<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] 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
SAFEGUARD HEALTH ENTERPRISES, 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):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] 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 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[X] 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:
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Notes:
<PAGE>
SAFEGUARD HEALTH ENTERPRISES, INC.
505 NORTH EUCLID STREET, ANAHEIM, CALIFORNIA 92801
[LOGO of SAFEGUARD]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, MAY 22, 1996
Notice is hereby given that the Annual Meeting of Stockholders of Safeguard
Health Enterprises, Inc., a Delaware Corporation (the "Company") will be held at
the executive offices of the Company, located at 505 North Euclid Street, Fourth
Floor, Anaheim, California 92801 on Wednesday, May 22, 1996, at 4:00 o'clock
p.m., Pacific Daylight Time, for the following purposes:
1. To elect two directors to serve for a three-year term expiring in 1999
and until their respective successors are duly qualified and elected;
2. To consider and vote upon a proposal recommended by the Board of
Directors to amend the Company's Certificate of Incorporation to provide
that special meetings of the stockholders of the Company be called only
by a majority of the Board of Directors, the Executive Committee, if
any, or the Chairman of the Board;
3. To consider and vote upon a proposal recommended by the Board of
Directors to amend the Company's Certificate of Incorporation to add a
provision concerning the stockholder approval level required prior to
the Company's entering into certain business combinations or the sale of
the Company's assets; and
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
In accordance with the Bylaws of the Company, the Board of Directors has
fixed the close of business on Friday, March 29, 1996, as the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof.
Representation of at least a majority of all outstanding shares of the
Company's Common Stock is required to constitute a quorum. Accordingly, it is
important that your stock be represented at the meeting. WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE TO BE SURE THAT YOUR SHARES ARE
VOTED. No proxy will be used if the stockholder is personally present at the
Annual Meeting and expresses a desire to vote such shares in person.
BY ORDER OF THE BOARD OF DIRECTORS,
RONALD I. BRENDZEL
Secretary
April 19, 1996
Anaheim, California
<PAGE>
SAFEGUARD HEALTH ENTERPRISES, INC.
505 NORTH EUCLID STREET, ANAHEIM, CALIFORNIA 92801
PROXY STATEMENT
ANNUAL MEETING: MAY 22, 1996
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware
corporation (the "Company"), of proxies to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") which will be held at the executive offices
of Safeguard Health Enterprises, Inc., 505 North Euclid Street, Fourth Floor,
Anaheim, California 92801 on Wednesday, May 22, 1996, at 4:00 o'clock p.m.,
Pacific Daylight Time, and any adjournments or postponements thereof. This Proxy
Statement, Notice of Annual Meeting of Stockholders and enclosed proxy card are
being mailed to stockholders on or about April 19, 1996.
COSTS OF SOLICITATION OF PROXIES
The entire cost of soliciting proxies will be borne by the Company.
Arrangements may be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxies and proxy material to the beneficial owners of
stock and such persons may be reimbursed for their expenses. Proxies may be
solicited by directors, officers or employees of the Company in person or by
telephone or telegraph. No additional compensation will be paid to these
individuals for such services. Except as described above, the Company does not
intend to solicit proxies other than by mail. This Proxy is being solicited on
behalf of the Board of Directors. The Company may also reimburse nominee
holders and their agents for any direct costs that they may incur in obtaining
from their stockholders authorizations to execute proxies.
OUTSTANDING SECURITIES AND VOTING RIGHTS; REVOCABILITY OF PROXIES
The close of business on March 29, 1996, was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting. As of
that date, there were 4,707,500 shares of the Company's common stock, $.01 par
value (the "common stock"), issued and outstanding, not including those shares
held as treasury stock. All of the shares of the Company's common stock
outstanding on the record date, are entitled to vote at the Annual Meeting.
Under the General Corporation Law of the State of Delaware, each share is
entitled to one vote which means the affirmative vote of a simple majority of
the voting shares shall be sufficient to elect directors pursuant to Proposal
No. 1, and approve Proposal No. 3, relating to the approval level required for
certain business combinations; and the affirmative vote of sixty-six and
two/thirds percent of the shares shall be sufficient to approve Proposal No. 2.
The holders of a majority of the shares of the Company's common stock
outstanding on the record date and entitled to be voted at the Annual Meeting,
present in person or by proxy, will constitute a quorum for the transaction of
business at the Annual Meeting and any adjournments and postponements thereof.
Abstentions and broker non-votes are counted for the purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
are counted in tabulations of the votes cast on proposals presented to
stockholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
A stockholder giving a proxy pursuant to the present solicitation may
revoke it at any time before it is exercised by giving a subsequent proxy or by
delivering to the Secretary of the Company a written notice of revocation prior
to the voting of the proxy at the Annual Meeting. No proxy will be used if the
stockholder is personally present at the Annual Meeting and expresses a desire
to vote such shares in person.
The purpose of the Annual Meeting and the matters to be acted upon are set
forth in the preceding Notice of Annual Meeting of Stockholders. Shares of the
Company's common stock represented by proxies in the accompanying form which are
properly executed and returned will be voted at the Annual Meeting of
Stockholders in accordance with the stockholders' instructions contained
therein. In the absence of contrary instructions, shares represented by such
proxies will be voted FOR all proposals herein. As of the date of this Proxy
Statement, the Board of Directors knows of no other business which will be
presented for consideration at the Annual Meeting other than is set forth
herein. However, if any such other business shall properly come before the
Annual Meeting, votes will be cast pursuant to said proxies in respect of any
such other business in accordance with the judgment of the persons acting
thereunder. The enclosed proxy confers discretionary authority with respect to
any other proposals which properly may be brought before the Meeting.
1
<PAGE>
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Board of Directors and Nominees.
The nominees for the Board of Directors are Steven J. Baileys, D.D.S., a
current officer and director, and George H. Stevens, a current director,
constituting all of the Directors of Class III of the Company's three classes of
directors. At the Company's meeting of the Board of Directors held in January
1996, the number of members of the Board of Directors was decreased from seven
to six. Dr. Baileys and Mr. Stevens have been nominated to serve as Class III
Directors for a three-year term and until their successors are duly qualified
and elected. The proxy holders intend to vote all proxies received by them in
the accompanying form for the nominees unless otherwise instructed. In the
event any nominee is unable or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them for Dr. Baileys and Mr.
Stevens. As of the date of this Proxy Statement, management has no reason to
believe that any nominee will be unavailable to serve.
The following information sets forth biographical information, as of March
29, 1996, for the nominees for director and of other directors who will continue
in office after the Annual Meeting:
<TABLE>
<CAPTION>
DIRECTOR CLASS AND YEAR
NAME AGE PRINCIPAL OCCUPATION SINCE TERM EXPIRES
- ---- --- -------------------- -------- ---------------
<S> <C> <C> <C> <C>
Steven J. Baileys, D.D.S. 42 Chairman, President and Chief Executive 1974 Class III/ 1996
Officer of the Company
Ronald I. Brendzel, J.D. 46 Senior Vice President, Chief Financial 1989 Class II/ 1998
Officer and Secretary of the Company
William E. McKenna 76 General Partner, MCK Investment Company 1983 Class I/ 1997
Michael M. Mann, Ph.D. 56 President, Blue Marble Development 1987 Class II/ 1998
Group, Inc.
George H. Stevens 42 President, Belle Haven Marina, Inc. 1989 Class III/ 1996
Bradford M. Boyd, D.D.S. 45 Dentist, Bradford M. Boyd, D.D.S. 1995 Class II/1998
</TABLE>
Dr. Baileys is Chairman, President and Chief Executive Officer of the
Company. He has been President since 1981, Chief Executive Officer since May
1995 and Chairman since September 1995. He was Chief Operating Officer from 1981
until May 1995. From 1975 until 1981, Dr. Baileys served in a variety of
executive and administrative capacities with the Company. Dr. Baileys is also
licensed to practice dentistry in the State of California. Dr. Baileys is the
brother-in-law of Mr. Brendzel.
