<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
Commission File No. 0-20572
PATTERSON DENTAL COMPANY
(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)(1) 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:
____________________________________________________________________
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:____________________________________________
2) Form, Schedule or Registration Statement No.:______________________
3) Filing Party:______________________________________________________
4) Date Filed:________________________________________________________
<PAGE>
PATTERSON DENTAL COMPANY
1031 Mendota Heights Road
St. Paul, Minnesota 55120
August 9, 1999
Dear Shareholder of Patterson Dental Company:
You are cordially invited to attend the Annual Meeting of Shareholders of
Patterson Dental Company (the "Company"), to be held at the Decathlon Club, 1700
East 79th Street, Bloomington, Minnesota, on Monday, September 13, 1999, at 4:30
p.m.
At the Annual Meeting you will be asked to vote for the election of two
directors and to ratify the selection by the Board of Directors of Ernst & Young
LLP as the Company's independent public accountants for the fiscal year ending
April 29, 2000. I encourage you to vote for the nominees for director and for
ratification of the appointment of Ernst & Young LLP.
Whether or not you are able to attend the Annual Meeting in person, I urge
you to sign and date the enclosed proxy and return it promptly in the enclosed
envelope.
Very truly yours,
PATTERSON DENTAL COMPANY
/s/ Peter L. Frechette
Peter L. Frechette
President and Chief Executive Officer
<PAGE>
PATTERSON DENTAL COMPANY
1031 Mendota Heights Road
St. Paul, Minnesota 55120
-------------
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
SEPTEMBER 13, 1999
--------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Patterson
Dental Company (the "Company") will be held at the Decathlon Club, 1700 East
79th Street, Bloomington, Minnesota, on Monday, September 13, 1999, at 4:30 p.m.
local time, for the following purposes, as more fully described in the
accompanying Proxy Statement:
1. To elect two directors of the Company to have terms expiring in 2002
and until their successors shall be elected and duly qualified;
2. To ratify the selection of Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending April 29,
2000; and
3. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournment or postponement thereof.
Only shareholders of record at the close of business on July 19, 1999, are
entitled to notice of and to vote at the meeting. Whether or not you expect to
attend the meeting in person, please mark, date and sign the enclosed proxy
exactly as your name appears thereon and promptly return it in the envelope
provided, which requires no postage if mailed in the United States. Proxies may
be revoked at any time before they are exercised and, if you attend the meeting
in person, you may withdraw your proxy and vote personally on any matter brought
properly before the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Matthew L. Levitt
Matthew L. Levitt
Secretary
Saint Paul, Minnesota
August 9, 1999
<PAGE>
PATTERSON DENTAL COMPANY
1031 Mendota Heights Road
St. Paul, Minnesota 55120
-------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
SEPTEMBER 13, 1999
--------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Patterson Dental Company (the "Company")
for use at the Annual Meeting of Shareholders to be held at the Decathlon Club,
1700 East 79th Street, Bloomington, Minnesota, on Monday, September 13, 1999, at
4:30 p.m. local time, or at any adjournment or postponement thereof. All shares
of Common Stock represented by properly executed and returned proxies, unless
such proxies have previously been revoked, will be voted at the meeting and,
where the manner of voting is specified on the proxy, will be voted in
accordance with such specifications. Shares represented by properly executed and
returned proxies on which no specification has been made will be voted for the
election of the nominees for director listed herein and for ratification of the
selection of Ernst & Young LLP as the independent public accountants of the
Company. If any other matters are properly presented at the meeting for action,
including a question of adjourning or postponing the meeting from time to time,
the persons named in the proxies and acting thereunder will have discretion to
vote on such matters in accordance with their best judgment.
The Notice of Annual Meeting, this Proxy Statement and the related proxy
card are first being mailed to shareholders of the Company on or about August 9,
1999.
Record Date and Outstanding Common Stock
The Board of Directors has fixed the close of business on July 19, 1999, as
the record date for determining the holders of the Company's outstanding voting
shares entitled to notice of, and to vote at, the meeting. On that date, the
voting shares of the Company consisted of 33,660,333 shares of Common Stock,
each entitled to one vote.
