<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:
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(4) Date Filed:
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<PAGE>
PATTERSON DENTAL COMPANY
1031 Mendota Heights Road
St. Paul, Minnesota 55120
August 9, 2000
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 11, 2000, at 4:30
p.m.
At the Annual Meeting you will be asked to vote for the election of one
director, to approve an amendment to the Company's Employee Stock Purchase Plan
and to ratify the selection by the Board of Directors of Ernst & Young LLP as
the Company's independent public auditors for the fiscal year ending April 28,
2001. I encourage you to vote for the nominee for director, for the amendment
to the plan 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 11, 2000
_____________
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 11, 2000, at 4:30 p.m.
local time, for the following purposes, as more fully described in the
accompanying Proxy Statement:
1. To elect one director of the Company to have a term expiring in 2003
and until his successor shall be elected and duly qualified;
2. To approve an amendment to the Company's Employee Stock Purchase Plan
to increase the number of shares reserved thereunder for issuance from
675,000 to 1,375,000 and to modify the eligibility requirements for
participation therein;
3. To ratify the selection of Ernst & Young LLP as the Company's
independent public auditors for the fiscal year ending April 28, 2001;
and
4. To consider 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 28, 2000, 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, 2000
<PAGE>
PATTERSON DENTAL COMPANY
1031 Mendota Heights Road
St. Paul, Minnesota 55120
_____________
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
SEPTEMBER 11, 2000
_____________
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 11, 2000, 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 nominee for director listed herein, for the amendment to the
Company's Employee Stock Purchase Plan and for ratification of the selection of
Ernst & Young LLP as the independent public auditors 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,
2000.
Record Date and Outstanding Common Stock
The Board of Directors has fixed the close of business on July 28, 2000, 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 67,400,118 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 beneficial
ownership of the Company's Common Stock as of July 31, 2000 (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........................................... 7,197,626 (2) 10.6%
601 Second Avenue South
Minneapolis, MN 55402
Ronald E. Ezerski...................................... 5,101,648 (3) 7.5
Peter L. Frechette..................................... 4,831,916 (3) 7.1
FMR Corp............................................... 3,418,418 (4) 5.1
82 Devonshire Street
Boston, MA 02109
James W. Wiltz......................................... 819,496 (3) 1.2
David K. Beecken....................................... 252,000 (5) *
Gary D. Johnson........................................ 242,344 (3) *
Andre B. Lacy.......................................... 122,850 (5) *
Burt E. Swanson........................................ 76,500 (5) *
Brian S. Watson........................................ 60,214 (3) *
R. Reed Saunders....................................... 2,348 (3) *
R. Stephen Armstrong................................... 0 *
All directors and executive officers as a group
(12 persons).......................................... 11,495,736 17.0%
</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 persons. 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, 2000,
includes (a) 4,800 shares over which sole voting power is claimed, (b)
7,192,826 shares over which shared voting power is claimed, (c) 4,400
shares over which sole dispositive power is claimed, and (d) 7,186,826
shares over which shared dispositive power is claimed. An affiliate of
U.S. Bancorp acts as the
3
<PAGE>
ESOP trustee. The number of shares reported as beneficially owned includes
approximately 6,873,406 shares held in the unallocated account of the ESOP,
but excludes approximately 4,422,892 shares held in the allocated account
of the ESOP.
(3) Includes the following shares allocated to the ESOP account of the
following persons: Ronald E. Ezerski (2,798 shares); Peter L. Frechette
(2,902 shares); James W. Wiltz (2,396 shares); Gary D. Johnson (11,341
shares); Brian S. Watson (8,958 shares); and R. Reed Saunders (538 shares).
(4) As set forth in Schedule 13G filed with the SEC by FMR Corp., Edward C.