Mr. Brendzel is Senior Vice President, Chief Financial Officer, Secretary
and a Director of the Company. He was Vice President-Corporate Development from
August 1980 to April 1986, General Counsel from August 1980 to May 1987 and held
various executive and administrative positions from July 1978 until August 1980.
Mr. Brendzel is a member of the California State Bar and is licensed to practice
law in the State of California. He is also a member of the California Knox-Keene
Health Care Service Plan Advisory Committee, which assists the California
Department of Corporations in regulating prepaid health care plans. Mr. Brendzel
is also a former member of the Texas Health Maintenance Organization Solvency
Surveillance Committee which assists the Texas Department of Insurance in
regulating health maintenance organizations.
Mr. McKenna has been a Director of the Company since September 1983. Since
December 1977, Mr. McKenna has been a general partner of MCK Investment Company,
a private investment company. Mr. McKenna was Chairman of the Board of
Directors of Technicolor, Inc. from 1970 to 1976 and was formerly Chairman of
the Board of Directors and Chief Executive Officer of Hunt Foods & Industries,
Inc. and its successor, Norton Simon, Inc. From 1960 to 1967, Mr. McKenna was
associated with Litton Industries, Inc. as a Director and in various executive
capacities. He is currently a Director of California Amplifier, Inc., Calprop
Company, Drexler Technology Company, WMS Industries, Inc. and Williams
Hospitality Group, Inc.
2
<PAGE>
Dr. Mann has been a Director of the Company since May 1987. He is also
Chairman, President and Chief Executive Officer of Blue Marble Development
Group, Inc., and Chairman of Blue Marble Partners, international corporate
development and consulting firms. During the period from September 1987 to July
1988, Dr. Mann was a Senior Consultant of Arthur D. Little, Inc. From August
1986 until September 1987, Dr. Mann was a partner of Mann, Kavanaugh, Chernove &
Associates, a business development firm. He was President, Chief Executive
Officer and a director of Helionetics, Inc., a defense, energy and signal
information processing company, from December 1984 to July 1986, and Executive
Vice President from April to December 1984. Dr. Mann is currently the Chairman
of the Board of Encompass Technologies Inc., and a Director of Datum, Inc. and
Management Technology, Inc.
Mr. Stevens has been a Director of the Company since May 1989. Since 1982,
he has been President of Belle Haven Marina, Inc., a privately held leisure and
recreational organization located in Virginia. He is also President of Kingfish
Company, a privately held corporation which is engaged in the business of
chartering pleasure yachts in the mid Atlantic region. Mr. Stevens is also the
owner of Mariner Sailing School located in Virginia. Mr. Stevens' combined
organization is the largest operator of recreational vessels in the Washington
D.C. area.
Dr. Boyd has been a Director of the Company since May 1995. He is licensed
to practice dentistry in the State of California and since 1983, has been the
sole proprietor of Bradford M. Boyd, D.D.S. located in Lancaster, California.
Dr. Boyd also is a private investor. He is a member of the American Dental
Association, California Dental Association and San Fernando Valley Dental
Society. He is also a member of the Board of Directors of High Desert Children's
Dental, a charity organization providing free dental services to underprivileged
children.
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors conducted five meetings during fiscal year 1995. All
of the persons who were Directors of the Company during fiscal year 1995, and
who are currently Directors of the Company, attended at least 75 percent of the
aggregate of: (i) the total number of meetings of the Board of Directors, and
(ii) the total number of meetings held by the committee on which they served
during fiscal year 1995.
Compensation of Directors.
Directors who were not otherwise employed by the Company were paid an
annual fee of $15,000 during fiscal year 1995. Each non-employee Board of
Directors member, pursuant to the Company's Automatic Option Grant program,
received an automatic option grant in November 1995 to purchase 2,000 shares of
the Company's common stock under its Stock Option Plan with an exercise price of
$11.50 per share, the market price of the common stock on the grant date. Each
option has a maximum term of ten years and will become exercisable for all of
the option shares upon the optionee's completion of one year of Board of
Directors service measured from the grant date.
Audit Committee.
The Audit Committee is composed of Messrs. McKenna, Stevens, and Drs. Mann
and Boyd, and is chaired by Mr. McKenna. The Audit Committee met three times in
fiscal year 1995. The functions performed by the Audit Committee included
recommendations to the Board of Directors regarding the selection of independent
accountants to serve the Company for the ensuing year, reviewing with the
independent accountants and management the general scope and results of the
Company's annual audit, the fees charged by the independent accountants and
other matters relating to internal control systems. In addition, the Audit
Committee is responsible for reviewing and monitoring the performance of non-
audit services by the Company's auditors and for recommending the engagement or
discharge of the Company's independent accountants.
Nominating Committee.
The Nominating Committee consists of Mr. McKenna, and Drs. Mann and Boyd,
and is chaired by Dr. Mann. The primary responsibilities of the Nominating
Committee are to consider and make recommendations to the full Board of
Directors of candidates to serve as Directors of the Company. The Nominating
Committee met in March 1996 and recommended Steven J. Baileys, D.D.S. and George
H. Stevens to serve as Directors of the Company. All members of the Nominating
Committee attended this meeting. The Nominating Committee will not consider
nominees recommended by stockholders.
3
<PAGE>
Compensation and Stock Option Committee.
The Company's Compensation and Stock Option Committee was formed in May
1995, resulting from the combination of the Company's former Compensation
Committee and Stock Option Committee. This Committee is composed of Drs. Mann
and Boyd, and Messrs. McKenna and Stevens, and is chaired by Mr. McKenna. All
members of the Compensation and Stock Option Committee are non-employee
directors. The Committee is responsible for reviewing the performance of the
officers of the Company and, subject to any existing employment agreements,
establishing the annual compensation for all officers, including salary and
perquisites. The Committee is also primarily responsible for the administration
of the Company's Employee Stock Option Plan. The Compensation and Stock Option
Committee met five times during fiscal year 1995.
CERTAIN TRANSACTIONS
Since January 1, 1983, the Company has leased property for a dental office
located in Riverside, California from Community Dental Properties
("Properties"), a general partnership of which Steven J. Baileys, D.D.S., Ronald
I. Brendzel, and certain former employees of the Company, are partners. The
partnership interests are as follows: Dr. Baileys, 10 percent; Mr. Brendzel, 2.5
percent; and certain former employees of the Company, 87.5 percent. The lease
requires monthly payments of $1,000. The lease expires on June 30, 1996. During
fiscal 1995, the Company paid Properties $12,000 under the lease.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the common stock
of the Company as of March 29, 1996, by each director, each executive officer
named in the Summary Compensation Table below and all current directors and
officers as a group. All shares are subject to the named person's sole voting
and investment power, except where otherwise indicated.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT OF
NAME OWNED (1) CLASS
- ---- ------------ -----------
<S> <C> <C>
Steven J. Baileys, D.D.S. (2) 848,334 17.0
Ronald I. Brendzel, J.D. (3) 166,573 3.3
William E. McKenna (4) 26,500 *
Michael M. Mann, Ph.D. (5) 19,000 *
George H. Stevens (6) 14,350 *
John E. Cox 10,000 *
Wayne K. Butts (7) 10,000 *
Bradford M. Boyd, D.D.S. 1,080 *
All current officers and
directors as a group (14 persons) 1,096,170 22.0
</TABLE>
_______________________
* Less than one percent
(1) Some of the stockholders included in this table reside in states having
community property laws under which the spouse of a stockholder in whose
name securities are registered may be entitled to share in the management
of their community property which may include the right to vote or dispose
of such shares, and includes options to purchase 270,667 shares of common
stock exercisable as of March 29, 1996, or within sixty days thereafter.