Revocability of Proxies
Any shareholder who executes and returns a proxy may revoke it at any time
before it is voted by giving written notice to the Secretary of the Company, by
executing a later-dated proxy and delivering it to the Secretary of the Company,
or by attending the meeting and giving oral notice to the Secretary of the
Company. Any written notice delivered to the Secretary of the Company should be
sent to Matthew L. Levitt, Secretary, Patterson Dental Company, 1031 Mendota
Heights Road, St. Paul, Minnesota 55120.
<PAGE>
Voting and Solicitation
The Board of Directors recommends that an affirmative vote be cast in favor
of each of the proposals listed on the proxy card.
The Board of Directors knows of no other matters that may be brought before
the meeting which require submission to a vote of the shareholders. If any other
matters are properly brought before the meeting, however, the persons named in
the enclosed proxy or their substitutes will vote in accordance with their best
judgment on such matters.
Expenses incurred in connection with the solicitation of proxies will be
paid by the Company. The proxies are being solicited principally by mail. In
addition, directors, officers and regular employees of the Company may solicit
proxies personally or by telephone, for which they will receive no consideration
other than their regular compensation. The Company will also request brokerage
houses, nominees, custodians and fiduciaries to forward soliciting material to
the beneficial owners of Common Stock of the Company and will reimburse such
persons for their expenses so incurred.
Quorum; Abstentions; Broker Non-Votes
The presence, in person or by proxy, of the holders of at least a majority
of the shares of Common Stock outstanding and entitled to vote is necessary to
constitute a quorum for the transaction of business at the meeting. All votes
will be tabulated by the inspector of election for the meeting, who will
separately tabulate affirmative and negative votes, abstentions and broker
non-votes.
If a properly executed proxy is returned and the shareholder has abstained
from voting on any matter, the shares represented by such proxy will be
considered present at the meeting for purposes of determining a quorum and for
purposes of calculating the vote, but will not be considered to have been voted
in favor of such matter.
If a properly executed proxy is returned by a broker holding shares in
street name which indicates that the broker does not have discretionary
authority as to certain shares to vote on one or more matters, such shares will
be considered present at the meeting for purposes of determining a quorum, but
will not be considered to be represented at the meeting for purposes of
calculating the vote with respect to such matter.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
the Company's Common Stock as of June 30, 1999 (unless noted otherwise), by (a)
each person known to the Company to own beneficially more than five percent of
its Common Stock, (b) each director and nominee for director, (c) each executive
officer named in the Summary Compensation Table, and (d) the directors and
executive officers as a group. Unless otherwise indicated, each person in the
table has sole voting and investment power as to the shares shown.
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding
Name and Address of Beneficial Owner Ownership(1) Stock
- ------------------------------------ ----------------- -------------
<S> <C> <C>
U.S. Bancorp............................................. 3,912,876 (2) 11.7%
601 Second Avenue South
Minneapolis, MN 55402
Ronald E. Ezerski........................................ 2,720,177 (3) 8.1
Peter L. Frechette....................................... 2,650,601 (3) 7.9
James W. Wiltz........................................... 409,701 (3) 1.2
David K. Beecken......................................... 126,000 (4) *
Gary D. Johnson.......................................... 120,888 (3) *
Andre B. Lacy............................................ 61,425 (4) *
Burt E. Swanson.......................................... 47,250 (4) *
Brian S. Watson.......................................... 27,959 (3) *
All directors and executive officers as a group
(12 persons).......................................... 6,247,608 18.6%
</TABLE>
- ---------
*Less than 1%
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the SEC and accordingly, may include securities owned by or
for, among others, the spouse, children or certain other relatives of such
person as well as other securities as to which the person has or shares
voting or investment power or has the right to acquire within 60 days. The
same shares may be beneficially owned by more than one person. Includes
shares of Common Stock held by the Patterson Dental Company Employee Stock
Ownership Plan and Trust (the "ESOP"). Shares reported as owned by the ESOP
trustee are also reported as beneficially owned by the executive officers
to the extent that shares have been allocated to the ESOP accounts of the
named person. Allocated shares are voted by the ESOP trustee in accordance
with the direction of ESOP participants. Generally, unallocated shares and
allocated shares as to which no direction is made by the participants are
voted by the ESOP trustee in the same percentage as the allocated shares as
to which directions are received by the ESOP trustee.