Johnson 3d and Abigail P. Johnson on February 14, 2000, includes (a)
177,418 shares over which sole voting power is claimed, (b) no shares over
which shared voting power is claimed, (b) 3,418,418 shares over which sole
dispositive power is claimed, and (d) no shares over which shared
dispositive power is claimed. Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR Corp. and an investment adviser registered
under the Investment Advisers Act of 1940, is the beneficial owner of
3,241,000 shares as a result of acting as investment adviser to various
investment companies registered under the Investment Company Act of 1940.
Edward C. Johnson 3d, FMR Corp., through its control of Fidelity, and the
funds each has sole power to dispose of the 3,241,000 shares owned by the
funds. Neither FMR Corp. nor Edward C. Johnson 3d has the sole power to
vote or direct the voting of the shares owned directly by the Fidelity
Funds, which power resides with the funds' Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines established
by the funds' Boards of Trustees. Through their ownership of voting common
stock and the execution of a shareholders' voting agreement, members of the
Johnson family may be deemed, under the Investment Company Act of 1940, to
form a controlling group with respect to FMR Corp.
(5) Includes shares purchasable by the named person under the Company's 1992
Director Stock Option Plan: David K. Beecken (72,000 shares); Andre B.
Lacy (90,000 shares); and Burt E. Swanson (72,000 shares).
4
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table discloses compensation earned by the Company's Chief
Executive Officer and the other most highly compensated executive officers
(collectively, the "Named Executive Officers") for the fiscal years ended April
1998, 1999 and 2000. 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 ($) Options (#) ($)
--------------------------- ---- ---------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Peter L. Frechette........................... 2000 332,784 259,586 0 0 1,600 (1)
President and Chief Executive Officer 1999 324,256 218,399 0 0 1,600 (1)
of the Company 1998 299,159 198,900 0 0 1,500 (1)
James W. Wiltz............................... 2000 202,800 121,680 0 0 1,600 (1)
Vice President of the Company and 1999 197,600 102,375 0 0 1,600 (1)
President of Patterson Dental Supply, Inc. 1998 193,785 93,750 0 0 1,500 (1)
R. Stephen Armstrong (2)..................... 2000 166,666 99,231 0 49,350 3,620 (3)
Executive Vice President, Treasurer and 1999 0 0 0 0 0
Chief Financial Officer of the Company 1998 0 0 0 0 0
Gary D. Johnson.............................. 2000 162,240 77,875 0 0 14,727 (4)
Vice President of Sales of Patterson 1999 159,640 65,520 0 0 9,600 (1)
Dental Supply, Inc. 1998 148,967 60,000 0 0 8,938 (1)
Brian S. Watson (5)......................... 2000 162,240 77,875 22,508 (6) 0 13,922 (7)
Former Vice President of Marketing of 1999 159,640 65,520 34,922 (6) 32,074 9,600 (1)
Patterson Dental Supply, Inc 1998 153,500 60,000 33,893 (6) 0 9,600 (1)
R. Reed Saunders............................. 2000 162,240 36,910 3,164 (8) 0 12,083 (9)
Vice President of Patterson Dental 1999 156,520 0 0 30,842 9,600 (1)
Supply, Inc. and President of the 1998 150,764 60,000 0 0 0
Company's Colwell Division
</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 1998, 1999 and
2000.
(2) Mr. Armstrong's employment with the Company commenced on July 1, 1999.
(3) Consists of premiums paid by the Company on split dollar life insurance.
(4) Represents a $9,600 contribution by the Company to Mr. Johnson's account
under the ESOP for the end of the ESOP plan year in April 2000 and $5,127
in premiums paid by the Company on split dollar life insurance for Mr.
Johnson.
(5) Mr. Watson's employment with the Company terminated on July 31, 2000.
(6) 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 2000, Mr. Watson held 18,908 shares of restricted stock with
a value of approximately $454,974. In general, the shares of restricted
stock
5
<PAGE>
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.