(2) The share indicated include options to purchase 153,334 shares of common
stock, but does not include 190,306 shares of common stock representing
3.8%, held in trust for various relatives of Dr. Baileys, for which trusts
Dr. Baileys is co-trustee, and of which Dr. Baileys disclaims beneficial
ownership.
(3) Includes options to purchase 55,000 shares of common stock.
(4) Includes options to purchase 19,000 shares of common stock.
(5) Represents options to purchase 19,000 shares of common stock.
(6) Includes options to purchase 14,000 shares of common stock.
(7) Represents options to purchase 10,000 shares of common stock.
4
<PAGE>
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 and executive officers, and persons who own more than ten percent of
the Company's common stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers. Officers, directors and greater
than ten-percent beneficial owners are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file. Specific due dates for these reports have been established and
the Company is required to disclose in this Proxy Statement any late filings
during the most recent fiscal year. To the Company's knowledge, based solely on
its review of the copies of such reports required to be furnished to the Company
during the most recent fiscal year, all of these reports were timely filed.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to those persons
who, to the Company's knowledge, beneficially owned five percent or more of the
Company's common stock as of March 29, 1996, except with respect to the Baileys
Family Trust, Dimensional Fund Advisors, Inc., Brinson Partners, Inc., T. Rowe
Price Associates, Inc. and College Retirement Equities Fund, which are stated as
of December 31, 1995, based on filings made with the Securities and Exchange
Commission. For purposes of this Proxy Statement, beneficial ownership of
securities is defined in accordance with the rules and regulations of the
Securities and Exchange Commission and generally means the power to vote or
dispose of securities regardless of any economic interest therein.
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
- ------------------------ ----------------------------- ----------------
<S> <C> <C>
Steven J. Baileys, D.D.S. (2) 848,334 17.0
Baileys Family Trust (3) 813,461 16.3
Brinson Partners, Inc. (4) 477,000 9.6
T. Rowe Price Associates, Inc. (5) 434,000 8.7
Dimensional Fund Advisors, Inc. (6) 290,800 5.8
College Retirement Equities Fund (7) 218,700 4.4
All Principal Stockholders 3,090,627 62.1
</TABLE>
_________________
(1) Except as otherwise stated herein, the persons and entities named in the
table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them, subject to community
property laws where applicable, and include all shares held of record on
March 29, 1996, and shares subject to options outstanding and exercisable
within sixty days thereafter.
(2) Steven J. Baileys, D.D.S., an officer and director of the Company, located
at 505 North Euclid Street, P. O. Box 3210, Anaheim, California 92803-3210,
has sole voting and investment power with respect to the shares indicated.
The shares indicated include options to purchase 153,334 shares of common
stock, but does not include 190,306 shares of common stock representing
3.8%, held in trust for various relatives of Dr. Baileys, for which trusts
Dr. Baileys is co-trustee, and of which Dr. Baileys disclaims beneficial
ownership.
(3) Baileys Family Trust, located at 25985 Poker Flats Place, Laguna Hills,
California, has sole voting and investment power with respect to the shares
indicated. A Schedule 13G dated January 31, 1996, was filed with the
Securities and Exchange Commission with respect to such shares.
(4) Brinson Partners, Inc. ("BPI"), a wholly owned subsidiary of Brinson
Holdings, Inc. ("BHI") and Brinson Trust Company ("BTC"), a wholly owned
subsidiary of BPI, 209 South La Salle, Chicago, Illinois, 60604-1295 have
sole voting and dispositive power of the shares indicated. A Schedule 13G
dated February 9, 1996, was filed with the Securities and Exchange
Commission with respect to such shares.
(5) These securities are owned by various individual and institutional
investors including T. Rowe Price Small Cap Value Fund, Inc., which owns
434,000 shares of the Company's common stock, and T. Rowe Price Associates,
Inc. which owns 34,000 shares of the Company's common stock, representing a
total of 8.7 percent of the shares outstanding, which T. Rowe Price
Associates, Inc. ("Price Associates") serves as investment advisor with
power to direct investments and/or sole power to vote the securities. For
purposes
5
<PAGE>
of the reporting requirements of the Securities Exchange Act of 1934, Price
Associates is deemed to be a beneficial owner of such securities; however,
Price Associates expressly disclaims that it is, in fact, the beneficial
owner of such securities. The address of T. Rowe Price Associates, Inc. is
100 E. Pratt Street, Baltimore, Maryland 21202. A Schedule 13G dated
February 14, 1996, was filed with the Securities and Exchange Commission
with respect to such shares.
(6) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 290,800 shares of the
Company's common stock as of December 31, 1995, all of which shares are
held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, the DFA Investment Trust Company, a registered
open-end investment company, or the DFA Group Trust and the DFA
Participating Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager.
Dimensional expressly disclaims beneficial ownership of such shares.
Dimensional is located at 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401. A Schedule 13G dated February 7, 1996, was filed with
the Securities and Exchange Commission with respect to such shares.
(7) College Retirement Equities Fund, located at 730 Third Avenue, New York,
New York 10017-3206, has sole voting and investment power with respect to
the shares indicated. A Schedule 13G dated February 1, 1996, was filed
with the Securities and Exchange Commission with respect to such shares.
_______________________
COMPENSATION OF EXECUTIVE OFFICERS
The following table discloses compensation received by the Company's Chief
Executive Officer and the four remaining most highly paid executive officers for
the previous three fiscal years ended December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------------------------------------
Name and Principal Position Year Salary ($) Bonus ($) Other($)(5) Options (#)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alvin M. Baileys, Chairman of the 1995 162,250 * * *
Board of Directors and Chief Executive 1994 300,000 * * *
Officer (1) 1993 300,000 * * 35,000
Steven J. Baileys, D.D.S., 1995 335,703 * 1,260 50,000
Chairman of the Board of Directors, 1994 300,000 20,000 * *
President and Chief Executive Officer (2) 1993 300,000 7,750 * 45,000
John E. Cox, Executive Vice 1995 136,059 * * 50,000
President and Chief Operating 1994 * * * *
Officer (3) 1993 * * * *
Ronald I. Brendzel, J.D., Senior 1995 152,598 * 900 5,000
Vice President, Chief Financial 1994 152,004 10,000 * *
Officer and Secretary 1993 146,000 7,500 * 20,000
Kent D. Rademacher, Senior Vice 1995 141,902 * 521 *
President, Director of Dental 1994 200,000 15,000 * *
Office Operations (4) 1993 200,000 10,000 * 30,000
Wayne K. Butts, Senior Vice 1995 125,000 * 184 5,000
President, Director of Regional 1994 95,000 2,500 * *
Operations 1993 95,000 * * 10,000
</TABLE>
____________________
* None
(1) Deceased
(2) Became Chief Executive Officer in May 1995 and Chairman in August 1995
(3) Joined the Company as of May 25, 1995
(4) Resigned September 22, 1995
(5) Represents premiums paid for life insurance policies for the named
individuals
6
<PAGE>
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
The Company has written employment agreements with Steven J. Baileys,
D.D.S., John E. Cox, Ronald I. Brendzel, J.D., and Wayne K. Butts. The
employment agreements for Dr. Baileys, Mr. Cox, Mr. Brendzel and Mr. Butts are
for a term through May 31, 2000, and provide for an annual salary of $400,000,
$200,000, $185,000 and $125,000, respectively. The Company may terminate the
agreements for cause. The employee may terminate his agreement for any reason.
Should there be a change in control of the Company in that more than fifty
percent of the Company's then outstanding common stock is purchased by a then
non-existing stockholder, and newly elected Directors constitute a majority of
the Company's Board of Directors, the employee may terminate his employment. In
such event, the Company would be obligated to pay Dr. Baileys, Mr. Cox and Mr.
