report, which
is not a part of the proxy materials, is also enclosed and provides
additional information regarding the financial results of the Company
in 1998.
We hope that you will be able to attend the Annual
Meeting. Your vote is important. Whether you plan to attend or
not, please execute and return the proxy card in the enclosed
envelope so that your shares will be represented. If you are
able to attend the meeting in person, you may revoke your
proxy and vote your shares in person. If your shares are not
registered in your own name and you would like to attend the
meeting, please ask the broker, trust, bank or other nominee
that holds the shares to provide you with evidence of your
share ownership. We look forward to seeing you at the meeting.
Sincerely,
/s/ JACK H. CASTLE, JR.
Jack H. Castle, Jr.
CHAIRMAN OF THE BOARD OF
DIRECTORS AND CHIEF EXECUTIVE OFFICER
<PAGE>
CASTLE DENTAL CENTERS, INC.
1360 POST OAK BOULEVARD, SUITE 1300
HOUSTON, TEXAS 77056
------------------------
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1999
------------------------
TO THE STOCKHOLDERS:
The 1999 Annual Meeting of Stockholders of Castle Dental Centers, Inc. (the
"Company"), will be held at The Omni Houston Hotel, Four Riverway, Houston,
Texas 77056 at 11 a.m. on Thursday, May 27, 1999, for the following purposes:
(1) To elect seven directors of the Company to serve on the Board of
Directors until the 2000 annual meeting of stockholders and until their
respective successors shall have been duly elected and qualified.
(2) To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent certified public accountants to audit the Company's
consolidated financial statements for the year ending December 31, 1999.
(3) To transact such other business as may properly be brought before
the meeting or any adjournment thereof.
The holders of record of the Company's common stock at the close of
business on April 9, 1999 are entitled to notice of and to vote at the meeting
with respect to all proposals. We urge you to sign and date the enclosed proxy
and return it promptly by mail in the enclosed envelope, whether or not you plan
to attend the meeting in person. No postage is required if mailed in the United
States. If you do attend the meeting in person, you may withdraw your proxy and
vote personally on all matters brought before the meeting.
By Order of the Board of Directors,
/s/ JOHN M. SLACK
John M. Slack
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
Houston, Texas
April 30, 1999
<PAGE>
CASTLE DENTAL CENTERS, INC.
1360 POST OAK BOULEVARD, SUITE 1300
HOUSTON, TEXAS 77056
------------------------
PROXY STATEMENT
------------------------
MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1999
This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Castle Dental Centers, Inc., a Delaware corporation
(the "Company"), for use at the Company's Annual Meeting of Stockholders or
any postponement or adjournment thereof (the "Annual Meeting") to be held at
The Omni Houston Hotel, Four Riverway, Houston, Texas 77056 at 11 a.m. on
Thursday, May 27, 1999 for those purposes set forth in the notice attached
hereto. This Proxy Statement and the accompanying proxy card are being mailed to
stockholders on or about May 3, 1999.
RECORD DATE AND VOTING SECURITIES
The Board of Directors has fixed the close of business on April 9, 1999 as
the record date ("Record Date") for the determination of stockholders entitled
to notice of and to vote at the Annual Meeting. At the close of business on the
Record Date, the Company had outstanding and entitled to vote 6,417,206 shares
of common stock, par value $.001 per share ("Common Stock"). There are no
other classes of voting securities of the Company outstanding. Each share of
Common Stock entitles the holder to one vote on each matter presented at the
Annual Meeting. A proxy will be voted in the manner specified on the proxy, or
if no manner is specified, it will be voted in favor of the proposals set forth
in the notice attached hereto.
The presence of the holders of a majority of the issued and outstanding
shares of Common Stock of the Company entitled to vote at the Annual Meeting,
either in person or represented by properly executed proxies, is necessary to
constitute a quorum for the transaction of business at the Annual Meeting. If
there are not sufficient shares represented in person or by proxy at the Annual
Meeting to constitute a quorum, the Annual Meeting may be postponed or adjourned
in order to permit further solicitation of proxies by the Company.
Shares of Common Stock represented by a properly signed and returned proxy
will be counted as present at the Annual Meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting a vote or
abstaining. Shares of Common Stock held by nominees which are voted on at least
one matter coming before the Annual Meeting will also be counted as present for
purposes of determining a quorum, even if the beneficial owner's discretion has
been withheld (a "non-vote") for voting on some or all other matters.
The holders of a majority of the total shares of Common Stock issued and
outstanding, whether present in person or represented by proxy, will constitute
a quorum for the transaction of business at the Annual Meeting. The election of
directors requires the favorable vote of the holders of a plurality of shares of
Common Stock present and voting, in person or by proxy, at the Annual Meeting.
Cumulative voting for the election of directors is not permitted. Abstentions
and broker non-votes have no effect on determinations of plurality except to the
extent that they affect the total votes received by any particular candidate.
A majority of the votes represented by the Stockholders present at the
Annual Meeting, in person or by proxy, is necessary for ratification of the
Company's auditors. With respect to broker non-votes, the shares will not be
considered present at the Annual Meeting for this matter so that broker
non-votes will have the practical effect of reducing the number of affirmative
votes required to achieve a majority vote by reducing the total number of shares
from which the majority is calculated. Abstentions, however, will operate to
prevent the approval of such proposal to the same extent as a vote against such
proposal.
