<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):
[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:
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(2) Aggregate number of securities to which transaction applies:
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(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:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
SAFEGUARD HEALTH ENTERPRISES, INC.
505 NORTH EUCLID STREET, ANAHEIM, CALIFORNIA 92801
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, MAY 22, 1997
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 Thursday, May 22, 1997, at 4:00 o'clock
p.m., Pacific Daylight Time, for the following purposes:
1. To elect two Class I directors to serve for a three-year term expiring
in 2000 and until their respective successors are duly qualified and
elected;
2. To approve an amendment to the Company's Stock Option Plan to provide
for a 500,000 share increase in the number of shares of Common Stock
issuable thereunder, and the extension of the term of such plan through
December 31, 2006; and
3. 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 28, 1997, 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 18, 1997
Anaheim, California
<PAGE>
SAFEGUARD HEALTH ENTERPRISES, INC.
505 NORTH EUCLID STREET, ANAHEIM, CALIFORNIA 92801
PROXY STATEMENT
ANNUAL MEETING: MAY 22, 1997
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 Thursday, May 22, 1997, 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 18, 1997.
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 Friday, March 28, 1997, was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting. As of
that date, there were 4,716,832 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 (1) 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. 2, concerning the amendment to the Company's
Stock Option Plan. 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 William E. McKenna, Class I, a
current Director, and John E. Cox, Class I a current officer and Director. At
the Company's meeting of the Board of Directors held in March 1997, the number
of members of the Board of Directors was increased from six (6) to seven (7),
and Mr. Cox was selected to fill the newly created Class I directorship. 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 Messrs. McKenna and Cox. 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
28, 1997, 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. 43 Chairman of the Board of Directors and Chief 1974 Class III/1999
Executive Officer of the Company
John E. Cox 45 President and Chief Operating Officer 1997 Class 1/1997
of the Company
Ronald I. Brendzel, J.D. 47 Senior Vice President, General Counsel and 1989 Class II/1998
Secretary of the Company
William E. McKenna 77 General Partner, MCK Investment Company 1983 Class I/1997
Michael M. Mann, Ph.D. 57 President, Blue Marble Development Group, Inc. 1987 Class II/1998
George H. Stevens 43 President, Belle Haven Marina, Inc. 1989 Class III/1999
Bradford M. Boyd, D.D.S. 46 Dentist, Bradford M. Boyd, D.D.S. 1995 Class II/1998
</TABLE>
Dr. Baileys is Chairman of the Board of Directors and Chief Executive
Officer. He was President from 1981 until March 1997, Chief Executive Officer
since May 1995 and Chairman of the Board of Directors 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 an officer, director and fifty percent (50%)
shareholder in the Islas Professional Dental Corporation which operates a dental
practice under contract to a subsidiary of the Company. Dr. Baileys is licensed
to practice dentistry in the State of California. He is also a member of the
Southern California chapter of the Young Presidents' Organization. Dr. Baileys
is the brother-in-law of Mr. Brendzel.
Mr. Cox was appointed President and Chief Operating Officer in March 1997,
and was named as a Director of the Company in March 1997. He was Executive
Vice President and Chief Operating Officer from May 1995 to March 1997. From
1985 to 1995, he served in various executive capacities for CIGNA Dental Health,
including Vice President, National Sales and Account Services, Western Regional
President, Chief Financial Officer and Controller. From 1981 to 1985, Mr. Cox
served in various financial capacities for Southeastern Health Services/Prucare-
Prudential Insurance Company's group model HMO in Atlanta, Georgia. He is the
Company's representative to the National Association of Dental Plans, and served
on the Board of the California Association of Dental Health Maintenance
Organizations.
Mr. Brendzel is Senior Vice President, General Counsel, Secretary and a
Director of the Company. He was Chief Financial Officer from April 1988 to May
1996, Vice President-Corporate Development from August 1980 to April 1986, 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 (the "California Department") in
regulating prepaid health care plans, and is the chairman of the Dental Quality
of Care Task Force established by the California Department. 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.
2
<PAGE>
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., Midway
Games, Inc., Drexler Technology Company, WMS Industries, Inc. and Williams
Hospitality Group, Inc.
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 nine (9) meetings during fiscal year 1996.