Brendzel an amount equal to three times, and in the case of Mr. Butts, one times
the employee's then current salary and bonus, paid on or before the fifth day
following such change in control, along with the continuance of all employee
benefits for the length of the employment agreement.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during the fiscal year ended December 31, 1995, to the named executives:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants for Option Term(2)
- -----------------------------------------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted(#)(1) in Fiscal Year ($/Share) Date 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alvin M. Baileys * * * * * *
Steven J. Baileys, D.D.S. 50,000 41.0 9.90 1/9/00 79,327 229,730
John E. Cox 50,000 41.0 10.25 5/25/05 220,503 654,684
Ronald I. Brendzel, J.D. 5,000 4.1 9.00 1/9/05 28,300 71,718
Wayne K. Butts 5,000 4.1 9.00 1/9/05 28,300 71,718
Kent D. Rademacher * * * * * *
</TABLE>
_____________________
* None.
(1) All options were granted under the Company's Stock Option Plan. The
options described in this column vest in equal one-third amounts over a
three year period following the date of grant. Unvested options terminate
upon the employee's termination, for any reason.
(2) Potential realizable value is based on an assumption that the market price
of the stock of $11.625 as of December 31, 1995, appreciates at the stated
rate, compounded annually, from the date of grant to the expiration date.
These values are calculated based on requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price appreciation. Actual gains, if any, are
dependent on the future market price of the Company's common stock.
7
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the named
executive officers and indicated groups concerning the exercise of options
during fiscal year December 31, 1995, and unexercised options held as of
December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of
Acquired Value Underlying Unexercised Unexercised In-the-Money
Name on Exercise(#) Realized($) Options at FY-End(#) Options at FY-End($)(1)(2)
- -------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alvin M. Baileys 158,667 1,025,733 * * * *
Steven J. Baileys, D.D.S. 50,000 347,500 115,000 80,000 108,333 66,667
John E. Cox * * * 50,000 * 50,000
Ronald I. Brendzel, J.D. * * 36,666 18,334 33,333 11,667
Wayne K. Butts * * 3,334 11,666 1,667 8,333
Kent D. Rademacher 21,666 19,375 * * * *
All current executive
officers as a group
(10 persons) 50,000 347,500 155,000 161,000 143,333 137,667
All current directors who
are not executive officers
as a group (4 persons) * * 52,000 8,000 52,000 8,000
All employees, who are
not executive officers as
a group (14 persons) * * 4,000 16,000 2,333 12,667
</TABLE>
________________________
* None.
(1) Assumes a price per share of $11.625 as of December 31, 1995. Gains are
reported net of the option exercise price but before taxes associated with
exercise. Actual gains, if any, on stock option exercises are dependent on
future performance of the common stock, as well as the optionee's continued
employment throughout the vesting period.
(2) No stock appreciation rights were outstanding at the end of the 1995 fiscal
year or exercised during that year.
8
<PAGE>
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Philosophy.
The Compensation and Stock Option Committee of the Board of Directors (the
"Committee") has the responsibility for establishing the base salary of the
Executive Officers, and approving prerequisites and bonus grants made to these
individuals. Option grants to Executive Officers are made under the Company's
Stock Option Plan by the Committee.
The Company applies a consistent philosophy to compensation for all
employees, including senior management. This philosophy is based on the premise
that the achievements of the Company result from the coordinated efforts of all
individuals working toward common objectives. The Company strives to achieve
those objectives through teamwork focused on meeting the expectation of its
clients and stockholders.
Since its inception, the Company has maintained the philosophy that
executive compensation levels should be competitive and consistent with that
provided to others in the managed health care industry to assist the Company in
attracting and retaining qualified executives critical to the Company's long
term success. The Committee will follow this philosophy in setting the
compensation levels for the Executive Officers. Accordingly, the compensation
package of each Executive Officer will continue to be comprised of three
elements: (i) base salary which reflects individual performance and contribution
to the Company, (ii) annual bonus awards payable in cash and tied to the
Company's achievement of financial targets, and (iii) long-term stock based
incentive awards designed to strengthen the mutuality of interests between the
Executive Officers and the Company's stockholders.
Cash Based Compensation.
Salary. Consistent with the Company's position, the Committee's approach to
base compensation is to offer competitive salaries in comparison with market
practices. Salary decisions are based on an annual review considering the
decision-making responsibilities of each position and the experience, work
performance, and team-building skills of position incumbents. During 1995, the
compensation for the Company's President and Chief Executive Officer was
increased to an amount consistent with the individual's increase in
responsibility in assuming the position of Chief Executive Officer and Chairman
of the Board of Directors. The compensation of the Company's President and Chief
Executive Officer, and Senior Vice President and Chief Financial Officer for the
fiscal year ended December 31, 1995, was determined pursuant to five-year
employment agreements entered into during the fiscal year. The compensation of a
Senior Vice President of the Company was increased consistent with this
individual's assumption of the responsibilities of the Company's Regional
Operations.
During 1995, the Company hired a new Executive Vice President and Chief
Operating Officer, and Vice Presidents/Operations Officers for its indemnity
insurance and dental office subsidiaries. Compensation for the Executive Vice
President and Chief Operating Officer was determined pursuant to a five year
employment contract entered into during the fiscal year. The level of
compensation was based upon this individual's prior experience, reputation and
knowledge of the Company's lines of business. The same criteria was used for
the other new executive officers hired during 1995.
The cash salary of each of the other Executive Officers is determined by
the individual's performance and past and potential contributions to the
Company. This particular component of executive compensation is not affected to
any significant extent by the Company performance factors. However, the
Committee believes that the Company's use of stock options as the main
supplement to base salary, results in the compensation of its Executive Officers
and other key employees being related to the Company's performance.
9
<PAGE>
The Committee did not provide for any qualifying compensation to be paid to
any Executive Officer for deductibility under Section 162(m) of the Internal
Revenue Code for 1995. The Committee has not provided for such qualifying
compensation and does not intend on providing for such qualifying compensation
to its Executive Officers in the foreseeable future.
Bonuses. The Committee has in the past and may in the future, authorize the
payment of discretionary bonus compensation based upon an assessment of an
individual's exceptional contributions to the Company. Bonuses are based upon
the overall achievement in increasing the Company's revenue, its level of
profitability and increasing the number of members covered by the benefit plans
provided by the Company during 1995, notwithstanding the overall decline in the
economy in many of the markets in which the Company operates. In 1995, the
Committee did not authorize that any bonus be paid to any Executive Officer.
As a general matter, the Committee endorses the philosophy that executive
compensation should reflect company performance. The Company, to date, has not
yet adopted any compensation plans which are tied directly to Company
performance by formula.
Equity Based Compensation.
The Executive Officers have, from time to time, received option grants
under the Company's Stock Option Plan. The purpose of this plan is to provide
such individuals with additional incentives to maximize stockholder value. The
Stock Option Plan also utilizes vesting periods to encourage key employees to
continue in the employ of the Company. The size of the option grant to each
Executive Officer is set at a level which is intended to create a meaningful
opportunity for stock ownership based upon the individual's current position
with the Company and may also be based in part upon Company performance factors
such as earnings per share and revenue growth. However, the extent to which
these latter factors are taken into consideration will vary from individual to
individual at the Committee's sole discretion. In 1995, the Committee granted
stock options to Executive Officers as listed in the previous table.
Chief Executive Officer Compensation.
The process of determining the compensation for the Company's President and
Chief Executive Officer and the factors taken into consideration in such
determination are generally the same as the process and factors used in
determining the compensation of all of the Company's Executive Officers. The
Committee considers both the Company's overall performance and the President and
Chief Executive Officer's individual performance. Dr. Baileys' salary was
determined based on an analysis of salaries paid by peer companies and on Dr.
Baileys' knowledge, experience and individual performance.