(2) As set forth in Schedule 13G filed with the SEC on February 11, 1999,
includes (a) 141,338 shares over which sole voting power is claimed, (b)
3,771,538 shares over which shared voting power is claimed, (c) 826 shares
over which sole dispositive power is claimed, and (d) 3,771,538 shares over
which shared dispositive power is claimed. An affiliate of U.S. Bancorp
acts as the ESOP trustee. The number of shares reported as beneficially
owned includes approximately 3,768,231 shares held in the unallocated
account of the ESOP, but excludes approximately 1,927,952 shares held in
the allocated account of the ESOP.
3
<PAGE>
(3) Includes the following shares allocated to the ESOP account of the
respective executive officers: Ronald E. Ezerski (1,352 shares); Peter L.
Frechette (1,403 shares); James W. Wiltz (1,151 shares); Gary D. Johnson
(5,387 shares); and Brian S. Watson (4,195 shares).
(4) Includes shares purchasable by the named person under the Company's 1992
Director Stock Option Plan: David K. Beecken (36,000 shares); Andre B. Lacy
(45,000 shares); and Burt E. Swanson (45,000 shares).
COMPENSATION OF EXECUTIVE OFFICERS
The following table discloses compensation earned by the Company's Chief
Executive Officer and the four other most highly compensated executive officers
(collectively, the "Named Executive Officers") for the fiscal years ended April
1997, 1998 and 1999. The Company has no formalized employment agreements with
its executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------
Annual Compensation Awards
----------------------- -------------------------
Restricted Securities All Other
Stock Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) Awards ($) Options (#) ($) (1)
--------------------------- ---- ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter L. Frechette.................... 1999 324,256 218,399 0 0 1,600
President and Chief Executive Officer 1998 299,159 198,900 0 0 1,500
of the Company 1997 292,505 187,278 0 0 1,713
Ronald E. Ezerski(2).................. 1999 196,063 109,724 0 0 1,600
Executive Vice President, Treasurer and 1998 184,099 102,000 0 0 1,500
Chief Financial Officer of the Company 1997 177,904 74,008 0 0 1,705
James W. Wiltz........................ 1999 197,600 102,375 0 0 1,600
Vice President of the Company and 1998 193,785 93,750 0 0 1,500
President of Patterson Dental Supply, Inc. 1997 156,404 69,452 0 0 1,674
Brian S. Watson....................... 1999 159,640 65,520 34,922(3) 16,037 9,600
Vice President of Marketing of Patterson 1998 153,500 60,000 33,893(3) 0 9,600
Dental Supply, Inc. 1997 127,000 225,881 14,286(3) 0 9,000
Gary D. Johnson....................... 1999 149,640 65,520 0 0 9,600
Vice President of Sales of Patterson 1998 148,967 60,000 0 0 8,938
Dental Supply, Inc. 1997 136,500 35,259 0 0 9,000
</TABLE>
- ----------
(1) Consists of contributions by the Company to the executive officer's account
under the ESOP for the end of each ESOP plan year in April 1997, 1998 and
1999.
(2) Mr. Ezerski's employment with the Company terminated on July 31, 1999.
(3) Represents the dollar value of the difference between the price paid by Mr.
Watson for shares purchased from the Company through deferral of salary and
the fair market value of such shares at the date of purchase. At the end of
fiscal year 1999, Mr. Watson held 7,590 shares of restricted stock with a
value of approximately $282,728. In general, the shares of restricted stock
vest three years from the date of grant. Dividends, to the extent they are
declared and paid on shares of the Company's Common Stock, will be paid on
this restricted stock.
4
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended April 1999 to each of the Named Executive Officers. No SARs
were granted during such fiscal year.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term ($)(4)
------------------------------------------------------------- ----------------------
Number of Percent of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted (1) Fiscal 1999 (2) ($/share) (3) Date 5% 10%
- ---- ----------- ---------------- ------------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Peter L. Frechette.............. 0 0 N/A N/A N/A N/A
Ronald E. Ezerski............... 0 0 N/A N/A N/A N/A
James W. Wiltz.................. 0 0 N/A N/A N/A N/A
Brian S. Watson................. 16,037 7.5 40.5625 02/10/09 409,096 1,036,731
Gary D. Johnson................. 0 0 N/A N/A N/A N/A
</TABLE>
- --------------------
(1) Generally, 1/7 of these options vest on the third anniversary of the date
of grant; and an additional 1/7 of these options vest on each anniversary
of the date of grant occurring each year thereafter. These options have a
ten-year term, subject to earlier termination in the event of the
optionee's cessation of service with the Company.