All of the persons who were Directors of the Company during fiscal year 1996,
and who are currently Directors of the Company, attended at least seventy-five
percent (75%) 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 1996.
Compensation of Directors.
Directors who were not otherwise employed by the Company were paid an
annual fee of $15,000 during fiscal year 1996. Each non-employee Board member,
pursuant to the Company's Automatic Option Grant program, received an automatic
option grant in November 1996 to purchase 4,000 shares of the Company's common
stock under its Stock Option Plan with an exercise price of $19.375 per share,
the market price of the common stock on the grant date. Each option has a
maximum term of ten (10) years and will become exercisable for all of the option
shares upon the optionee's completion of one (1) year of continuous 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 (3)
times in fiscal year 1996. 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.
3
<PAGE>
Nominating Committee.
The Nominating Committee consists of Messrs. McKenna, Stevens, 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 1997 and recommended William E. McKenna and John E. Cox
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.
Compensation and Stock Option Committee.
The Company's Compensation and Stock Option Committee is composed of
Messrs. McKenna and Stevens, and Drs. Mann and Boyd, and is chaired by Mr.
McKenna. All members of this 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
four (4) times during fiscal year 1996.
CERTAIN TRANSACTIONS
On September 30, 1996, the Company sold to Islas Professional Dental
Corporation, ("Islas") a dental practice owned by a subsidiary of the Company in
the amount of $1,000,000. Steven J. Baileys, D.D.S., the Company's Chairman of
the Board of Directors and Chief Executive Officer, owns a fifty percent (50%)
interest in Islas, which secured a promissory note from a subsidiary of the
Company in the amount of the purchase price. Said note is payable in equal
monthly installments over a thirty year period and bears interest at eight and
one half percent (8.5%). The dental practice is also under contract to provide
services to a subsidiary of the Company. During fiscal year 1996, the Company
paid Islas $52,176 under said contract. The sale of the dental practice was
reviewed and approved by the independent members of the Board of Directors on
September 27, 1996, which took into consideration information provided to it by
the Company's independent accountants and outside counsel concerning the value
of the dental practice as an ongoing business owned by the Company, contrasted
to being owned by an independent dentist, the sale price of dental practices of
similar size and scope, and the sale of other dental practices owned by the
Company to unrelated parties. The action of the independent members of the Board
of Directors in approving the sale of the dental practice was ratified by the
full Board of Directors of the Company on September 27, 1996.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the common stock
of the Company as of March 28, 1997, 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 BENEFICIALLY APPROXIMATE PERCENT
NAME OWNED (1) OF CLASS
- ---- ------------------- -------------------
<S> <C> <C>
Steven J. Baileys, D.D.S. (2) 831,667 17.6
Ronald I. Brendzel, J.D. (3) 174,906 3.7
John E. Cox (4) 35,000 +
William E. McKenna (5) 28,500 +
Michael M. Mann, Ph.D. (6) 21,000 +
George H. Stevens (7) 16,350 +
Wayne K. Butts (8) 11,667 +
Bradford M. Boyd, D.D.S. (9) 3,080 +
Kenneth E. Keating (10) 2,500 +
All current directors and officers as a group (15 persons) 1,124,670 23.8
- -----------------------------------------------------------
+ Less than one percent (1%).
</TABLE>
(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 326,666 shares of common
stock exercisable as of March 28, 1997, or within sixty (60) days
thereafter.
4
<PAGE>
(2) The share indicated include options to purchase 186,667 shares of common
stock, but does not include 196,021 shares of common stock representing
four percent (4%), held in trust for various relatives of Dr. Baileys, for
which trusts Dr. Baileys is co-trustee, and 150,000 shares of common stock
representing three percent (3%), held by the Alvin and Geraldine Baileys
Foundation for which Dr. Baileys is an officer and director, and for both
of which Dr. Baileys disclaims beneficial ownership.
(3) Includes options to purchase 63,333 shares of common stock.
(4) Includes options to purchase 25,000 shares of common stock.
(5) Includes options to purchase 21,000 shares of common stock.
(6) Represents options to purchase 21,000 shares of common stock.
(7) Includes options to purchase 16,000 shares of common stock.
(8) Represents options to purchase 11,667 shares of common stock
(9) Includes options to purchase 2,000 shares of common stock.