1
<PAGE>
REVOCATION OF PROXY
Stockholders submitting proxies may revoke them at any time before they are
voted on by (i) notifying John M. Slack, Secretary of the Company, in writing of
such revocation, (ii) by execution of a subsequent proxy sent to Mr. Slack or
(iii) by attending the Annual Meeting in person and giving notice of revocation.
Notices to Mr. Slack referenced in (i) and (ii) should be directed to John M.
Slack, Secretary, Castle Dental Centers, Inc., 1360 Post Oak Boulevard, Suite
1300, Houston, Texas 77056.
SOLICITATION EXPENSES
The expense of preparing, printing and mailing proxy solicitation materials
will be borne by the Company. In addition to solicitation of proxies by mail,
certain directors, officers, representatives and employees of the Company may
solicit proxies by telephone and personal interview. Such individuals will not
receive additional compensation from the Company for solicitation of proxies,
but may be reimbursed for reasonable out-of-pocket expenses in connection with
such solicitation. Banks, brokers and other custodians, nominees and fiduciaries
also will be reimbursed by the Company for their reasonable expenses for sending
proxy solicitation materials to the beneficial owners of Common Stock.
The Company's Annual Report to Stockholders for the year ended December 31,
1998, including consolidated financial statements, is being mailed to all
stockholders entitled to vote at the Annual Meeting. The Annual Report does not
constitute a part of the proxy solicitation material.
ELECTION OF DIRECTORS (PROPOSAL 1)
The Company's Bylaws authorize the Board of Directors to determine, from
time to time, the number of directors which shall constitute the whole Board of
Directors. Presently, seven directors serve on the Board of Directors, each
director holding office for a term of one year and until such director's
successor shall have been elected and qualified or until such director's earlier
death, resignation, or removal. The directors whose terms will expire at the
1999 Annual Meeting are Jack H. Castle, Jr., Jack H. Castle, D.D.S., Robert J.
Cresci, G. Kent Kahle, Elizabeth A. Tilney, Emmett E. Moore and John J. Roberts.
All of these individuals have been nominated to stand for reelection at the 1999
Annual Meeting to hold office until the 2000 Annual Meeting and until their
successors are elected and qualified.
NOMINEES FOR ELECTION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR JACK H. CASTLE, JR., JACK H.
CASTLE, D.D.S., ROBERT J. CRESCI, G. KENT KAHLE, ELIZABETH A. TILNEY, EMMETT E.
MOORE AND JOHN J. ROBERTS AS DIRECTORS TO HOLD OFFICE UNTIL THE 2000 ANNUAL
MEETING AND UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED. THE SHARES OF
COMMON STOCK REPRESENTED BY RETURNED PROXY CARDS WILL BE VOTED FOR THE ELECTION
OF THESE NOMINEES UNLESS OTHERWISE SPECIFIED.
The following sets forth information as to the current directors and
executive officers of the Company, including their ages, present principal
occupations, other business experience during the last five years, memberships
on committees of the Board of Directors and directorships in other publicly-held
companies.
2
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
- ---------------------------------------- --- ------------------------------------------- --------
<S> <C> <C> <C>
Jack H. Castle, Jr...................... 44 Chairman of the Board and Chief Executive 1995
Officer
Jack H. Castle, D.D.S................... 77 Director 1995
Robert J. Cresci(1)(2).................. 55 Director 1995
G. Kent Kahle(1)........................ 47 Director 1995
Elizabeth A. Tilney(2).................. 41 Director 1996
Emmett E. Moore(1)...................... 56 Director 1997
John J. Roberts......................... 76 Director 1998
G. Daniel Siewert III................... 55 President and Chief Operating Officer
John M. Slack........................... 51 Vice President and Chief Financial Officer
</TABLE>
- ------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Jack H. Castle, Jr. became a director in December 1995. He was a co-founder
of the Company in 1981 and has served as Chief Executive Officer since 1990. He
became the Company's Chairman in August 1996. Mr. Castle received a B.A. from
Rollins College and a Masters of Business Administration from Wake Forest
University. Mr. Castle is the son of Jack H. Castle, D.D.S.
Jack H. Castle, D.D.S. became a director in December 1995 and served as
Chairman of the Company from 1981 until August 1996. He is also the sole owner
of Jack H. Castle, D.D.S., P.C., a dental practice managed by the Company (the
"Texas PC"). Prior to co-founding the Company, Dr. Castle operated a single
location dental practice. Dr. Castle graduated from the University of Houston in
1943 and received a Doctorate of Dental Surgery from the University of Texas
Health Science Center in Houston in 1945. He served in the United States Navy
from 1947 to 1949. Dr. Castle is the father of Jack H. Castle, Jr.
Robert J. Cresci became a director in December 1995. Mr. Cresci has been a
Managing Director of Pecks Management Partners Ltd., an investment management
firm, since September 1990. Mr. Cresci currently serves on the boards of
Bridgeport Machines, Inc., EIS International, Inc., Sepracor, Inc., Arcadia
Financial, Ltd., Hitox, Inc., Aviva Petroleum Ltd., Film Roman, Inc., Quest
Educational Corporation, Candlewood Hotel Co., Inc., SeraCare, Inc. and several
private companies.