(2) Based on an aggregate of 212,982 shares subject to options granted to
employees under the Company's stock option plans during the fiscal year
ended April 1999.
(3) The exercise price may be paid in cash or, at the discretion of the
Compensation and Stock Option Committee of the Board of Directors, in
shares of the Company's Common Stock valued at fair market value on the
exercise date or any other method approved by the Compensation and Stock
Option Committee of the Board of Directors.
(4) The potential realizable value is calculated based on the term of the
option at the time of grant (ten years). Stock price appreciation of 5% and
10% is assumed pursuant to rules promulgated by the SEC and does not
represent the Company's prediction of its stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by
assuming that the stock price on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.
OPTION VALUES
The following table sets forth information concerning the unexercised
options held by the Named Executive Officers as of the end of fiscal year 1999.
No options were exercised by the Named Executive Officers during fiscal year
1999. No SARs were exercised by the Named Executive Officers during fiscal year
1999 or were outstanding at the end of that fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Options at FY-End at FY-End ($)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter L. Frechette.................................. 0 0 N/A N/A
Ronald E. Ezerski................................... 0 0 N/A N/A
James W. Wiltz...................................... 0 0 N/A N/A
Brian S. Watson..................................... 0 16,037 0 0
Gary D. Johnson..................................... 0 0 N/A N/A
</TABLE>
5
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee of the Board of Directors makes
annual recommendations to the Board respecting the appropriate levels of
compensation for the Company's senior executive officers for the following
calendar year. The Committee considers how the achievement of the overall goals
and objectives of the Company can be aided through adoption of an appropriate
compensation philosophy and effective compensation program elements. In addition
to approving the compensation arrangements for senior management, the Committee
also reviews and approves the adoption of any compensation plans in which
officers and directors are eligible to participate. The Company's three outside
directors, Messrs. Swanson, Beecken and Lacy, comprise the Compensation
Committee. The Committee reviews and makes recommendations to the Board with
respect to the base salary component of compensation on a calendar year basis
and on a next fiscal year basis with respect to the proposed bonus potential for
the senior executives. The bonus potential for each of the senior officers is
directly affected by their participation in the Management Incentive
Compensation Plan ("MICP") which is reviewed by the Committee and adopted by the
Board on a fiscal year basis. The Committee also considers and makes
recommendations to the Board with respect to the participation and mix of
benefits granted under the Company's newly adopted Long Term Incentive Plan
("LTIP").
The Committee had discussions with the President and Executive Vice
President, reviewed the present salary ranges, current salaries and bonus
potential for each position, considered management's overall salary objectives
and discussed philosophy respecting the components of the compensation package
such as the amount of compensation to be placed at risk, short-term versus
longer term incentives, the use of stock option programs, the alignment of
executive compensation with the enhancement of shareholder value and other
issues. The Committee also reviewed other information available to its members,
including an executive compensation pricing report prepared by the Company's
compensation manager. That report benchmarked the Company's base and total
compensation for officer positions against market rates from published surveys
by recognized firms and compensation consultants.
Compensation Philosophy and Objectives
The Company's executive compensation philosophy is to link such
compensation to the attainment of business objectives and earnings performance,
over the near and longer term, which in turn will enable the Company to attract,
retain and reward executive officers who contribute to the success of the
Company. The MICP for the fiscal year ending April 24, 1999 specifically ties
incentive compensation to the Company's earnings, and each participating
officer's incentive compensation, including incentive compensation for the
senior officers, increases in direct proportion to the Company's increase in
profit. The objective of the MICP is to encourage greater initiative,
resourcefulness, teamwork and efficiency on the part of all key employees whose
performance and responsibilities directly affect Company profits. The overall
goal of the plan is to reward these officers for achieving superior performance.