COMPENSATION AND STOCK OPTION COMMITTEE
William E. McKenna, Chairman
Michael M. Mann, Ph.D.
George H. Stevens
Bradford M. Boyd, D.D.S.
10
<PAGE>
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served on the Compensation and Stock Option Committee
of the Company's Board of Directors during fiscal year 1995: William E. McKenna,
Michael M. Mann, Ph.D., George H Stevens and Bradford M. Boyd, D.D.S. None of
theses persons is a current or former officer or employee of the Company. There
are no "interlocks," as defined by the Securities and Exchange Commission, with
respect to any member of the Compensation and Stock Option Committee.
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total stockholder return on stock with: (i) the cumulative total
return of the NASDAQ market index, and (ii) the cumulative total return of the
National Association of Securities Dealers Health Services Industry Index over
the period December 31, 1990 through December 31, 1995.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG SFGD, NASDAQ AND HEALTH SERVICE
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period HEALTH
(Fiscal Year Covered) SFGD NASDAQ SERVICE
- ------------------- ---------- -------- -------
<S> <C> <C> <C>
Measurement Pt- 1990 100 100 100
FYE 1991 197.4 160.6 222.6
FYE 1992 205.3 186.9 230.6
FYE 1993 289.5 214.5 266.0
FYE 1994 194.7 209.7 285.6
FYE 1995 244.7 296.3 364.9
</TABLE>
The graph shall not be deemed incorporated by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act or under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
11
<PAGE>
PROPOSALS TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION REGARDING
WHO MAY CALL A SPECIAL MEETING OF STOCKHOLDERS, AND TO INCREASE
THE VOTE REQUIRED TO OBTAIN STOCKHOLDER APPROVAL
OF ANY MERGER OR SALE OF THE COMPANY
General.
The Board of Directors has unanimously approved and recommended for
stockholder approval two proposals concerning amendments to the Company's
Certificate of Incorporation (the "Certificate"). In Proposal No. 2, the Board
of Directors is recommending this amendment in an effort to increase stockholder
value by requiring that special meetings of stockholders be called only by a
majority of the Board of Directors, the Executive Committee, if any, or the
Chairman of the Board of Directors. In Proposal No. 3, the Board of Directors is
recommending an amendment which requires that a potential purchaser of the
Company obtain approval for any merger or sale of the Company from at least
sixty-six and two/thirds percent of the outstanding stock of the Company
eligible to vote. It is the opinion of the Board of Directors that adoption of
both of these Proposals will make it more likely that a party desiring to
acquire control of the Company will negotiate with the Company. However, these
amendments to the Certificate may have the effect of discouraging a holder of a
large block of the Company's securities from attempting either or both of: (i) a
merger, tender offer, proxy contest or other assumption of control with or for
the Company, or (ii) the removal of incumbent management.
The Company is not aware of any proposed attempt to obtain control of the
Company or of any attempt to acquire a large block of the Company's common
stock, and the proposed amendments to the Certificate are not in response to any
specific effort to do so. The Company believes that the adoption of
anticipatory defensive measures is an advisable means of protecting the Company
from unfair takeover practices and increasing the Board's negotiating leverage
in the event of a hostile takeover attempt. The Company desires to utilize
appropriate defensive measures to force a prospective buyer to negotiate a
friendly transaction that could lead to enhanced stockholder values.
Pursuant to Proposal No. 2 described below, the Company's Certificate would
be amended to provide that special meetings of stockholders may be called at any
time only by a majority of the Board of Directors, by an Executive Committee, if
any, or by the Chairman of the Board of Directors. Proposal No. 3 would add a
new provision to the Certificate requiring that certain actions taken by
stockholders concerning a sale or merger of the Company be taken at a duly
called annual or special meeting of stockholders and be approved by at least
sixty-six and two/thirds percent, or any higher percentage required by law, of
the outstanding stock entitled to vote on the matter.
A description of each of the Proposals is set forth below. This description
is a summary only and is qualified in its entirety by reference to the text of
the Restated Certificate of Incorporation which will be substantially as set
forth in Appendix A to this Proxy Statement. The text of the Restated
Certificate of Incorporation in Appendix A, is subject to clerical and other
non-material revisions that the Board of Directors may determine are necessary.
The Proposals described herein were unanimously approved by the Board of
Directors in connection with the adoption of certain other defensive measures
including various amendments to the Company's Bylaws and a Stockholder Rights
Plan. The Company intends to regularly review and analyze its defensive
measures in order to protect stockholders from coercive takeover practices.
Purposes of Proposed Provisions.
The proposed amendments to the Company's Certificate are designed to
encourage any person that might seek to acquire control of the Company to
negotiate with the Company's Board of Directors. The Board of Directors believes
that, generally, the interests of the Company's stockholders would be best
served if any change of control results from negotiations with the Company's
directors concerning the proposed terms of the proposed transaction, such as the
price to be paid, the form of consideration, the equal treatment of all
stockholders, and the anticipated tax effects of the transaction.
12
<PAGE>
PROPOSAL NO. 2 - AMENDING THE CERTIFICATE OF INCORPORATION REGARDING WHO
MAY CALL A SPECIAL MEETING OF STOCKHOLDERS
There is currently a provision in the Company's Certificate that provides
that special meetings of the stockholders of the Company may be called at any
time by the Chairman, by an Executive Committee, if any, or by holders of not
less than ten percent of the Company's outstanding voting securities. Proposal
No. 2 amends Article Eighth of the Certificate to provide for special meetings
of the Company to be called only by the majority of the Board of Directors, an
Executive Committee, if any, or the Chairman of the Board of Directors, thereby
eliminating the ability of holders of not less than ten percent of the Company's
outstanding voting securities to call a special meeting of the stockholders.
Section 2.2 of the Company's Bylaws, is currently in conformity with the
proposed amendments to Article Eighth of the Company's Certificate, and this
amendment is to clarify and to make consistent the provisions between the
Company's Bylaws and Certificate.
The affirmative vote of sixty-six and two/thirds percent of the outstanding
shares of the common stock entitled to vote at the Annual Meeting of
Stockholders is required to approve this Proposal No. 2 amending the Company's
Certificate of Incorporation regarding who may call a special meeting of
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 2 CONCERNING
THE ENACTMENT OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO SPECIFY
WHO MAY CALL A SPECIAL MEETING OF STOCKHOLDERS.
PROPOSAL NO. 3 - AMENDING THE CERTIFICATE OF INCORPORATION TO INCREASE THE
VOTE REQUIRED TO OBTAIN STOCKHOLDER APPROVAL OF ANY
MERGER OR SALE OF THE COMPANY
Proposal No. 3 provides for an amendment to the Company's Certificate to
add a new Article Ninth, the "Stockholder Approval" provision. The Stockholder
Approval provision requires an affirmative vote of not less than sixty-six and
two/thirds percent of the outstanding voting stock of the Company be required
for the approval or authorization of any merger or consolidation of the Company,
or for the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company, to any other corporation, person or other
entity, provided however, that the sixty-six and two/thirds percent voting
requirement will not be applicable if the Board of Directors of the Company
approves the transaction in a resolution adopted by at least eighty percent of
the members of the Board of Directors. In addition, this new Article Ninth
cannot be repealed or amended without the approval of shares representing sixty-
six and two/thirds percent of the outstanding voting stock. Without considering
the effect of Section 203 of the Delaware General Corporation Law, the current
requirement for stockholder action for such matters is a simple majority of the
Company's voting stock.
Purposes and Effects.