(10) Represents options to purchase 2,500 shares of common stock.
- --------------------------------------------------
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
(10%) 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 (10%) 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 (5%) or more of
the Company's common stock as of March 28, 1997, except with respect to the
Baileys Family Trust, T. Rowe Price Associates, Inc., Brinson Partners, Inc. and
Massachusetts Financial Services Company, which are stated as of December 31,
1996, 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) 831,667 17.6
Baileys Family Trust (3) 807,746 17.1
T. Rowe Price Associates, Inc. (4) 413,000 8.7
Brinson Partners, Inc. (5) 408,200 8.7
Massachusetts Financial Services Company (6) 245,700 5.2
All Principal Stockholders 2,706,313 57.4
- --------------------------------------------
</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 28, 1997, and shares subject to options outstanding and exercisable
within sixty (60) days thereafter.
5
<PAGE>
(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 186,667 shares
of common stock, but does not include 196,021 shares of common stock
representing four percent (4%), held in trust for various relatives of Dr.
Baileys, for which trusts Dr. Baileys is co-trustee, and 150,000 shares of
common stock representing three percent (3%), held by the Alvin and
Geraldine Baileys Foundation for which Dr. Baileys is an officer and
director, and for both of which Dr. Baileys disclaims beneficial ownership.
(3) Baileys Family Trust, located at 25985 Poker Flats Place, Laguna Hills,
California 92653 has sole voting and investment power with respect to the
shares indicated. A Schedule 13G dated February 13, 1997, was filed with
the Securities and Exchange Commission with respect to such shares.
(4) These securities are owned by various individual and institutional
investors including T. Rowe Price Small Cap Value Fund, Inc., which owns
385,000 shares of the Company's common stock, and T. Rowe Price Associates,
Inc. which owns 28,000 shares of the Company's common stock, representing
8.3% 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 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, 1997, was filed with the Securities and Exchange Commission
with respect to such shares.
(5) 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 12, 1997, was filed with the Securities and Exchange
Commission with respect to such shares.
(6) Massachusetts Financial Services Company, 500 Boylston Street, Boston,
Massachusetts 02116 has sole voting and dispositive power of the shares
indicated. A Schedule 13G dated February 12, 1997, 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 (4) remaining most highly paid executive officers
who received total compensation in excess of $100,000 for the previous years
ended December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
---------------------------------------------------------------------------
Name and Principal Position Year Salary($) Bonus($) Other($)(3) Options
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Steven J. Baileys, D.D.S., 1996 400,000 * 1,260 25,000
Chairman of the Board of Directors and 1995 335,703 * 1,260 50,000
Chief Executive Officer 1994 300,000 20,000 * *
John E. Cox, President and Chief 1996 200,000 * * 25,000
Operating Officer (1) 1995 136,059 * * 50,000
Ronald I. Brendzel, J.D., Senior 1996 185,000 * 900 10,000
Vice President, General Counsel 1995 152,598 * 900 5,000
and Secretary 1994 152,004 10,000 * *
Kenneth E. Keating, Vice President-Guards 1996 170,823 * * 7,500
Dental Operations (2) 1995 88,220 * * *
Wayne K. Butts, Senior Vice 1996 125,000 * 184 10,000
President-Regional Operations 1995 125,000 * 184 5,000
1994 95,000 2,500 * *
- ----------------------------------------
</TABLE>
* None.
6
<PAGE>
(1) Joined the Company on May 25, 1995.
(2) Joined the Company on August 7, 1995.
(3) Represents premiums paid for life insurance policies for the named
individuals.
_______________________
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., Wayne K. Butts and Herb J.
Kaufman, D.D.S. 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, $275,000, $185,000 and $125,000, respectively. The
employment agreement for Dr. Kaufman is for a term through January 5, 2002, and
provides for an annual salary of $155,000. The Company may terminate the
agreements for cause. The employee may terminate his agreement for any reason.
Should there be a change in control of the Company in that more than fifty
percent (50%) of the Company's then outstanding common stock is purchased by a
then non-existing stockholder, and newly elected Directors constitute a majority
of the Company's Board of Directors, the employee may terminate his employment.