The Committee recognizes that the MICP, together with the bonus potential
for each officer, places a substantial amount of the total compensation of an
executive at risk. If the Company's near and longer term goals are achieved, an
executive could obtain total compensation at or near the competitive total
compensation shown in the surveys for comparable positions in companies having
similar sales for fiscal year 1999. Keeping base salaries relatively low with a
higher portion of the total compensation package dependent upon performance is
compatible with the Company's traditional executive compensation approach.
Executive Compensation Program Components
The Company's executive compensation program for the senior officers,
including the President and Chief Executive Officer, consists of a base salary,
an annual cash incentive in the form of a potential bonus measured
6
<PAGE>
as a percentage of base salary and participation in the LTIP adopted by the
Board in December 1998. The particular elements of the compensation program are
discussed more fully below.
Base Salary. Annual base salary levels of executives are determined by the
potential impact of the individual on the Company and its performance, the
skills and experience required by the position, the individual performance of
the executive, the Company's overall performance, internal equity and external
pay practices.
Incentive Compensation. Annual cash bonuses are paid under the Company's
MICP and are designed to provide a direct financial incentive to executives to
achieve the Company's annual profit goals. The annual bonus potential
percentages of base salary range from 35% to 65% of base salary, subject to
increase in direct relation to the Company's increase in profit. Each senior
executive officer has the opportunity to increase his targeted bonus potential
as a percentage of base salary in accordance with the formula contained in the
MICP which allows 150% of the targeted bonus potential to be paid if 110% of the
planned profit is achieved. Conversely, the MICP allows 50% of the targeted
bonus potential to be paid if 90% of the planned profit is achieved. The
increase in percentage of bonus potential is theoretically unlimited, but as
pointed out below, the threshold level of the planned profit for reaching bonus
potential is substantial and has moved upward each year. Accordingly, Peter L.
Frechette, the Company's President and Chief Executive Officer, who had a 65%
bonus potential for fiscal year 1999, received a bonus of 68.3% of base pay
because the Company achieved 101% of its plan. Because the Company achieved 101%
of its profit goals for the fiscal year ending April 24, 1999, the senior
officers earned cash bonuses of 105% of their targeted potential bonus
percentage of base salary. Each year the MICP is revised to set new profit goals
for the Company and the key employee participants in the plan.
Long Term Incentive Plan. To address a need in the overall compensation
package, the Board adopted an LTIP in December 1998. The plan is composed of two
compensation elements: stock options and life insurance. The stock options are
granted under the Employee Stock Option Plan adopted in 1992 and the life
insurance component is made up of a combination of split dollar and key person
insurance. Participants include officers, region managers and other key
managers. Stock options granted vest incrementally over a three to ten year
period and the insurance creates immediate life insurance coverage which
provides long term cash value over five to fifteen years as a supplemental
source of retirement income. The objectives of the LTIP are to: (1) create an
incentive program to increase shareholder value over a longer term which does
not compete with other benefit plans currently in place at the Company; (2)
provide a program which assists in retention of and rewards new management
employees with limited effect on the Company's financial statements and cash
flow; and (3) recognize that equity compensation may not be appropriate for all
management employees.
The Company's base salary ranges changed for the fiscal year ending April
24, 1999 to more closely approximate the market averages described in the
Company's compensation pricing report benchmarked against outside survey
reports. With the addition of an LTIP to the compensation package, the Committee
believes that total compensation is competitive in relation to market data. For
fiscal 1999, the hurdle rates under the MICP were a 22% increase in net earnings
and a 19.7% increase in operating income, both of which were substantial targets
to meet. Because the Company continues to reward the performance of its
executives through the profitability-oriented MICP, the Committee believes that
if the Company achieves its goals it can justify paying more than competitive
levels of total compensation.
Approximately 1,055 employees have subscribed to purchase Common stock
under the Employee Stock Purchase Plan (adopted in 1992). That plan together
with the Capital Accumulation Plan (approved by the shareholders in 1996) and
the newly adopted LTIP have, in the Committee's view, provided effective tools
in motivating and encouraging officers and other key employees to lessen the
dependence of the Company on annual compensation and bonuses in order to
attract, retain and motivate key personnel to grow the Company's sales and
earnings. Since the most senior officers are also substantial shareholders, such
senior officers currently have long-term incentives which are directly aligned
with the long-term interests of the Company's shareholders.