By requiring that stockholder actions concerning a proposed merger or
consolidation of the Company, or the sale, lease, exchange or disposition of all
or substantially all of the assets of the Company, be approved by not less than
sixty-six and two/thirds percent of the voting stock of the Company, this
provision increases the probability that stockholders will be provided with
appropriate advance notice of a proposed action to acquire control of the
Company, and the opportunity to discuss the proposed actions with the Company
and other stockholders. The Board of Directors believes that this will assist
in providing stockholders with adequate information and permit the Board to
consider proposals that are made by other interested parties. The proposed
amendment would prevent a hostile buyer holding a majority but less than sixty-
six and two/thirds percent of the voting stock from being able to acquire
control of the Company without having discussions with the Board of Directors,
unless eighty percent of the members of the Board of Directors or sixty-six and
two/thirds percent of the stockholders vote in favor of a proposed business
combination. The effect of this proposal could make it more difficult to
acquire control of the Company and take other stockholder action, even though
such actions may be desired or beneficial to the holders of the majority of the
Company's stock. The proposal may also have the affect of delaying
consideration of a stockholder proposal until the next Annual Meeting of
Stockholders unless a special meeting is called by the Chairman of the Board of
Directors, a majority of the Board of Directors, or the Executive Committee
thereof, if any, assuming that Proposal No. 2 herein is approved.
13
<PAGE>
The Stockholder Approval provision is designed to give the Board of
Directors greater bargaining power to negotiate on behalf of all stockholders in
the event of a proposed takeover of the Company. If an offer is made to purchase
part or all of the outstanding shares of the Company at a premium above the then
market price of those securities, the Board of Directors might feel constrained
to support the offer even if the Board of Directors does not believe that the
offer is in the stockholders' best interest. The belief may be based upon a
number of factors, including for example, the belief that the Company has
significant additional value, not reflected in the then current market price
that would be realized in the longer term. While the Board of Directors believes
that it currently has the right and obligation to make those determinations, the
Board of Directors believes that this proposed amendment will provide additional
flexibility to the Board of Directors and to its stockholders so that the Board
of Directors may put potential acquirers on notice of the factors to be
considered by the Board of Directors. This provision may however, discourage or
make more difficult a takeover or acquisition of control of the Company and
result in management or other minority stockholders obtaining a veto power over
mergers or related transactions regardless of whether the transaction is desired
by or beneficial to a majority of the stockholders. The aggregate percentage of
outstanding voting securities beneficially owned by: (i) the current officers
and directors is equal to approximately twenty-two percent, and (ii) the
principal stockholders, including the Company's President and Chief Executive
Officer, is equal to approximately sixty-two percent.
A possible effect of the Stockholder Approval provision could be to deprive
stockholders of opportunities to realize a sale premium for their shares and to
reduce the risk to Management that Management may be displaced in a takeover
because potential acquirors may not be able to obtain the approval of at least
sixty-six and two/thirds percent of the outstanding voting stock of the Company
required by the Stockholder Approval provision. In an attempt to alleviate this
possible effect, the Stockholder Approval provision also contains a section
which eliminates the need for such sixty-six and two/thirds percent voting
requirement if the Board of Directors of the Company shall have approved the
transaction by resolution adopted by at least eighty percent of the members of
the Board of Directors.
Section 203 of the General Corporation Law of Delaware.
The Company is subject to Section 203 of the General Corporation Law of
Delaware, which regulates "business combinations," as defined in Section 203,
with "interested stockholders" (stockholders who hold fifteen percent or more of
the Company's outstanding voting stock). Section 203 defines "business
combinations" to include certain mergers, consolidations, asset sales, transfers
and other transactions resulting in a financial benefit to the "interested
stockholder." Section 203 prohibits any "business combination" with an
"interested stockholder" for a period of three years following the date that the
stockholder became an interested stockholder unless: (i) the business
combination or transaction that resulted in the stockholder becoming an
interested stockholder was approved by the Board of Directors of the Company
prior to the date that the stockholder became an interested stockholder, (ii)
upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least eighty-five
percent of the voting stock of the Company outstanding at the time the
transaction commenced (other than certain excluded shares), or (iii) the
business combination has been approved by the Board of Directors and authorized
at an annual or special meeting of stockholders, by the affirmative vote of at
least sixty-six and two/thirds percent of the outstanding voting stock that is
not owned by the interested stockholder.
The requirements of Section 203 are in addition to the requirements of the
Stockholder Approval provision described above. Therefore, a stockholder that
becomes an interested stockholder as that term is defined, will be required to
comply with both Section 203 and the Stockholder Approval provision in order to
enter into a business combination with the Company within three years after
becoming an interested stockholder. While the restrictions placed upon an
interested stockholder pursuant to Section 203 expires after three years, there
is no such expiration period provided in the Stockholder Approval provision.
The affirmative vote of the majority of the outstanding shares of the
common stock entitled to vote at the Annual Meeting of Stockholders is required
to approve this Proposal No. 3 amending the Company's Certificate of
Incorporation regarding the vote required to obtain stockholder approval of any
merger or sale of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 3 CONCERNING
THE ENACTMENT OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE
THE VOTE REQUIRED TO OBTAIN STOCKHOLDER APPROVAL OF ANY MERGER OR SALE OF THE
COMPANY.
14
<PAGE>
PROVISIONS OF THE COMPANY'S BYLAWS WITH ANTI-TAKEOVER EFFECTS
The Company's Bylaws currently contain certain provisions that may have an
anti-takeover effect. These Bylaws provisions were adopted in an attempt to
increase stockholder value by encouraging negotiations with the Company by
potential acquirors and providing stockholders with adequate time and
information within which to make decisions. Each of the applicable Bylaws
provisions are discussed below. The description is only a summary and is
qualified in its entirety by reference to the text of those provisions, which
will be provided to any stockholder upon written request to the Company.
Notice of Stockholder Business and Nominations. Article II, Section 2.13 of the
Bylaws, as amended, requires that nominations of persons for election to the
Board of Directors and the proposal of business to be considered by the
stockholders may be made at the Annual Meeting of Stockholders: (a) pursuant to
the Company's Notice of Meeting, (b) by or at the discretion of the Board of
Directors, or (c) by any stockholder of the Company who was a stockholder of
record at the time of giving of notice who is entitled to vote and complies with
the notice provisions of the Bylaws. Timely notice must be given. To be timely,
a stockholder's notice must be delivered to the Company not later than the close
of business on the sixtieth day and no earlier than the close of business on the
ninetieth day prior to the first anniversary of the preceding year's annual
meeting, except that in the event the date of the annual meeting is more than
thirty days before or more than sixty days after such anniversary date, notice
by the stockholder to be timely, must be delivered no earlier than the close of
business on the ninetieth day prior to such annual meeting and not later than
the close of business on the later of the sixtieth day prior to such annual
meeting, or the tenth day following the day on which public announcement of the
date of such meeting is first made by the Company. The notice must specify each
person whom the stockholder proposes to nominate for election as a director and
all information required pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended; a brief description of any business desired to
be brought before the meeting and such additional stockholder information
including, on whose behalf the nomination or proposal is made, the name and
address of each such stockholder as they appear on the Company's books and
records, and the class and number of shares of the Company which are
beneficially and of record owned by each such stockholder. Article VIII, Section
8.5 of the Bylaws, provides that the Bylaws may be adopted, repealed, rescinded,
altered or amended only as provided in the Company's Certificate of
Incorporation. Article Fifth of the Company's Restated Certificate of
Incorporation provides that this Bylaws Section may not be amended without an
affirmative vote of at least seventy-five percent of the directors, or the
approval of at least sixty-six and two/thirds percent of the outstanding stock
of the Company entitled to vote.
The Board of Directors believes that advanced notice of nominations by
stockholders will provide the Company with an opportunity to consider the
qualifications of the proposed nominees, and to the extent deemed necessary or
desirable by the Board of Directors, will provide an opportunity to inform
stockholders about these qualifications. This notice requirement may have the
effect of precluding the nomination of a person for election to the Board of
Directors at a particular meeting, if the proper procedures are not followed;
and may discourage or deter a stockholder from conducting a solicitation of
proxies to elect its own directors or otherwise attempting to obtain control of
the Company if that stockholder does not desire to provide the advance notice
required.