In such event, the Company would be obligated to pay Dr. Baileys, Mr. Cox and
Mr. Brendzel an amount equal to three (3) times, and in the case of Mr. Butts
and Dr. Kaufman, one (1) times the employee's then current salary and bonus,
paid on or before the fifth (5th) day following such change in control, along
with the continuance of all employee benefits for the length of the employment
agreement.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during the fiscal year ended December 31, 1996, to the named executives:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted(#)(1) in Fiscal Year ($/Share) Date 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Steven J. Baileys, D.D.S. 25,000 18.9 17.325 3/22/01 208,252 588,161
John E. Cox 25,000 18.9 15.75 3/22/06 247,621 627,536
Ronald I. Brendzel, J.D. 10,000 7.6 15.75 3/22/06 99,051 251,014
Wayne K. Butts 10,000 7.6 15.75 3/22/06 99,051 251,014
Kenneth E. Keating 7,500 5.7 15.75 3/22/06 74,288 188,261
- ---------------------
</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 (1/3) amounts over
a three (3) 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 $17.50 as of December 31, 1996, appreciates at the stated
rate, compounded annually, from the date of grant to the expiration date.
These values are calculated based on requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price appreciation. Actual gains, if any, are
dependent on the future market price of the Company's common stock.
7
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following information is with respect to the named executive officers
and indicated groups concerning the exercise of options during fiscal year
December 31, 1996, and unexercised options held as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of
Acquired Value Underlying Unexercised Unexercised In-the-Money
Name on Exercise(#) Realized($) Options at FY-End(#) Options at FY-End($)(1)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven J. Baileys, D.D.S. * * 178,333 41,667 1,653,092 257,708
John E. Cox * * 16,667 58,333 120,833 285,417
Ronald I. Brendzel, J.D. * * 63,333 1,667 540,367 45,833
Wayne K. Butts 5,000 26,875 8,333 11,667 50,417 45,833
Kenneth E. Keating * * * 7,500 * 13,125
All current executive
officers as a group
(12 persons) 5,000 26,875 267,333 135,167 2,367,542 678,083
All current directors who
are not executive officers
as a group (4 persons) * * 60,000 16,000 614,000 *
All employees who are
not executive officers as
a group (20 persons) 6,996 49,646 7,776 21,850 39,932 42,251
- -------------------------------
* None.
</TABLE>
(1) Assumes a price per share of $17.50 as of December 31, 1996. Gains are
reported net of the option exercise price but before any 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 1996 fiscal
year or exercised during that year.
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Philosophy.
The Compensation and Stock Option Committee of the Board of Directors of
the Company (the "Committee") consists of four (4) independent directors who are
neither employees nor officers of the Company. The Committee reviews the
Company's executive compensation program and policies, determines the
compensation of the Company's Chief Executive Officer ("CEO"), and reviews and
approves the CEO's recommendations for the compensation of the other senior
executive officers of the Company.
The Committee's philosophy regarding compensation of the Company's senior
management is to link rewards to financial and operational performance, to
encourage creation of stockholder value and to achieve the Company's strategic
goals and objectives. Through its executive compensation policies, the
Committee seeks to attract, retain and motivate highly qualified executives who
will contribute to the Company's success. Thus, the Committee believes the
Company's compensation arrangements must remain competitive with those offered
by other companies of similar size and scope of operations, including other
publicly-held managed dental care organizations. To achieve these goals, the
executive compensation program consists of three (3) primary components which,
taken together, constitute a flexible and balanced method of establishing total
compensation for senior management. These components are: (i) base salary
which reflects individual performance and contribution to the Company, (ii)
discretionary 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. Option grants to Executive Officers
are made under the Company's Stock Option Plan by the Committee.
8
<PAGE>
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 with the CEO,
considering the decision-making responsibilities of each position and the
experience, work performance, and team-building skills of position incumbents,
subject to existing employment agreements. During 1996, the Committee
determined that the salary of the CEO and the four (4) other most highly
compensated individuals will remain unchanged for 1997.
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.
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 1996. The Committee has not provided for such qualifying
compensation and does not intend to provide 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. In 1996, the Committee did not authorize any bonus to
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 1996, 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 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, subject
to an existing employment agreement. The Committee considers both the Company's
overall performance and the Chief Executive Officer's individual performance.