7
<PAGE>
Corporate Tax Deduction on Compensation in Excess of $1 Million a Year
The Company's income tax deduction for executive compensation is limited by
Internal Revenue Code Section 162(m) to $1 million per executive per year,
unless compensation above that amount is "performance-based." This limit applies
to the Company's Chief Executive Officer and the other executive officers who
are most highly compensated. They are identified in the Summary Compensation
Table. The Company has not had any deductions limited by Section 162(m) to date.
The Committee will make every reasonable effort to ensure that all
compensation paid to its executives is fully deductible, provided it determines
that application of this limit is consistent with the Company's needs and its
executive compensation philosophy.
Respectfully submitted,
/s/ David K. Beecken
/s/ Andre B. Lacy
/s/ Burt E. Swanson, Chairman
The Compensation Committee
COMPANY STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on $100
invested on April 23, 1994, through April 24, 1999, with the cumulative total
return for the same time period on the same amount invested in the Nasdaq Stock
Market (U.S. Companies) Index and an index of peer companies selected by the
Company. The Peer Group Index consists of 21 companies (including the Company)
based on the same Standard Industrial Code.*
[Performance Chart]
--------------FISCAL YEAR ENDING--------------
COMPANY/INDEX/MARKET 1994 1995 1996 1997 1998 1999
Patterson Dental Co 100.00 106.84 139.01 141.88 217.02 256.64
SIC Code Index 100.00 90.96 116.19 93.06 145.63 88.66
NASDAQ Market Index 100.00 109.19 152.42 162.47 241.31 318.66
- --------------------
* American HomePatient, Inc., Biora AB ADR, Cantel Industries, Inc., Cyberonics,
Inc., Elron Electronic Industries Ltd., ESC Medical Systems Limited,
Graham-Field Health Products, Inc., Henry Schein, Inc., Horizon Medical
Products, Inc., Innovative Medical Services, Netmed, Inc., Novoste Corporation,
Nyer Medical Group, Inc., Owens & Minor, Inc., Patterson Dental Company, Prime
Capital Corp., Pro-Dex, Inc., PSS World Medical Inc., Strategic Distribution,
Inc., U.S. China Industrial Exchange, Inc., and Vallen Corporation.
8
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, as nearly equal in
number as possible, with the term of office of a class expiring each year.
Directors are elected for staggered terms of three years. Ronald E. Ezerski and
Andre B. Lacy have been nominated to serve three-year terms expiring in 2002.
There are three other directors of the Company whose terms of office do not
expire in fiscal 1999.
The persons named in the accompanying proxy will vote for the election of
the above named nominees, unless authority to vote is withheld. The Board is
informed that the nominees are willing to serve as directors, however, if any
nominee is unable to serve or for good cause will not serve, the proxy may be
voted for such other person as the proxies shall, in their discretion,
determine.
Set forth below is certain information concerning the nominees for election
as directors of the Company and the three directors of the Company whose terms
of office will continue after the meeting.
Nominees for Election as Directors for Terms
Expiring at the Annual Meeting in 2002
Ronald E. Ezerski, age 53, served as Vice President, Treasurer and Chief
Financial Officer of the Company from December 1982 through July 1999 and was
President of its subsidiary, Dental Capital Corporation, from December 1982
until October 1988 when it was merged into the Company. From September 1996
through July 1999, Mr. Ezerski also served as Executive Vice President of the
Company. Mr. Ezerski has been a director of the Company since March 1983.
Andre B. Lacy, age 59, has been President and Chief Executive Officer of
LDI Management, Inc. since 1986 and its Chairman since 1992. LDI Management,
Inc. is managing general partner of LDI, Ltd., an industrial and investment
limited partnership. Mr. Lacy is also a member of the boards of directors of the
following public companies: FinishMaster, Inc., IPALCO Enterprises, Inc.,
Tredegar Industries and Albemarle Corporation. Mr. Lacy has been a director of
Patterson since 1989.