G. Kent Kahle became a director in December 1995. He has been a Managing
Director of The GulfStar Group, Inc., an investment banking firm, since 1990.
From 1982 to 1990 Mr. Kahle held various positions with Rotan Mosle, Inc., most
recently as Senior Vice President and Director. Mr. Kahle has a Masters of
Business Administration from The Wharton School of the University of
Pennsylvania and an A.B. from Brown University. He currently serves on the board
of Total Safety Corporation, U.S. Legal Support, Inc. and Chase
Telecommunications, Inc.
Elizabeth A. Tilney became a director in August 1996. Ms. Tilney is Senior
Vice President, Marketing, Communications and Human Resources of Enron Energy
Services, having joined Enron in March 1996. From 1987 to 1996, Ms. Tilney held
various positions with Russell Reynolds Associates, an executive search firm,
and was most recently an Executive Director. Ms. Tilney was an account manager
associated with Ogilvy & Mather Advertising in New York and Houston from 1983 to
1987. Ms. Tilney has a Masters of Business Administration from The Amos Tuck
School of Business Administration of Dartmouth College and a B.A. from the
University of Virginia.
Emmett E. Moore became a director in September 1997. Until November 16,
1997, Mr. Moore was the Chairman of the Board and Chief Executive Officer of
Physicians Resource Group, Inc., a publicly-traded ophthalmology practice
management company ("PRG"), since September 1995, and served as the President
and a director of PRG since April 1995. Also, Mr. Moore served on the board of
PRG until he resigned in February 1998. Mr. Moore is currently developing a new
health care venture. From August 1983 to December 1994, Mr. Moore served in
various capacities with Medical Care America, Inc., a publicly-
3
<PAGE>
traded company that owned and operated outpatient surgery centers and was
acquired in September 1994 by Columbia/HCA Health care Corporation. Mr. Moore
received B.B.A., J.D. and M.P.A. degrees from the University of Texas, and is a
certified public accountant.
John J. Roberts became a director in August 1998. He is currently a Senior
Advisor, formerly Vice-Chairman, External Affairs, American International Group,
Inc. He was formerly Chairman and Chief Executive Officer of American
International Underwriters Corporation. Prior to that he was President of
American International Underwriters Corporation-U.S./Overseas Operations. He
currently serves as a director of American International Group, Inc., The Adams
Express Company and Petroleum & Resources Corporation.
The vote of a plurality of holders of the outstanding shares of Common
Stock present in person or represented by duly executed proxy at the Annual
Meeting for the election of a given nominee is necessary to elect such nominee
as a director of the Company (i.e., the seven director nominees receiving the
greatest number of votes cast will be elected, regardless of the number withheld
from voting for the election of such director nominees).
GENERAL INFORMATION WITH RESPECT
TO THE BOARD OF DIRECTORS
MEETINGS
During the year ended December 31, 1998, the Board of Directors held five
meetings and acted one time by unanimous consent. During 1998, each member of
the Board of Directors attended at least 75% of all meetings of the Board of
Directors and committees of the Board of Directors of which such director was a
member. There are two standing committees of the Board of Directors, the Audit
Committee and the Compensation Committee. The Board of Directors does not have a
nominating committee.
COMMITTEES OF THE BOARD
Audit Committee. The Audit Committee consists of Robert J. Cresci
(Chairman), and G. Kent Kahle and Emmett E. Moore. The Audit Committee: (i)
makes recommendations to the Board of Directors concerning the engagement of
independent public accountants; (ii) reviews with the independent public
accountants the plans for and results of the audit; (iii) approves professional
services provided by the independent public accountants; (iv) reviews the
independence of the independent public accountants; (v) considers the range of
audit and non-audit fees; (vi) reviews the non-audit services performed by the
independent public accountants; and (vii) reviews the adequacy of the Company's
internal accounting controls. During 1998, the Audit Committee held one meeting.
Compensation Committee. The Compensation Committee consists of Elizabeth A.
Tilney (Chairperson) and Robert J. Cresci. The Compensation Committee
periodically determines the amount and form of compensation and benefits payable
to all principal officers and certain other management personnel. This committee
also performs the duties of administration with respect to the Company's
incentive compensation plan. See "Report of Compensation Committee on Executive
Compensation." During 1998, the Compensation Committee held two meetings.
DIRECTORS' COMPENSATION
During 1998, each non-employee director was paid a fee of $1,000 for each
Board of Directors meeting attended in person and $500 for each telephonic Board
of Directors meeting in which the director participated. The Company paid
aggregate fees of $17,000 to non-employee directors of the Company in connection
with the Board of Directors' and committee meetings in 1998. The Company does
not pay director fees to directors who also are employees of the Company. No
member of the Board of Directors, except Jack H. Castle, D.D.S., was paid
compensation during 1998 for his service as a director of the Company other than
pursuant to the standard compensation arrangement described above. See "Certain
4
<PAGE>
Relationships and Related Transactions" for a description of other compensation
payable to Jack H. Castle, D.D.S. Non-employee directors also receive stock
option awards pursuant to the Company's 1997 Non-Employee Directors' Stock Plan
(the "Directors' Plan"), which was adopted by the Board of Directors and
approved by the Company's stockholders in August 1996.