Bonuses for the Chief Executive Officer are based upon the overall achievements
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. In
1996, the Company did not pay the Chief Executive Officer a bonus. Dr. Baileys'
salary was determined based on an analysis of salaries paid by peer companies
and on Dr. Baileys' knowledge, experience and individual performance.
The forgoing report has been furnished by the Compensation and Stock Option
Committee of the Board of Directors of the Company.
William E. McKenna, Chairman, Michael M. Mann, Ph.D., George H. Stevens and
Bradford M. Boyd, D.D.S.
9
<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 1996: William E. McKenna,
Michael M. Mann, Ph.D., George H Stevens and Bradford M. Boyd, D.D.S. None of
these 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 five (5) year period from January 1, 1992 through December 31, 1996.
[THE STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LABELS SFGD NASDAQ HEALTHSRVC
- -------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- 1991 100 100 100
FYE 1992 104.0 116.4 103.6
FYE 1993 146.7 133.6 119.5
FYE 1994 98.7 130.6 128.2
FYE 1995 124.0 184.7 162.9
FYE 1996 186.7 227.2 163.1
</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.
10
<PAGE>
PROPOSAL NO. 2 - APPROVAL OF AMENDMENTS TO THE COMPANY'S STOCK OPTION PLAN
General Description
The Employee Stock Option Plan (the "Option Plan") was originally adopted
by the Board of Directors on April 25, 1984, and approved by the stockholders on
May 22, 1984. An amended Employee Stock Option Plan was approved by the
stockholders on May 26, 1993. On February 7, 1997, the Board of Directors
amended the Option Plan, subject to stockholder approval at the 1997 Annual
Meeting. The Option Plan as so amended will effect the following principal
changes to the Option Plan as last approved by the stockholders:
(i) increase the number of shares issuable over the term of the
Option Plan from 1,200,000 shares of Common Stock to 1,700,000 shares of
Common Stock;
(ii) extend the term of the Option Plan from December 31, 2002 to
December 31, 2006; and
(iii) make certain technical revisions in order to facilitate plan
administration and plan interpretation.
The 500,000-share increase will enable the Company to continue to provide
equity incentives to employees (including officers and directors) and non-
employee Board members who provide valuable services to the Company and thereby
allow such individuals to share in the success of the Company. The number of
shares of Common Stock reserved for issuance under the Option Plan was
originally fixed at 750,000 shares in September 1983, was increased to 1,200,000
in 1993, and was increased to 1,700,000 in February 1997. No option granted on
the basis of the new share increase will become exercisable unless the Company's
stockholders approve the Amended Option Plan at the 1997 Annual Meeting.
The terms and provisions of the Option Plan as amended on February 7, 1997,
are summarized below. This summary, however, does not purport to be a complete
description of the Option Plan. Copies of the actual plan document may be
obtained by any stockholder upon written request to the Secretary of the Company
at the Company's executive offices.
Structure of Option Plan
The Option Plan is divided into two (2) separate components;
(i) the Discretionary Option Grant Program pursuant to which employees
(including employee Directors and officers) may, at the discretion of the
Committee administering the Option Plan, be granted options to purchase
shares of the Company's Common Stock at an exercise price equal to the fair
market value of the option shares on the grant date; and
(ii) the Automatic Option Grant Program pursuant to which option
grants are made at periodic intervals to certain non-employee Board members
to purchase shares of the Company's Common Stock at an exercise price equal
to the fair market value of the option share on the grant date.
The options granted under the Discretionary Option Grant Program may be
either incentive stock options ("Incentive Options") designed to qualify for
favorable tax treatment under Section 422 of the Internal Revenue Code or non-
statutory options which are not entitled to such treatment. All grants under
the Automatic Option Grant Program are non-statutory options.
Issuable Shares
Assuming stockholder approval of the 500,000-share increase at the 1997
Annual Meeting, 1,700,000 shares of the Company's Common Stock will be
authorized for issuance over the term of the Option Plan, subject to periodic
adjustment in the event of certain changes to the Company's capital structure.
Such shares may be made available from newly-issued shares of the Company's
Common Stock or from shares repurchased by the Company, including shares
purchased on the open market.
11
<PAGE>
As of March 28, 1997, there were 522,742 shares of the Company's Common
Stock issued under the Option Plan, 661,017 shares were subject to outstanding
options with an average exercise price of $10.59 per share, and 18,325 shares of
the Company's Common Stock/1/ were reserved for future option grants, exclusive
of the proposed 500,000-share increase. As of March 28, 1997, no options had
been granted on the basis of the proposed 500,000-share increase.