Vacancies, Additional Directorships and Removal of Directors. Article III,
Sections 3.5 and 3.6 of the Bylaws, describe how vacancies on the Company's
Board of Directors are filled, how additional directorships are created, and how
directors may be removed from office. Article Fifth of the Company's Restated
Certificate of Incorporation provides that any Bylaws amendment increasing or
reducing the authorized number of directors or otherwise amending or altering
the classified nature of the Board of Directors, shall require an affirmative
vote of at least seventy-five percent of the directors, or the approval of at
least sixty-six and two/thirds percent of the outstanding stock of the Company
entitled to vote. Newly created directorships resulting from any increase in
the number of directors and any vacancies on the Board of Directors resulting
from death, resignation or removal, shall be filled solely by an affirmative
vote of the majority of the remaining directors then in office, regardless of
their class, even though less than a quorum of the Board of Directors. A
director elected shall hold office for the remainder of the full term.
The purpose of these Bylaws Sections is to allow for the orderly election
of new directors in the case of an increase in the number of members of the
Board of Directors, or as a result of the death, resignation or removal of an
existing director. This provision may arguably have an anti-takeover effect by
limiting the number of directors which may be added or appointed to the Board of
Directors in that seventy-five percent of the directors must be in concurrence
with the selection, and not a simple majority.
15
<PAGE>
Classified Board. Article III, Section 3.3 of the Bylaws, specifies that there
be a classified board which provides that only a specified portion of the Board
of Directors is to be elected each year. Article Sixth of the Company's
Restated Certificate of Incorporation provides for a classified board stating
that the Board of Directors shall be divided equally into three classes with the
members of each class being elected every third year. Article Fifth of the
Company's Restated Certificate of Incorporation provides that this Bylaws
Section may not be amended without an affirmative vote of at least seventy-five
percent of the directors, or the approval of at least sixty-six and two/thirds
percent of the outstanding stock of the Company entitled to vote.
The purpose of this Bylaws Section is to create sufficient flexibility in
determining the number of directors, and the manner in which such directors are
elected. This provision may arguably have an anti-takeover effect by limiting
the number of directors that may be replaced at any Annual Meeting of
Stockholders.
Procedures Concerning Amendments to Bylaws. Article VIII, Section 8.5 of the
Bylaws, provides that the Bylaws of the Company may be adopted, repealed,
rescinded, altered or amended only in the manner set forth in the Company's
Certificate of Incorporation. Article Fifth of the Restated Certificate of
Incorporation provides that the Board of Directors may make, repeal, alter,
amend and rescind from time to time any or all of the Bylaws of the Company,
provided however, any Bylaws amendment adopted by the Board of Directors
increasing or reducing the authorized number of directors or otherwise amending
or altering the classified nature of the Board of Directors, shall require a
resolution adopted by an affirmative vote of not less than seventy-five percent
of the directors. Additionally, new bylaws may be adopted, or the Bylaws may be
amended or repealed by a vote of not less than sixty-six and two/thirds percent
of the outstanding stock of the Company entitled to vote thereon. Article
Seventh of the Company's Restated Certificate of Incorporation prohibits any
stockholder action from being taken except at an annual or special meeting of
stockholders. No stockholder action may be taken by written consent.
The Board of Directors believes these provisions will provide the Board of
Directors with an opportunity to consider the merits of any proposed amendments
to the Bylaws and to the extent necessary or desirable, will provide an
opportunity to inform all stockholders about the proposed amendments. This
provision may also discourage potential acquirors of the Company from attempting
to amend the Company's Bylaws to facilitate an acquisition. This may deter an
attempt to obtain control of the Company and could thereby deprive stockholders
of possible opportunities to realize premiums for their shares.
Potential Anti-Takeover Effects of Authorized and Unissued Shares of Preferred
Stock.
Under the Company's Certificate of Incorporation, the Board of Directors
has the authority to provide by resolution for the issuance of shares of one or
more series of preferred stock, and to establish the terms and conditions of
each series of preferred stock. One such action was the adoption by the Board of
Directors of a Stockholder Rights Plan which provides for the issuance of
preferred stock representing specified Rights, as specified in the Stockholder
Rights Plan more particularly described in the Company's Annual Report on Form
10-K, which was mailed concurrently with this Proxy Statement to all
stockholders of record as of March 29, 1996.
The Company believes that the availability of preferred stock will provide
the Company with increased flexibility to facilitate possible future financings
and acquisitions and to meet other corporate needs that might arise. The
authorized shares of preferred stock, will be available for issuance without the
expense and delay of stockholder actions, unless stockholder action is required
by applicable law or the rules of NASDAQ or any other stock exchange on which
any class of stock of the Company may then be quoted or listed. However, the
Company may determine at that time to forego any stockholder vote required by
NASDAQ or another stock exchange organization and allow the Company's stock to
be removed from trading on NASDAQ or from another stock exchange.
The Board of Directors has the power to approve the issuance of a series of
preferred stock with terms that could either impede or facilitate the completion
of a merger, tender offer or other takeover attempt. For example, the issuance
of new shares might impede a business combination if the terms of those shares
include voting rights to enable the holder to block business combinations. In
addition, the issuance of new shares might facilitate a business combination if
those shares have general voting rights sufficient to cause an applicable
percentage vote requirement to be satisfied. The Board of Directors will make
any determination regarding issuance of additional shares based on its judgment
as to the best interests of its stockholders, customers, employees or other
constituencies.
16
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FINANCIAL STATEMENTS
The Company's audited consolidated financial statements and notes thereto,
including selected financial data and management's discussion and analysis of
financial condition and results of operations for the fiscal year ended December
31, 1995, are included in the Company's 1995 Annual Report on Form 10-K, which
was mailed concurrently with this Proxy Statement to all stockholders of record
as of March 29, 1996. Additional copies of the 1995 Annual Report on Form 10-K
are available without charge upon request. Such requests should be directed to
Secretary, Safeguard Health Enterprises, Inc., 505 North Euclid Street, P.O. Box
3210, Anaheim, California 92803-3210, or by telephone, (714) 778-1005, or by
fax, (714) 758-4383.
INDEPENDENT ACCOUNTANTS
The Company's financial statements for the fiscal year ended December 31,
1995, have been audited by the independent accounting firm of Deloitte & Touche
LLP. A representative of Deloitte & Touche LLP will be present at the Annual
Meeting and will have the opportunity to make a statement if they so desire and
will be available to respond to appropriate questions. The selection of
independent accountants for the current year will be made by the Board of
Directors upon the recommendation of the Audit Committee, consistent with its
past practice of selecting independent accountants during the last quarter of
the Company's fiscal year. The Board of Directors believes that it appropriately
represents the stockholders' interest in this matter.
In connection with its annual audit of the Company's financial statements
for the fiscal years ended December 31, 1994 and 1995, there have been no
disagreements with Deloitte & Touche LLP on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Deloitte & Touche LLP, would have
caused Deloitte & Touche LLP to make reference thereto in their reports on the
financial statements for such years. The opinion of Deloitte & Touche LLP for
the fiscal years ended December 31, 1994 and 1995, did not contain an adverse
opinion or disclaimer of opinion and was not qualified or modified in anyway.
STOCKHOLDER PROPOSALS
Stockholder proposals for presentation at the 1997 Annual Meeting of
Stockholders and to be considered for inclusion in next year's proxy statement
must be received at the Company's principal executive offices on or before
December 20, 1996.