The Directors' Plan, which is administered by the Compensation Committee,
provides for the automatic grant to each non-employee director of an option to
purchase 25,000 nonqualified stock options upon such person's initial election
as a director. The aggregate amount of Common Stock with respect to which grants
under the Directors' Plan may be made may not exceed 150,000 shares. Options
will be exercisable during a ten-year period from the date of grant of the
Options and will vest based upon the number of full years of service a
non-employee director serves on the Board of Directors as follows: 20% after one
full year, 40% after two full years of service, 60% after three full years of
service, 80% after four full years of service and 100% after five full years of
service. No option will remain exercisable later than ten years after the date
of grant.
The exercise price for Options granted under the Directors' Plan may be no
less than the fair market value of the Common Stock on the date of grant. During
1998, the Company granted options to acquire an aggregated 25,000 shares of
Common Stock under the Directors' Plan with an exercise price of $8.50 per
share.
5
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of March 31, 1999 with
respect to beneficial ownership of the Company's Common Stock by (i) each
director, (ii) each executive officer, (iii) the executive officers and
directors as a group, and (iv) each person known to the Company who beneficially
owns 5% or more of the outstanding shares of its voting securities. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF SHARES
NAME AND ADDRESS OF BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED OWNED
- ---------------------------------------- ------------ ------------
<S> <C> <C>
Jack H. Castle, Jr. (1)(2).............. 1,348,000 20.8%
Jack H. Castle, D.D.S. (2)(3)........... 974,000 15.2
Loretta Castle (2)(3)................... 974,000 15.2
Castle Interests, Ltd. (2)
1360 Post Oak Boulevard,
Suite 1300, Houston, Texas 77056...... 514,000 8.0
Pecks Management Partners, Ltd. (4)
One Rockefeller Plaza, Suite 900
New York, New York 10020.............. 913,243 14.3
Robert J. Cresci (5).................... 918,243 14.3
The Capital Group Companies, Inc.
333 South Hope Street
Los Angeles, California 90071......... 530,000 8.3
Benson Associates, LLC
111 S.W. Fifth Avenue, Suite 2130
Portland, Oregon 97204................ 337,800 5.3
G. Kent Kahle (6)....................... 67,829 1.1
G. Daniel Siewert III (7)............... 67,850 1.1
John M. Slack (8)....................... 28,500 *
Elizabeth A. Tilney (9)................. 8,000 *
Emmett E. Moore (9)..................... 5,000 *
John J. Roberts (10).................... -- --
All directors and executive officers as
a group (9 persons) (11).............. 2,883,422 44.0%
</TABLE>
- ------------
* Less than 1%
(1) Includes 714,000 shares held by the Castle 1995 Gift Trust f/b/o Jack H.
Castle, Jr., of which Mr. Castle is Trustee. Includes options to acquire
20,000 shares of Common Stock issued under the Castle Dental Centers, Inc.
Omnibus Stock and Incentive Plan (the "Plan") which are exercisable
within 60 days. Excludes options to acquire 155,000 shares of Common Stock
which are not exercisable within 60 days.
(2) Includes 514,000 shares of Common Stock owned of record by Castle Interest,
Ltd., a Texas limited partnership of which Jack H. Castle, D.D.S., Loretta
Castle and Jack H. Castle, Jr. are the three general partners. The general
partners of Castle Interests, Ltd. cannot act to vote or dispose of shares
of Common Stock held by Castle Interests, Ltd. without the unanimous vote
of all of the general partners. Loretta Castle is the wife of Jack H.
Castle, D.D.S. and the mother of Jack H. Castle, Jr.
(3) Includes 103,000 shares of Common Stock owned jointly by Jack H. Castle,
D.D.S. and Loretta Castle.
(4) Includes 615,033, 121,708, and 176,502 shares of Common Stock owned of
record by Delaware State Employees' Retirement Fund, Declaration of Trust
for Defined Benefit Plans of ICI American Holdings Inc. and Declaration of
Trust for Defined Benefit Plans of Zeneca Holdings Inc., respectively (the
"Pecks Investors"). Pecks Management Partners Ltd. ("Pecks"), as
investment manager for the
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
6
<PAGE>
Pecks Investors, has sole investment and voting power with respect to such
shares. Mr. Cresci, a director of the Company, is a Managing Director of
Pecks. Pecks disclaims beneficial ownership of such shares.
(5) Includes all shares deemed to be beneficially owned by Pecks, of which Mr.
Cresci is a Managing Director. As a result, Mr. Cresci may be deemed to
share voting and investment power with respect to such shares. Mr. Cresci
disclaims beneficial ownership of such shares. See note 3 above. Also
includes options to acquire 5,000 shares of Common Stock under the
Directors' Plan which are exercisable within 60 days. Excludes options to
acquire 20,000 shares of Common Stock which are not exercisable within 60
days.
(6) Includes 56,579 shares of Common Stock issuable on exercise of the GulfStar
Warrant and options to acquire 5,000 shares of Common Stock under the
Directors' Plan which are exercisable within 60 days. Mr. Kahle is a
Managing Director of The GulfStar Group, Inc., an affiliate of GulfStar
Investments, Ltd., the holder of the GulfStar Warrant. Excludes options to
acquire 40,000 shares of Common Stock which are not exercisable within 60
days.