The shares of the Company's Common Stock subject to any outstanding options
which expire or terminate prior to exercise (including options canceled in
accordance with the cancellation-regrant provisions described in the
"Cancellation/Regrant" section below) may become the subject of subsequent
grants under the Option Plan.
Administration
The Discretionary Option Grant Program is administered by the Compensation
and Stock Option Committee (the "Committee"). The Committee is comprised of two
(2) or more Directors who are appointed by the Board of Directors and qualify as
"Non-employee Directors" within the meaning of Rule 16b-3 promulgated pursuant
to Section 16 of the Securities and Exchange Act of 1934, as amended.
The Committee has, within the scope of its jurisdiction under the Option
Plan, complete discretion to determine which eligible individuals are to receive
option grants, the number of shares subject to each such grant, the status of
any granted option as either an Incentive Option or a non-statutory option, the
vesting schedule, if any, to be in effect for the option grant and the maximum
term for which any granted option is to remain outstanding.
Eligibility
Options may be granted to individuals who are officers and other key
employees of the Company or any of its present or future subsidiaries (as
defined in Section 424(f) of the Internal Revenue Code). Non-employee members
of the Board are only eligible to participate in the Automatic Option Grant
Program. As of March 28, 1997, approximately twenty-seven (27) individuals
(including eleven [11] executive officers) were eligible to participate in the
Option Plan, and four (4) non-employee Board members were eligible to receive
option grants under the Automatic Option Grant Program.
Option Terms
The option exercise price must be at least one hundred percent (100%) of
the fair market value of the option shares on the grant date, and no option may
have a maximum term in excess of ten (10) years. In consideration of the option
grant, the optionee must execute a written stock option agreement agreeing,
among other things, to remain in the Company's employ for at least one (1) year
from the date the option is granted. The option may not be exercised during the
one-year (1) period following the grant date. Thereafter, the option will
become exercisable at such times and in such installments (which may be
cumulative) as the Committee establishes as part of the terms of that option.
The Committee has the discretionary authority to accelerate, in whole or in
part, the time or times at which an option become exercisable and may exercise
that discretion at any time while the option remains outstanding prior to the
optionee's termination of employment.
Options may be exercised in installments in such amounts (which need not be
equal) and at such times as are specified in the option agreement. To exercise
an option, the holder thereof must deliver to the Company a written notice of
exercise, together with full payment of the exercise price of the shares as to
which the option is being exercised. The option price is generally payable in
cash or in shares of the Company's Common Stock and may also be paid through a
same-day sale program, pursuant to which the purchased shares are immediately
sold and a portion of the sale proceeds are applied to the payment of the
purchase price.
No option may be assigned or transferred by the optionee except upon death
and, during the lifetime of the optionee, the option may be exercised only by
him. No optionee will have any stockholder rights with respect to the option
shares until that individual has exercised the option and paid the option price
in full for the purchased shares.
- ---------------------------
/1/ The number of shares available for future option grant will be increased by
the number of shares subject to currently outstanding options which terminate or
expire prior to exercise and will be adjusted in the event of certain changes to
the Company's capital structure.
12
<PAGE>
In general, an option may not be exercised more than ninety (90) days or
six (6) months after the date the optionee's employment terminates by reason of
death or disability, respectively, or more than thirty (30) days after the date
the optionee's employment terminates for any reason. Options granted to
individuals whose employment is terminated for cause will expire immediately on
the termination date. The Committee has the authority to extend the period of
time for which one (1) or more options may remain outstanding after the
optionee's termination of employment from the limited periods specified above to
such longer period as the Committee, in its discretion, may deem appropriate
under the circumstances. However, in no event may the period of exercise for an
outstanding option be extended beyond the specified expiration date of the
option term.
Valuation
For purposes of establishing the option exercise price and for all other
valuation purposes under the Option Plan, the fair market value per share of the
company's Common Stock on any relevant date will be the closing selling price
per share on such date, as quoted on the NASDAQ National Market System. If
there is no reported selling price for such date, then the closing selling price
for the last previous date for which such quotation exists will be determinative
of fair market value. On March 28, 1997, the fair market value per share of the
Company's Common Stock was $12.50.