Director Whose Term Expires
at the Annual Meeting in 2000
Burt E. Swanson, age 72, is of counsel to the law firm of Briggs and
Morgan, Professional Association, legal counsel to the Company since its
acquisition from The Beatrice Companies, Inc. Mr. Swanson was a practicing
member of Briggs and Morgan from 1955 to 1995 and has been a director of
Patterson since 1989.
Directors Whose Terms Expire
at the Annual Meeting in 2001
Peter L. Frechette, age 61, has been President and Chief Executive Officer
of the Company since September 1982 and has been a director of the Company since
March 1983. Prior to joining Patterson, Mr. Frechette was employed by American
Hospital Supply Corporation for 18 years, the last seven of which he served as
President of its Scientific Products Division. Mr. Frechette holds an M.B.A.
degree from Northwestern University and a B.S. degree in economics from the
University of Wisconsin. Mr. Frechette is also a director of FinishMaster, Inc.
where he serves on the compensation committee of the board.
David K. Beecken, age 52, has been Managing Director of Beecken Petty &
Company, which is the General Partner of Healthcare Equity Partners, an
investment limited partnership, since September 1996. Mr. Beecken was Senior
Managing Director of ABN AMRO Incorporated, a broker-dealer, from February 1993
to
9
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March 1999. ABN AMRO Incorporated has provided certain financial advisory
services to the Company. From 1989 to February 1993, Mr. Beecken was a Senior
Vice President - Managing Director of First National Bank of Chicago. Mr.
Beecken has been a director of Patterson since 1985.
The Board of Directors and Committees
The Board of Directors held four meetings and took action by written
consent on six occasions during fiscal 1999. Each director attended all of the
Board meetings held.
The Board of Directors has established Executive, Audit and Compensation
and Stock Option Committees. There is no nominating committee of the Board. The
members of the Executive Committee are Messrs. Frechette and Ezerski. The
Executive Committee is granted the power to deal with important matters which
arise between Board meetings and upon which action must be taken or attention
given prior to the next scheduled Board meeting. The Executive Committee did not
meet in person in fiscal 1999, but took written action on four occasions.
The members of the Audit Committee are Messrs. Beecken, Swanson and Lacy.
The Audit Committee is empowered by the Board of Directors to review the
financial books and records of the Company in consultation with the Company's
accounting and auditing staff and its independent auditors and to review with
the accounting staff and independent auditors the scope of the audit, the audit
plan and any questions raised with respect to accounting and auditing policy and
procedure. The Audit Committee held three meetings during fiscal 1999.
The members of the Compensation and Stock Option Committee are Messrs.
Beecken, Swanson and Lacy. The Compensation and Stock Option Committee is
authorized by the Board of Directors to establish general levels of compensation
for officers of the Company, to set the annual compensation of each of the
executive officers of the Company, to grant options to employees under the
Company's option plans, and to review and approve compensation and benefit plans
of the Company. The Compensation and Stock Option Committee held four meetings
during fiscal 1999.
Directors' Compensation
Non-employee directors receive a retainer of $10,000 per year.
Out-of-pocket expenses incurred on behalf of the Company are reimbursed for all
directors.
Non-employee directors also receive periodic stock option grants under the
Company's 1992 Director Stock Option Plan. Each non-employee director receives a
one-time option grant for 22,500 shares of Common Stock upon first taking
office. Each October 1, each non-employee director who continues to serve as a
Board member receives an option for 9,000 shares of Common Stock, except that a
non-employee director will not receive an annual option grant for 9,000 shares
in the same year he or she receives the one-time option grant for 22,500 shares.
Options are granted at the fair market value on the date of grant and are
exercisable for a period of four years commencing one year after the date of
grant.
Required Vote
Election as a director requires the affirmative vote of the holders of a
majority of the shares represented in person or by proxy and entitled to vote at
the meeting. The Board of Directors recommends that shareholders vote FOR the
election of the nominees listed above.
10
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PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP as independent
public accountants for the Company for the year ending April 29, 2000. A
proposal to ratify that appointment will be presented to shareholders at the
meeting. If the shareholders do not ratify the selection of Ernst & Young LLP,
another firm of independent public accountants will be selected by the Board.
Representatives of Ernst & Young LLP will be present at the meeting, will have
an opportunity to make a statement if they desire to do so, and will be
available to respond to appropriate questions from shareholders in attendance.