(7) Includes options to acquire 30,000 shares of Common Stock issued under the
Plan which are exercisable within 60 days. Excludes options to acquire
155,000 shares of Common Stock which are not exercisable within 60 days.
(8) Includes options to acquire 14,000 shares of Common Stock issued under the
Plan which are exercisable within 60 days. Excludes options to acquire
86,000 shares of Common Stock which are not exercisable within 60 days.
(9) Includes options to acquire 5,000 shares of Common Stock issued under the
Plan which are exercisable within 60 days. Excludes options to acquire
20,000 shares of Common Stock which are not exercisable within 60 days.
(10) Excludes options to acquire 25,000 shares of Common Stock which are not
exercisable within 60 days.
(11) Includes (i) 714,000 shares of Common Stock held by the Castle 1995 Gift
Trust f/b/o Jack H. Castle, Jr., (ii) 514,000 shares of Common Stock held
by Castle Interests, Ltd., (iii) 913,243 shares of Common Stock
beneficially owned by the Pecks Investors, and (iv) 56,579 shares of Common
Stock issuable to GulfStar Investments, Ltd. on exercise of the GulfStar
Warrant.
EXECUTIVE OFFICERS
The Board elects executive officers annually at its first meeting following
the annual meeting of stockholders. Information concerning Mr. Jack H. Castle,
Jr. is set forth above under "Election of Directors." Information concerning
G. Daniel Siewert, III and John M. Slack is set forth below.
G. Daniel Siewert, III joined the Company in August 1997 as President and
Chief Operating Officer. From January 1995 through June 1997, he served as Chief
Operating Officer for Family Dental Center, Inc., a large group dental practice
with locations in Sears Roebuck & Company stores. From November 1993 to December
1994, Mr. Siewert provided business management consulting for a major retail eye
care company. Prior to that, from September 1990 until August 1993, he was Chief
Executive Officer of National Vision Associates, Inc.
John M. Slack joined the Company in December, 1995 as Vice President and
Chief Financial Officer. From November 1994 through November 1995, he served as
Vice President and Chief Financial Officer of Team, Inc., a publicly-held
environmental services company. From 1985 through August 1994, Mr. Slack was
Vice President and Chief Financial Officer of Serv-Tech, Inc., a publicly-held
industrial services company. Mr. Slack received a B.S. in international
economics from Georgetown University in 1969.
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table provides certain summary information concerning
compensation earned by the Company's Chief Executive Officer and each of the
other executive officers of the Company (the "Named Executive Officers") whose
compensation exceeded $100,000 during the year ended December 31, 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------- -----------------------------------------
OTHER ANNUAL RESTRICTED NUMBER OF ALL OTHER
SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) GRANTED ($)
- ---------------------------------------- ---- ------- ------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack H. Castle, Jr...................... 1998 243,663 -- -- -- 75,000 12,388
Chief Executive Officer 1997 254,167 -- -- -- 100,000 --
G. Daniel Siewert III................... 1998 199,320 -- -- -- 75,000 12,000
President, 1997 61,698(2) -- -- -- 110,000 --
Chief Operating Officer
John M. Slack........................... 1998 142,026 -- -- -- 50,000 --
Vice President, 1997 120,001 -- -- -- 30,000 --
Chief Financial Officer, Treasurer and
Secretary
</TABLE>
- ------------
(1) Other compensation paid to Mr. Castle and Mr. Siewert in 1998 consisted of
automobile allowances.
(2) Represents less than one full year's compensation; pursuant to agreement
between the officer and the Company, such officer's employment began on
August 4, 1997.
STOCK OPTIONS
The following table reflects certain information regarding stock options
granted to the Named Executive Officers during 1998.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES APPRECIATION FOR OPTION
UNDERLYING PERCENT OF TOTAL TERM
OPTIONS OPTIONS GRANTED TO EXERCISE EXPIRATION -----------------------
NAME GRANTED EMPLOYEES IN 1998 PRICE(1) DATE 5%($) 10%($)
- ---------------------------------------- ---------- ------------------ -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jack H. Castle, Jr...................... 75,000 29.2% $ 5.00 9/10/2008 $ 235,825 $ 597,653
G. Daniel Siewert III................... 75,000 29.2% $ 5.00 9/10/2008 $ 235,835 $ 597,653
John M. Slack........................... 50,000 19.5% $ 5.00 9/10/2008 $ 157,224 $ 398,436
</TABLE>
YEAR END 1998 OPTION VALUES
The following table reflects certain information concerning the number of
unexercised options held by the Named Executive Officers and the value of such
officers' unexercised options as of December 31, 1998. No options were exercised
by the Named Executive Officers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS "IN-THE-MONEY" OPTIONS
AT DECEMBER 31, 1998 (#) AT DECEMBER 31, 1998 (1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack H. Castle, Jr. ................. 20,000 155,000 $ 0 $84,375
G. Daniel Siewert III................ 30,000 155,000 $ 0 $84,375
John M. Slack........................ 14,000 86,000 $ 0 $56,250
</TABLE>
- ------------
(1) Options are "in-the-money" if the closing market price of the Company's
Common Stock exceeds the exercise price of the options. The exercise price
of the options granted to the Named Executive Officers ranges from $5.00 to
$10.00 per share. The value of unexercised options for each of the Named
Executive Officers represents the difference between the exercise price of
such options and the closing price of the Company's Common Stock on December
31, 1998 ($6.125 per share). None of the "in-the-money"options granted to
the Named Executive Officers were exercisable at December 31, 1998.