Acceleration of Options
The Committee has the discretionary authority to provide, either at the
time of the option grant or at any time while the option remains outstanding,
that the option will automatically accelerate and become immediately exercisable
for all of the shares of Common Stock at the time subject to that option should
there occur any "Change of Control" of the Company. The Committee may also
provide that following the consummation of such Change of Control, each
outstanding option under the Option Plan will terminate and cease to be
exercisable, except to the extent assumed by the successor entity.
A Change of Control will be deemed to occur upon:
(i) the merger or consolidation of the Company into another
corporation, or
(ii) the sale or other disposition of all or substantially all of
the Company's assets, or
(iii) the sale of eighty percent (80%) or more of the
Company's outstanding voting stock, or
(iv) the dissolution or liquidation of the Company.
The acceleration of options under the Option Plan upon such a Change of
Control may be seen as an anti-takeover provision and may have the effect of
discouraging a proposal for merger, a takeover attempt or other efforts to gain
control of the Company.
Cancellation/Regrant
The Committee has the authority to effect, from time to time, the
cancellation of outstanding options under the Discretionary Option Grant Program
in return for the grant of new options for the same or different number of
option shares with an exercise price per share equal to the fair market value of
the Company's Common Stock on the new grant date. However, it is anticipated
that the fair market value exercise price in effect under the new grant will in
all instances be less than the exercise price in effect under the canceled
option.
Automatic Option Grant Program
In November of each year, each individual who (i) was at that time serving
as a non-employee Board member and (ii) was not previously in the employ of the
Company, is automatically granted an option to purchase 4,000 shares of the
Company's Common Stock. Accordingly, in November 1996, each of the four (4)
current non-employee Board members received such a grant with an exercise price
of $19.375 per share. There is no limit on the number of such additional 4,000-
share option grants any one (1) non-employee Board member may receive over his
period of Board service. However, no non-employee Board member will be eligible
to receive such an automatic option grant if he has previously been in the
Company's employ.
13
<PAGE>
Each option grant under the automatic grant program is subject to the
following additional terms and conditions:
(i) Each option will have an exercise price equal to one hundred
percent (100%) of the market price of the Common Stock on the automatic
grant date and will have a maximum term of ten (10) years, measured from
such grant date, subject to earlier termination upon the optionee's
cessation of Board service.
(ii) Each option will become exercisable in full upon the
optionee's completion of one (1) year of Board service measured from the
grant date.
(iii) Each outstanding option under the Automatic Option Grant
Program will automatically accelerate and become exercisable for all of the
shares of Common Stock at the time subject to that option upon the
acquisition of the Company by merger or asset sale or upon the liquidation
or dissolution of the Company.
(iv) Upon the occurrence of a hostile take-over, whether pursuant
to a successful tender offer for more than eighty percent (80%) of the
Company's outstanding voting securities, each outstanding option will
become fully exercisable for all of the shares of Common Stock at the time
subject to that option.
(v) Should a Board member cease service as a Board member for any
reason while holding options granted under the Automatic Option Grant
Program, such options not exercised shall terminate as of such date.
(vi) The remaining terms and conditions of each automatic option
grant will be substantially the same as those in effect for grants made
under the Discretionary Option Grant Program and will be incorporated into
the option agreement evidencing the automatic grant.
Change in Capital Structure
In the event any change is made to the Common Stock issuable under the
Option Plan by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, or other change in corporate
structure effected without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable under the Option Plan, (ii) the number and/or class of securities and
price per share in effect under each outstanding option and (iii) the number
and/or class of securities per non-employee Board member for which option grants
will subsequently be made under the Automatic Option Grant Program.
If the Company is the surviving corporation in any merger or consolidation,
each continuing option will pertain and apply to the number and class of
securities which a holder of the number of shares subject to the option right
would have been entitled to receive in the consummation of such merger or
consolidation.
Amendment and Termination of the Plan
The Board may amend or modify the Stock Plan at any time; however, no such
amendment may, without the approval of the Company's stockholders, (i)
materially increase the benefits accruing to optionees or modify the class of
individuals eligible for option grants or (ii) materially increase the number
of shares available for issuance, except in the event of certain changes to the
Company's capital structure. Amendments to the Automatic Option Grant Program
may not be made at intervals more frequently than once every six (6) months,
except in certain limited circumstances. The Option Plan will terminate on
December 31, 2006, unless sooner terminated by the Board.