CERTAIN TRANSACTIONS
As an inducement to relocate to Company headquarters, the Company loaned
$75,000 to Brian S. Watson, the Vice President of Marketing of Patterson Dental
Supply, Inc., in January 1997. Assuming that Mr. Watson's employment with the
Company continues through January 1, 2007, the loan will become payable at such
time but will bear no interest. If Mr. Watson's employment with the Company
terminates prior to January 1, 2007, the loan will become payable at such time
and will bear interest at a rate no less favorable to the Company than could
have been obtained from unaffiliated third parties. As of April 24, 1999, there
had been no payments on the loan.
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
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and provide the Company with
copies of such reports. Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons that
no Forms 5 were required for those persons, the Company believes that, during
the past fiscal year its officers, directors and greater than ten percent
shareholders complied with applicable filing requirements.
SHAREHOLDER PROPOSALS
FOR THE 2000 ANNUAL MEETING
If a shareholder of the Company wishes to present a proposal for
consideration for inclusion in the proxy materials for the 2000 Annual Meeting
of Shareholders, the proposal must be sent by certified mail, return receipt
requested, and must be received at the executive offices of the Company, 1031
Mendota Heights Road, St. Paul, Minnesota 55120, Attn: Secretary, no later than
April 11, 2000. All proposals must conform to the rules and regulations of the
SEC. Under SEC rules, if a shareholder notifies the Company of his or her intent
to present a proposal for consideration at the 2000 Annual Meeting of
Shareholders after June 25, 2000, the Company, acting through the persons named
as proxies in the proxy materials for such meeting, may exercise discretionary
authority with respect to such proposal without including information regarding
such proposal in its proxy materials.
11
<PAGE>
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended April 24, 1999, accompanies this Notice of Annual Meeting, Proxy Statement
and related proxy card. No part of the Annual Report to Shareholders is
incorporated herein and no part thereof is to be considered proxy soliciting
material.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Peter L. Frechette
Peter L. Frechette
President and Chief Executive Officer
Saint Paul, Minnesota
August 9, 1999
12
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PATTERSON DENTAL COMPANY
PATTERSON DENTAL COMPANY Proxy
1031 Mendota Heights Road
St. Paul, Minnesota 55120
- --------------------------------------------------------------------------------
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned shareholder of Patterson Dental Company, a Minnesota
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated August 9, 1999, and
hereby appoints Ronald E. Ezerski and Peter L. Frechette, or either of them,
proxies and attorneys-in-fact, with full power to each of substitution and
revocation, on behalf and in the name of the undersigned, to represent the
undersigned at the 1999 Annual Meeting of Shareholders of the Company to be held
at the Decathlon Club, 1700 East 79th Street, Bloomington, Minnesota, on Monday,
September 13, 1999, at 4:30 p.m. local time, or at any adjournment or
postponement thereof, and to vote, as designated below, all shares of Common
Stock of the Company which the undersigned would be entitled to vote if then and
there personally present, on the matters set forth below.
See reverse for voting instructions
<PAGE>
Please detach here
1. To elect two directors of the Company to have terms expiring in 2002 and
until their successors shall be elected and duly qualified.
01 Ronald E. Ezerski 02 Andre B. Lacy
[_] FOR all nominees [_] WITHHOLD AUTHORITY to
listed at left vote for all nominees
(except as marked listed at left
to the contrary below)
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)
--------------------------------------------------
--------------------------------------------------
2. To ratify the selection of Ernst & Young LLP as the Company's independent
public accountants for the fiscal year ending April 29, 2000.
[_] For [_] Against [_] Abstain
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON THE
PROXY BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2. ABSTENTIONS WILL BE COUNTED TOWARDS THE
EXISTENCE OF A QUORUM.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Address Change? Mark Box [_]
Indicate changes below:
Dated:_________________________, 1999
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--------------------------------------------------
Signature(s) in Box
(If there are co-owners both must sign)
Please sign exactly as name appears on this proxy.
When shares are held by joint tenants, both should
sign. If signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please sign
in full corporate name by president or other
authorized officer. If a partnership, please sign
in partnership name by an authorized person.