8
<PAGE>
STOCK PERFORMANCE GRAPH
The following performance graph compares the Company's cumulative total
stockholder return on its Common Stock with the cumulative total return of the
Nasdaq Composite Index and a peer group stock index (the "Peer Group Index")
defined as follows: Coast Dental Services, Inc., Dental Care Alliance, Inc.,
Gentle Dental Service Corp., and Monarch Dental Corporation. The cumulative
total return computations set forth in the Performance Graph assume the
investment of $100 in the Company's Common Stock, the Nasdaq Composite Index and
the Peer Group Index on September 12, 1997, the date that the Company began
trading on the National Association of Securities Dealers Automated Quotation
system.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
9/97 12/97 12/98
------- --------- ----------
CASTLE DENTAL CENTERS 100 59.62 47.11
NASDAQ COMPOSITE 100 99.31 139.60
PEER GROUP 100 95.13 54.55
9
<PAGE>
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee, a committee of the Board of Directors composed of the
non-employee directors listed below this report. The Compensation Committee is
responsible for recommending to the full Board of Directors compensation of the
Chief Executive Officer of the Company, determining the compensation of the
other executive officers of the Company, and administering the Company's
employee benefit plans. None of the members of the Compensation Committee have
any interlocking or other relationships with the Company that would call into
question their independence as Compensation Committee members.
COMPENSATION POLICIES AND PROGRAMS
The Compensation Committee believes that the goals of the executive
compensation program should be to align executive compensation with the
Company's long-term business objectives and performance and to enable the
Company to attract, retain and reward executive officers who contribute to the
long-term success of the Company. The Compensation Committee believes that the
best way to achieve these goals is by aligning the financial interests of the
Company's executive officers closely to the interests of the Company's
stockholders through a combination of annual cash incentives and stock options,
while providing the executive officers with base salary compensation at levels
that are competitive with, but which do not exceed, prevailing standards. The
compensation of the Company's executive officers is reviewed and approved
annually by the Compensation Committee. The Company's executive compensation
program is based on three elements, base salary, annual incentive compensation
or bonuses, and stock-based incentive compensation, each of which is determined
in part by corporate performance in achieving financial and qualitative
objectives established by the Board of Directors. Financial objectives include
the relative performance of the Company among its peer group of dental practice
management companies as well as the Company's performance as measured against
budgets and operating plans established by management. Qualitative objectives
include elements of Company performance such as attracting and retaining
patients, management and employee development, compliance with healthcare
regulations, and anticipating and responding to changing market conditions.
The Compensation Committee believes that stock options are critical in
motivating the long-term creation of stockholder value because options focus
executive attention on stock price as the primary measure of performance. In
January 1996, the Company adopted and its stockholders approved a Castle Dental
Centers, Inc. Omnibus Stock and Incentive Plan (the "Plan") for the benefit of
its employees, including executive officers. The Plan is administered by the
Compensation Committee. The purpose of the Plan is to maximize shareholder value
by encouraging ownership of Common Stock by eligible employees, including
executive officers, providing increased incentives for such employees to render
services and a maximum amount of effort for the business success of the Company
and strengthening identification of such employees with the stockholders. The
Plan also utilizes vesting periods to encourage its executive officers and
eligible employees to continue in the employ of the Company. Stock option grants
made to the Chief Executive Officer and other executive officers in 1998 were
made in part because of the Company's success in significantly increasing
operating profits and cash flow and consummating the initial public offering.
Stock option grants to the Company's Chief Executive Officer and other executive
officers are not made automatically each year and are not considered to be a
part of normal annual compensation.
Stock option grants provide an incentive that focuses the executives'
attention on managing the Company from the perspective of an owner with an
equity stake in the business. Accordingly, these stock options are tied to the
future performance of the Company's Common Stock and provide value to the
recipient only when the price of the Company's Common Stock increases above the
option grant price. Pursuant to the Plan, on September 10, 1998, the
Compensation Committee approved the following option grants: 75,000 shares to
Jack H. Castle, Jr., 75,000 shares to G. Daniel Siewert, III, and 50,000 shares
to John M. Slack, with an exercise price equal to the closing price of the
Company's Common Stock on such date.
10
<PAGE>
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In determining the compensation of the Company's chief executive officer,
Jack H. Castle, Jr., for 1998, the Compensation Committee reviewed information
regarding compensation of chief executive officers of dental practice management
and other comparable companies and evaluated the performance of the Company
during the year. As a result, Mr. Castle's annual base salary was set at
$253,770 in March 1998. There was no annual cash incentive paid to Mr. Castle or
other executive officers in 1998 although the Compensation Committee may elect
to issue annual bonuses in the future. The primary form of annual incentive
compensation awarded to Mr. Castle for 1998 was the grant of stock options to
purchase 75,000 shares of Company common stock at an exercise price of $5.00 per
share. This award reflected the Company's success in achieving its growth and
financial performance objectives in 1997 and 1998, including the completion of
the Company's initial public offering in September 1997, and provides Mr. Castle
with long-term incentive compensation tied to the Company's future performance.