14
<PAGE>
Federal Tax Consequences
Options granted under the Option Plan may be either Incentive Options which
satisfy the requirements of Section 422 of the Internal Revenue Code or non-
statutory options which are not intended to meet such requirements. The Federal
income tax treatment for the two (2) types of options differs as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition.
For Federal income tax purposes, dispositions are divided into two (2)
categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
(2) years after the grant date of the option and more than one (1) year after
the exercise date. If the optionee fails to satisfy either of these two (2)
holding periods prior to the sale or other disposition of the purchased shares,
then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the date the option was exercised over (ii) the exercise price paid for the
shares will be taxable as ordinary income. An additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will, in general, recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for
the Company's taxable year in which such ordinary income is recognized by the
optionee.
Stockholder Approval
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the 1997 Annual Meeting is required to approve the Amended
Stock Option Plan. In the event such stockholder approval is not obtained, any
options granted on the basis of the 500,000-share increase will terminate, no
further option grants will be made on the basis of that increase, and the term
of the Option Plan will expire on December 31, 2002. Since the Amended Stock
Option Plan is designed as an integral part of the Company's efforts to attract
and retain the services of highly-qualified individuals, the Board of Directors
recommends a vote FOR approval of the Amended Stock Option Plan.
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 march 1996 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.
15
<PAGE>
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 (60th) day and
no earlier than the close of business on the ninetieth (90th) 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 (30) days before or
more than sixty (60) 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 (90th) day prior to such annual meeting and not later than the close
of business on the later of the sixtieth (60th) day prior to such annual
meeting, or the tenth (10th) 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 (75%) of the directors, or the
approval of at least sixty-six and two/thirds percent (66 2/3%) of the
outstanding stock of the Company entitled to vote.
The Board of Directors believes that advanced notice of nominations by
stockholders provides 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, provides 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 (75%) of the
directors, or the approval of at least sixty-six and two/thirds percent (66
2/3%) 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 (75%) of the directors must be in
concurrence with the selection, and not a simple majority.
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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 (3) 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 (75%) of the directors, or the approval of at least sixty-six and
two/thirds percent (66 2/3%) 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 (75%) 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 (66 2/3%) 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 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, provide an opportunity
to inform all stockholders about the proposed amendments. These provisions 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 (1)
or more series of preferred stock, and to establish the terms and conditions of
each series of preferred stock. One (1) 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 1996 Annual
Report on Form 10-K.
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.
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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, 1996, are included in the Company's 1996 Annual Report, which was mailed
concurrently with this proxy statement to all stockholders of record as of March
28, 1997. Additional copies of the 1996 Annual Report along with the Company's
Annual Report on Form 10-K as filed with the Securities and Exchange Commission
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,
1996, 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 latter part 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, 1995 and 1996, 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, 1995 and 1996, 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 1998 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, 1997.
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 18, 1997
ANAHEIM, CALIFORNIA
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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 Thursday, May 22, 1997 and at the
adjournments or postponements thereof.
IF NOT OTHERWISE MARKED, THE SHARES REPRESENTED BY THIS PROXY SHALL BE
VOTED FOR PROPOSALS 1, 2, AND 3.
PLEASE COMPLETE, DATE, SIGN AND RETURN
IN THE ENCLOSED ENVELOPE
(TO BE SIGNED ON REVERSE SIDE)
SEE REVERSE SIDE
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
1. To elect two Class I directors to serve for a three-year term expiring in
2000 and until their respective successors are duly qualified and elected.
FOR ALL NOMINEES WITHHOLD AUTHORITY NOMINEES: William E. McKenna
FOR ALL NOMINEES John E. Cox
[_] [_]
For, except withheld from the following nominee(s)
--------------------------------------------------
2. To approve an amendment to the Company's Stock Option Plan to provide for
a 500,000 share increase in the number of shares of Common Stock issuable
thereunder, and the extension of the term of such plan through December 31,
2006.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Signature(s): Date:
---------------------------------------------- ------------
Signature(s): Date:
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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.