OTHER MATTERS
The Company is not aware of any matters that may come before the Annual
Meeting other than those referred to in the Notice of Annual Meeting of
Stockholders. If any other matters shall properly come before the meeting, the
persons named in the accompanying proxy form intend to vote thereon in
accordance with their best judgment.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS,
RONALD I. BRENDZEL
Secretary
April 19, 1996
Anaheim, California
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<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
SAFEGUARD HEALTH ENTERPRISES, INC.
FIRST. The name of the corporation is Safeguard Health Enterprises,
Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be now or hereafter organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the corporation
shall have authority to issue is Thirty-one Million (31,000,000), of which
Thirty Million (30,000,000) shares are Common Stock and One Million (1,000,000)
shares are Preferred Stock, and the par value of each such share is one cent
($.01), amounting in the aggregate to Three Hundred Ten Thousand Dollars
($310,000).
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article FOURTH, to provide for the
issuance of the shares of Preferred Stock in one or more series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in any such
series, and to determine or alter the designation, powers, preferences and
rights of the shares of each wholly unissued series and the qualifications,
limitations or restrictions thereof.
Within the limits and restrictions, if any, stated in any resolution
of the Board of Directors originally fixing the number of shares constituting
any series, the Board of Directors is authorized to increase or decrease (but
not below the number of shares of such series then outstanding) the number of
shares of any series subsequent to the issue of shares of such series. Except
as otherwise provided for in this Certificate of Incorporation, in case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
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(b) The dividend rate of the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption rate;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation, and
the relative rights of priority, if any, of payment of shares of that series;
(h) Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the common shares with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be sufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
FIFTH. In furtherance and not in limitation of powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend, and rescind from time to time any or all of the bylaws of the
corporation; provided, however, any bylaw amendment adopted by the Board of
Directors increasing or reducing the authorized number of directors or otherwise
amending or altering the classified nature of the Board of Directors, shall
require a resolution adopted by the affirmative vote of not less than seventy-
five (75%) percent of the directors. In addition, new bylaws may be adopted or
the bylaws may be amended or repealed by a vote of not less than sixty-six and
two-thirds (66 2/3%) percent of the outstanding stock of the corporation
entitled to vote thereon.
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<PAGE>
SIXTH. (a) The number of directors which shall constitute the whole
Board of Directors of this corporation shall be as specified in the bylaws of
this corporation, subject to the provisions of Article FIFTH hereof and this
Article SIXTH.
(b) The Board of Directors shall be and is divided into three classes:
Class I, Class II and Class III, which shall be as nearly equal in number as
possible. Each director shall serve for a term ending on the date of the third
annual meeting of stockholders following the annual meeting at which the
director was elected; provided, however, that each initial director in Class I
shall hold office until the annual meeting of stockholders in 1988; each initial
director in Class II shall hold office until the annual meeting of stockholders
in 1989; and each initial director in Class III shall hold office until the
annual meeting of stockholders in 1990. Notwithstanding the foregoing
provisions of this Article, each director shall serve until his successor is
duly elected and qualified or until his death, resignation or removal.
(c) In the event of any increase or decrease in the authorized number
of directors, (i) each director then serving as such shall nevertheless continue
as a director of the class of which he is a member until the expiration of his
current term, or his earlier resignation, removal from office or death, and (ii)
the newly created or eliminated directorship resulting from such increase or
decrease shall be apportioned by the Board of Directors among the three classes
of directors so as to maintain such classes as nearly equal as possible.
SEVENTH. No action shall be taken by the stockholders except at an
annual or special meeting of stockholders. No action shall be taken by
stockholders by written consent.
EIGHTH. Special meetings of the stockholders of this corporation for
any purpose or purposes may be called at any time only by a majority of this
Board of Directors, by a committee of the Board of Directors which has been duly
designated by the Board of Directors and whose powers and authority, as provided
in a resolution of the Board of Directors or in the bylaws of this corporation,
include the power to call such meetings, or by the Chairman of this Board of
Directors.
NINTH. The affirmative vote of the holders of not less than sixty-six
and two-thirds (66 2/3%) percent of the outstanding voting stock of the
Corporation shall be required for the approval or authorization of any: (i)
merger or consolidation of the Corporation with or into any other corporation;
or (ii) sale, lease, exchange or other disposition of all or substantially all
of the assets of the Corporation to or with any other corporation, person or
other entity; provided, however, that such sixty-six and two-thirds (66 2/3%)
percent voting requirement shall not be applicable if the Board of Directors of
the Corporation shall have approved such transaction in clause (i) or (ii) by a
resolution adopted by at least eighty (80%) percent of the members of the Board
of Directors. The provisions set forth in this Article NINTH may not be
repealed or amended in any respect unless such repeal or amendment is approved
by the affirmative vote of not less than sixty-six and two-thirds (66 2/3%)
percent of the total voting power of all outstanding shares of stock in this
Corporation entitled to vote thereon.
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<PAGE>
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation. Notwithstanding
the foregoing, the provisions set forth in Articles FIFTH, SIXTH, SEVENTH,
EIGHTH, and this Article TENTH may not be repealed or amended in any respect
unless such repeal or amendment is approved by the affirmative vote of not less
than sixty-six and two-thirds (66 2/3%) percent of the total voting power of all
outstanding shares of stock in this Corporation entitled to vote thereon.
ELEVENTH. A Director of the Corporation shall not be personally
liable to the Corporation, or its stockholders for monetary damages for breach
of fiduciary duty as a Director, except for liability (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended or (iv) for any
transaction from which the Director derived any improper personal benefit. If
the Delaware General Corporation Law is hereafter amended to authorize, with the
approval of a corporation's stockholders, further elimination's or reductions in
the liability of the corporation's directors for breach of fiduciary duty, then
a Director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article ELEVENTH
by the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any right or protection of a Director of the Corporation
existing at the time of such repeal or modification.
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SAFEGUARD HEALTH ENTERPRISES, INC.
Steven J. Baileys, D.D.S., and/or Ronald I. Brendzel are hereby appointed
as proxies of the undersigned, with full power of substitution, and
authorized to represent and vote all shares of Common Stock of SAFEGUARD
HEALTH ENTERPRISES, INC. (the "Company") which the undersigned is entitled to
vote at the Annual Meeting of Shareholders on Wednesday, May 22, 1996 and at
the adjournments or postponements thereof.
IF NOT OTHERWISE MARKED, THE SHARES REPRESENTED BY THIS PROXY SHALL BE
VOTED FOR PROPOSALS 1, 2, 3 AND 4.
PLEASE COMPLETE, DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
(TO BE SIGNED ON REVERSE SIDE)
-----------
SEE REVERSE
SIDE
-----------
<PAGE>
[X ] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
1. Election of FOR ALL WITHHOLD AUTHORITY
Directors. NOMINEES FOR ALL NOMINEES
[ ] [ ]
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
NOMINEES: Steven J. Baileys, D.D.S.
George H. Stevens
2. To consider and vote upon a proposal recommended FOR AGAINST
by the Board of Directors to amend the Company's [ ] [ ]
Certificate of Incorporation to provide that special
meetings of the stockholders of the Company be
called only by a majority of the Board of Directors,
the Executive Committee, if any, or the Chairman
of the Board; and
3. To consider and vote upon a proposal recommended by [ ] [ ]
the Board of Directors to amend the Company's
Certificate of Incorporation to add a provision
concerning the stockholder approval level required
prior to the Company's entering into certain
business combinations or the sale of the
Company's assets; and
4. To transact such other business as may properly
come before the meeting or any adjournments thereof.
Signature(s): ___________________________ Date: _____________
Signature(s): ___________________________ Date: _____________
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. IF THE STOCK IS ISSUED IN THE
NAMES OF TWO OR MORE PERSONS, EACH OF THEM SHOULD SIGN THE PROXY. IF THE
PROXY IS EXECUTED BY A CORPORATION, IT SHOULD BE SIGNED IN THE
CORPORATION'S NAME BY AN AUTHORIZED OFFICER.