This report is furnished by the Compensation Committee of the Board of
Directors.
Elizabeth A. Tilney: Chairperson
Robert J. Cresci
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Kahle, a director of the Company, is a Managing Director of The
GulfStar Group, Inc., which has provided investment banking and advisory
services to the Company. In 1995, the Company paid $540,000 in investment
banking fees to The GulfStar Group, Inc. and issued a warrant to purchase 56,579
shares of Common Stock to GulfStar Investments, Ltd. The Company has paid The
GulfStar Group, Inc. for investment banking and financial advisory services
provided to the Company in connection with certain acquisitions. The GulfStar
Group, Inc. received approximately $198,000 in investment banking and financial
advisory fees from the Company in 1996. In 1998, The GulfStar Group, Inc.
received a $183,332 advisory fee in connection with the acquisition of Dental
Consulting Services, LLC. The directors of the Company other than Mr. Kahle
approve the payments made to The GulfStar Group, Inc. by the Company.
At December 31, 1998, G. Daniel Siewert, the Company's President and Chief
Operating Officer, and John M. Slack, Vice-President and Chief Financial
Officer, had outstanding loans in the aggregate amount of $339,000 from the
Company. These loans are repayable over varying periods ranging from one to five
years and bear interest at rates ranging from zero to six percent.
Mr. Cresci, a director of the Company, is a Managing Director of Pecks
Management Partners Ltd., the investment advisor to the Pecks Investors, which
acquired 948,243 shares of Common Stock on conversion of 1,244,737 shares of
Series A Convertible Preferred Stock and 485,382 shares of Series C Convertible
Preferred Stock. Pursuant to the provisions of the Securities Purchase Agreement
dated December 18, 1995, for so long as certain ownership thresholds with
respect to the Common Stock are maintained, Mr. Cresci has the contractual right
to nominate one member of the Company's Board of Directors.
In December 1995, the Company acquired all of the stock of Jack H. Castle,
D.D.S., Inc., a professional corporation of which Jack H. Castle, D.D.S., a
director of the Company, was the sole owner. In connection with that
transaction, the Company paid Jack H. Castle, D.D.S. $6.0 million in cash and
entered into a Deferred Compensation Agreement with Jack H. Castle, D.D.S.
pursuant to which the Company has agreed to pay Jack H. Castle, D.D.S. $2.6
million in 20 quarterly installments of $131,500 beginning March 1996.
In connection with the purchase of the stock of Jack H. Castle, D.D.S.,
Inc., the Company also entered into a management services agreement with Jack H.
Castle, D.D.S., P.C., a professional corporation of which Jack H. Castle, D.D.S.
is the sole owner. Pursuant to the management services agreement, Jack H.
Castle, D.D.S., P.C. receives an annual payment of $100,000 for services
performed in connection therewith. The professional corporation employs or
contracts with all of the dental professionals practicing
11
<PAGE>
at the Company's dental offices in Texas under the Management Agreement. The
Company provides the professional corporation with, among other things,
equipment, supplies, support services, nondental personnel, office space,
management, administration, financial recordkeeping and reporting services. The
Management Agreement is for a term of 25 years, with automatic renewal
thereafter.
The Company receives a management fee under the Management Agreement with
Jack H. Castle, D.D.S., P.C. equal to the Company's costs plus a base management
fee and a performance fee. The base management fee is equal to 12.5% of adjusted
gross revenues and the performance fee is equal to the professional
corporation's net income after payment of all other fees and expenses. The
Company's costs include all direct and indirect costs, overhead and expenses
relating to the Company's provision of services to the professional corporation
under the Management Agreement.
In addition to the Management Agreement with Jack H. Castle, D.D.S., P.C.,
the Company has a contractual right to designate or approve the licensed dentist
or dentists who own the professional corporation's capital stock in the event
Jack H. Castle, D.D.S. ceases to be affiliated with the Company for any reason.
The Company is party to a lease agreement with Goforth, Inc., a company
owned by Jack H. Castle, Jr., the Company's Chairman and Chief Executive
Officer. The lease agreement relates to the Castle Dental Center located at 2101
West Loop South in Houston, Texas, a 6,781 square foot free-standing building.
The Company has agreed to pay Goforth, Inc. a minimum guaranteed rental of
$12,000 per month through January 2001 and $13,200 per month from January 2001
through January 2006. The Company has also agreed to pay additional rent of
approximately $1,600 per month for insurance, taxes and common area maintenance.
The Company believes that this lease agreement is on terms no less favorable to
the Company than could have been obtained with an independent third party.
Pursuant to a Registration Rights Agreement dated as of December 18, 1995,
as amended, the Pecks Investors, GulfStar Investments, Ltd. and the members of
the Castle Family have been granted certain registration rights by the Company
with respect to the shares of Common Stock owned by them or acquired on
conversion of Series A Convertible Preferred Stock and Series C Convertible
Preferred Stock and exercise of the warrant issued to GulfStar Investments, Ltd.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
In 1998, the members of the Compensation Committee were Elizabeth A. Tilney
and Robert J. Cresci. Mr. Cresci is a party to certain transactions with the
Company. See "Certain Relationships and Related Transactions."