(7) Represents a $9,600 contribution by the Company to Mr. Watson's account
under the ESOP for the end of the ESOP plan year in April 2000 and $4,322
in premiums paid by the Company on split dollar life insurance for Mr.
Watson.
(8) Represents the dollar value of the difference between the price paid by Mr.
Saunders 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 2000, Mr. Saunders held 524 shares of restricted stock
with a value of approximately $12,609. 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.
(9) Represents a $9,600 contribution by the Company to Mr. Saunders' account
under the ESOP for the end of the ESOP plan year in April 2000 and $2,483
in premiums paid by the Company on split dollar life insurance for Mr.
Saunders.
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options during the fiscal
year ended April 2000 to each of the Named Executive Officers. No SARs were
granted during such fiscal year.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term ($) (4)
---------------------------------------------------------------------- -------------------------
Number of
Securities Percent of Total
Underlying Options Granted Exercise
Options to Employees in Price Expiration
Name Granted (1) Fiscal 2000 (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
James W. Wiltz........ 0 0 N/A N/A N/A N/A
R. Stephen Armstrong.. 49,350 66.4 17.40625 07/01/09 540,219 1,369,022
Gary D. Johnson....... 0 0 N/A N/A N/A N/A
Brian S. Watson....... 0 0 N/A N/A N/A N/A
R. Reed Saunders...... 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 74,298 shares subject to options granted to
employees under the Company's stock option plans during the fiscal year
ended April 2000.
(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.
6
<PAGE>
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 2000.
No options were exercised by the Named Executive Officers during fiscal year
2000. No SARs were exercised by the Named Executive Officers during fiscal year
2000 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
James W. Wiltz................. 0 0 N/A N/A
R. Stephen Armstrong........... 0 49,350 0 328,486
Gary D. Johnson................ 0 0 N/A N/A
Brian S. Watson................ 0 32,074 0 121,280
R. Reed Saunders............... 0 30,842 0 116,621
</TABLE>
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 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
7
<PAGE>
MICP for the fiscal year ending April 29, 2000, 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 2000. 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 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 2000, received a bonus of 78% of base pay
because the Company achieved 104% of its plan. Because the Company achieved
104% of its profit goals for the fiscal year ending April 29, 2000, the senior
officers earned cash bonuses of 120% 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.
8
<PAGE>
The Company's base salary ranges changed for the fiscal year ended April
29, 2000, 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 2000, the hurdle rates under the MICP were a 20.8% increase in
net earnings and a 20.7% 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.
Effective for the fiscal year ending April 28, 2001, branch managers will
be granted stock options under the Employee Stock Option Plan adopted in 1992 as
a long-term incentive component of their compensation package. This recognizes
the importance of the Company's branch managers to the attainment of Company
objectives.
Approximately 1,180 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), the
LTIP and the inclusion of stock options in the compensation package for branch
managers 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.
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
9
<PAGE>
COMPANY STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on $100
invested on May 1, 1995, through April 28, 2000, 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 17 companies (including the Company)
based on the same Standard Industrial Code.*
<TABLE>
<CAPTION>
-------------------FISCAL YEAR ENDING---------------------------
COMPANY/INDEX/MARKET 4/28/1995 4/30/1996 4/30/1997 4/30/1998 4/30/1999 4/28/2000
<S> <C> <C> <C> <C> <C> <C>
Patterson Dental 100.00 130.11 144.09 189.82 232.54 310.33
Medical & Hospital Equipment 100.00 127.73 102.31 160.09 97.47 111.42
NASDAQ Market Index 100.00 139.59 148.79 221.00 291.84 453.45
</TABLE>
___________________
* Biora AB ADR, Cantel Industries, Inc., Cyberonics, Inc., Elron Electronic
Industries Ltd., ESC Medical Systems Limited, Henry Schein, Inc., Horizon
Medical Products, Inc., Innovative Medical Services, Neoforma.com, Inc., Novoste
Corporation, Nyer Medical Group, Inc., Owens & Minor, Inc., Patterson Dental
Company, Prime Capital Corp., Pro-Dex, Inc., PSS World Medical Inc., and U.S.
China Industrial Exchange, Inc.
10
<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. Burt E. Swanson has
been nominated to serve a three-year term expiring in 2003. There are four
other directors of the Company whose terms of office do not expire in fiscal
2000.
The persons named in the accompanying proxy will vote for the election of
the above named nominee, unless authority to vote is withheld. The Board is
informed that the nominee is willing to serve as director, however, if the
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 nominee for election
as director of the Company and the four directors of the Company whose terms of
office will continue after the meeting.
Nominee for Election as Director for Term
Expiring at the Annual Meeting in 2003
--------------------------------------
Burt E. Swanson, age 73, 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 62, 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 is also a director
of FinishMaster, Inc. where he serves on the compensation committee of the
board.
David K. Beecken, age 53, 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 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.
Directors Whose Terms Expire
at the Annual Meeting in 2002
-----------------------------
Ronald E. Ezerski, age 54, 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.
11
<PAGE>
Andre B. Lacy, age 60, 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. and IPALCO Enterprises, Inc.
Mr. Lacy has been a director of Patterson since 1989.
The Board of Directors and Committees
The Board of Directors held four meetings and took action by written
consent on five occasions during fiscal 2000. 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 2000, but took written action on three 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 2000.
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 three meetings
during fiscal 2000.
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 45,000 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 18,000 shares of Common Stock, except that a
non-employee director will not receive an annual option grant for 18,000 shares
in the same year he or she receives the one-time option grant for 45,000 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 nominee listed above.
12
<PAGE>
PROPOSAL NO. 2
AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
General
The Board of Directors previously adopted the Company's Employee Stock
Purchase Plan (the "Plan") to provide eligible employees with an opportunity to
purchase shares of the Company's Common Stock through accumulated payroll
deductions. A total of 675,000 shares of Common Stock has been reserved for
issuance under the Plan. The Plan is intended to qualify under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code. A general description of the Plan is set forth below, but such
description is qualified in its entirety by reference to the full text of the
Plan, a copy of which is attached to this Proxy Statement as Appendix A.
Description of the Plan
Purpose. The purpose of the Plan is to provide eligible employees with an
opportunity to increase their proprietary interest in the success of the Company
by purchasing Common Stock from the Company on favorable terms and paying for
such purchases through periodic payroll deductions.
Administration. The Plan is administered by the Compensation and Stock
Option Committee of the Board. The Committee interprets the Plan and makes all
other policy decisions relating to the operation of the Plan.
Eligibility. Any employee of the Company or any designated subsidiary
whose customary employment is for more than five months per calendar year and
for at least 20 hours per week is eligible to participate in the Plan after 12
months of continuous employment. Employees become participants in the Plan by
delivering to the Company a subscription agreement authorizing payroll
deductions prior to the commencement of the applicable offering period. No
employee is permitted to purchase Common Stock under the Plan if such employee
owns more than five percent of the total combined voting power or value of all
classes of stock of the Company or any subsidiary of the Company (including
shares which may be purchased under the Plan or pursuant to any other options).
In addition, no employee is entitled to purchase more than $25,000 worth of
shares in any calendar year.
Accumulation Periods. Each calendar year, one offering period with a
duration of 12 months commences on January 1. Each offering period contains
four accumulation periods, with purchases occurring at the end of each
accumulation period.
Purchase Price. The price of each share of Common Stock purchased under
the Plan will be 85% of the lower of the fair market value per share of Common
Stock on (i) the first day of the applicable offering period or (ii) the last
day of each third month during the applicable offering period. The purchase
price of the shares is accumulated by payroll deductions over each accumulation
period. The deductions may not exceed 10% of an employee's cumulative
compensation during the offering period. All payroll deductions of a
participant are credited to his or her account under the Plan and such funds may
be used for any corporate purpose.