APPOINTMENT OF AUDITORS (PROPOSAL 2)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS TO AUDIT THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDING DECEMBER 31, 1999. THE SHARES OF COMMON STOCK REPRESENTED BY
RETURNED PROXY CARDS WILL BE VOTED FOR THE ELECTION OF THESE ACCOUNTANTS UNLESS
OTHERWISE SPECIFIED.
At the Annual Meeting a vote will be taken on the proposal to ratify the
appointment by the Board of Directors of PricewaterhouseCoopers LLP, independent
certified public accountants, as auditors of the Company's consolidated
financial statements for the year ending December 31, 1999.
PricewaterhouseCoopers LLP audited the consolidated financial statements of the
Company for the year ended December 31, 1998.
12
<PAGE>
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting, with the opportunity to make a statement should they choose
to do so, and to be available to respond to appropriate questions.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, officers and persons holding more than ten percent of a registered
class of the Company's equity securities to file with the Securities and
Exchange Commission ("SEC") and any stock exchange or automated quotation
system on which the Common Stock may then be listed or quoted (i) initial
reports of ownership, (ii) reports of changes in ownership and (iii) annual
reports of ownership of Common Stock and other equity securities of the Company.
Such directors, officers and ten-percent stockholders are also required to
furnish the Company with copies of all such filed reports.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
1998, the Company believes that all of the Company's executive officers and
directors complied with Section 16(a) reporting requirements during 1998.
ANNUAL REPORTS
The Company's Annual Report to stockholders for the year ended December 31,
1998 accompanies this Proxy Statement. The Company filed its Annual Report on
Form 10-K for the year ended December 31, 1998 with the Securities and Exchange
Commission on March 31, 1999. A copy of the Form 10-K, including any financial
statements and schedules and a list describing any exhibits not contained
therein, may be obtained without charge by any stockholder. Written requests for
copies of the report should be directed to John M. Slack, Secretary, Castle
Dental Centers, Inc., 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for stockholder
action at subsequent annual meetings of the Company consistent with Rule 14a-8
promulgated under the Exchange Act and the Company's Bylaws. For such a proposal
to be considered for inclusion in the Proxy Statement and Proxy relating to the
2000 annual meeting of stockholders, the proposal must contain the information
required by the Company's Bylaws and must be received by the Company not later
than January 3, 2000 in accordance with Rule 14a-8. In addition, the Company's
Bylaws provide that a stockholder desiring to submit a proposal to an annual
meeting of stockholders generally must deliver written notice of such proposal,
together with the information required by the Bylaws, to the Secretary of the
Company no later than 60 days and no earlier than 90 days prior to the first
anniversary of the preceding year's annual meeting date. For such a proposal to
be considered for inclusion on the agenda for the 2000 annual meeting of
stockholders, the proposal and the required information must be received by the
Company no later than March 26, 2000 and no earlier than February 25, 2000. Such
proposals should be directed to John M. Slack, Secretary, Castle Dental Centers,
Inc., 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056.
OTHER MATTERS
The Board of Directors knows of no matters that are expected to be
presented at the Annual Meeting other than those described in this proxy
statement. Should any other matter properly come before the Annual Meeting,
however, the persons named in the form of proxy accompanying this proxy
statement will vote all shares represented by proxies in accordance with their
best judgment on such matters.
13
<PAGE>
PROXY CASTLE DENTAL CENTERS, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS OF CASTLE DENTAL CENTERS, INC.
The undersigned hereby appoint(s) JACK H. CASTLE, JR. and JOHN M. SLACK,
and each of them individually, as proxies with full power of substitution, to
vote all shares of Common Stock of Castle Dental Centers, Inc. that the
undersigned is entitled to vote at the Annual Meeting of Stockholders thereof to
be held on May 27, 1999, or at any adjournment or postponement thereof, as
follows:
Any executed proxy which does not designate a vote shall be deemed to grant
authority for any item not designated.
PROPOSAL 1. ELECTION OF DIRECTORS:
[ ] FOR nominees listed below [ ] WITHHOLD AUTHORITY for all
nominees listed below
Jack H. Castle, Jr., Jack H. Castle, D.D.S., Robert J. Cresci, G. Kent Kahle,
Elizabeth A. Tilney, Emmett E. Moore and John J. Roberts to hold office until
the 2000 Annual Meeting and until their successors are elected and qualifed.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME HERE:
- --------------------------------------------------------------------------------
(continued and to be signed on other side)
PROPOSAL 2: Appointment of PricewaterhouseCoopers LLP as auditors for the
Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please check the following box if you plan to attend the Annual Meeting of
Stockholders in person. [ ]
ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE DIRECTED,
WILL BE VOTED "FOR" PROPOSAL 1 (ALL NOMINEES), "FOR" PROPOSAL 2 AND IN
ACCORDANCE WITH THE DISCRETION OF THE PERSON VOTING THE PROXY WITH RESPECT TO
ANY OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING.
YOU MAY REVOTE THIS PROXY AT ANY TIME PRIOR TO A VOTE THEREON.
Dated: ___________________, 1999
________________________________
Signature
________________________________
(Signature if held jointly)
Please sign exactly as name
appears on this card. Joint
owners should each sign.
Executors, administrators,
trustees, etc. should give their
full titles.
Please complete, sign and
promplty mail this proxy in the
enclosed envelope.