Termination. Employees may end their participation in the Plan at any time
during the accumulation period, and participation ends automatically upon
termination of employment with the Company and upon certain interruptions of
service as an employee.
Change of Control. In the event of a sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, each option under the Plan will be assumed or an
13
<PAGE>
equivalent option will be substituted by such successor corporation, unless the
Board of Directors determines that the participant will have the right to
exercise the option as to all optioned stock, including shares as to which the
option would not otherwise be exercisable.
Amendment. The Board may amend or terminate the Plan at any time.
However, the Board may not, without shareholder approval, (a) increase the
number of shares of Common Stock reserved for issuance under the Plan, (b)
permit payroll deductions at a rate in excess of 10% of a participant's
compensation, (c) change the designation of employees eligible for participation
in the Plan, or (d) materially increase the benefits which may accrue to
participants under the Plan.
Antidilution Provisions. The Board of Directors shall equitably adjust the
maximum number of shares of Common Stock reserved for issuance under the Plan in
the event of stock splits or consolidations, stock dividends or other
transactions in which the Company receives no consideration.
Proposed Plan Amendment
The Board has approved, subject to shareholder approval, an amendment to
the Plan which would increase the total number of shares of Common Stock
reserved for issuance thereunder to 1,375,000 and would make employees eligible
to participate in the Plan after six months of continuous employment. A copy of
the Plan is attached to this Proxy Statement as Appendix A, with the amended
language underlined for ease of reference. The Board believes that this
amendment will advance the interests of the Company and its shareholders by
facilitating an increase in the proprietary interest of eligible employees in
the success of the Company.
Tax Information
The Plan is intended to be an "employee stock purchase plan" within the
meaning of Section 423 of the Code. Under such a plan, no taxable income is
recognized by participants either when a purchase right is granted at the
beginning of the offering period or when shares are purchased at the end of each
accumulation period.
Generally, participants will recognize income in the year in which they
make a disposition of the purchased shares. The term "disposition" generally
includes any transfer of legal title, whether by sale, exchange or gift. It
does not include a transfer to a participant's spouse, a transfer into joint
ownership if the participant remains one of the joint owners or a transfer into
a participant's brokerage account. Hence, a participant will be subject to
federal income tax on the purchased shares only when he or she disposes of them.
A participant's federal income tax liability will depend on whether he or
she makes a qualifying or disqualifying disposition of the purchased shares. A
qualifying disposition will occur if the sale or other disposition of those
shares is made after the participant has held the shares for (a) more than two
years after the start date of the applicable offering period, and (b) more than
one year after the actual purchase date. A disqualifying disposition is any
sale or disposition which is made before either of these two holding periods is
satisfied.
If a participant makes a qualifying disposition, he or she will recognize
ordinary income in the year of the qualifying disposition equal to the lesser of
(a) the amount by which the fair market value of the shares on the date of the
qualifying disposition exceeds the purchase price paid for those shares, or (b)
15% of the fair market value of the shares on the start date of the offering
period during which those shares were purchased. The Company is not entitled to
an income tax deduction with respect to such disposition. Any additional gain
recognized upon the qualifying disposition will be a capital gain. The capital
gain will be long-term if the participant held the shares more than 18 months
and mid-term if the participant held the shares more than one year but not more
than 18 months. In general, the maximum federal income tax rate on long-term
capital gains is 20% and the maximum rate on mid-term capital gains is 28%. If
the fair market value of the shares on the date of the qualifying
14
<PAGE>
disposition is less than the purchase price a participant paid for the shares,
there will be no ordinary income, and any loss recognized will generally be a
capital loss.
The foregoing is only a summary of the general effect of U.S. federal
income taxation upon participants and the Company with respect to the purchase
of shares under the Plan and the subsequent sale of such shares. This summary
does not discuss the income tax laws of any state or foreign country in which a
participant may reside. A participant should consult his or her own tax advisor
as to the tax consequences of any particular transaction under the Plan.
Vote Required
The affirmative vote of holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting is
required to approve the amendment. Abstentions will be considered shares
entitled to vote in the tabulation of votes cast on the proposal and will have
the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved. The Board of Directors considers the amendment to be in the
best interests of the Company and its shareholders and recommends that you vote
for the amendment.
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent
public auditors for the Company for the year ending April 28, 2001. 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 auditors 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 former Vice President of Marketing of Patterson
Dental Supply, Inc., in January 1997. Mr. Watson's employment with the Company
terminated on July 31, 2000. Accordingly, the loan is payable upon the earlier
of October 29, 2000, or the date of the sale of Mr. Watson's house, and bears
interest at the lower of 7.125% per year or 13% of the appreciation in the value
of the property. As of April 29, 2000, 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.
15
<PAGE>
SHAREHOLDER PROPOSALS
FOR THE 2001 ANNUAL MEETING
If a shareholder of the Company wishes to present a proposal for
consideration for inclusion in the proxy materials for the 2001 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, 2001. 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 2001 Annual Meeting of
Shareholders after June 25, 2001, 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.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended April 29, 2000, 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, 2000
16
<PAGE>
APPENDIX A
RESTATEMENT OF EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Restated Employee Stock
Purchase Plan of PATTERSON DENTAL COMPANY (the "Company"), a Minnesota
corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
a. "Board" shall mean the Board of Directors of the Company.
-----
b. "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
c. "Common Stock" shall mean the Common Stock, $.01 par value, of
------------
the Company.
d. "Company" shall mean Patterson Dental Company, a Minnesota
-------
corporation.
e. "Compensation" shall mean all regular straight time gross
------------
earnings and shall also include payments for overtime, shift premium and
commissions. Compensation shall not include incentive compensation, bonuses or
other incentive payments.
f. "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered. interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
g. "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
h. "Employee" shall mean any person, including an officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
i. "Exercise Date" shall mean the last day of each third month
-------------
during the offering period of the Plan.
j. "Offering Date" shall mean the first day of each offering period
-------------
of the Plan.
k. "Plan" shall mean this Employee Stock Purchase Plan.
----
A-1
<PAGE>
1. "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. Eligibility.
-----------
a. Any person who is an Employee as of the Offering Date of a given
offering period and who has had Continuous Status as an Employee for six
---
consecutive months shall be eligible to participate in such offering period
under the Plan, subject to the requirements of paragraph 5(a) and the
limitations imposed by Section 423(b) of the Code. All eligible Employees who
elect to participate in this Plan shall have the same rights and privileges
except as provided in Subparagraph (b) below.
b. Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 425(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) which permits his rights to
purchase stock under all employee stock purchase plans (described in Section 423
of the Code) of the Company and its subsidiaries to accrue at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by one offering during
-----------------
each 12 month period of the Plan, commencing on or about either January 1 or
July 1 of any calendar year, and continuing thereafter to a date no later than
December 31 of the same calendar year or until terminated in accordance with
paragraph 20 hereof. The Board of Directors of the Company shall have the power
to change the duration of offering periods with respect to future offerings
without shareholder approval if such change is announced at least fifteen (15)
days prior to the scheduled beginning of the first offering period to be
affected.
5. Participation.
-------------
a. An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deduction on the form
provided by the Company and filing it with the Company's payroll office prior to
the applicable Offering Date, unless a later time for filing the subscription
agreement is set by the Board for all eligible Employees with respect to a given
offering.
b. Payroll deductions for a participant shall commence on the first
payroll following the Offering Date and shall end on the Exercise Date of the
offering to which such authorization is applicable, unless sooner terminated by
the participant as provided in paragraph 11. Payroll deductions must be whole
dollar amounts only and may not be less than $10.00 per pay period.
6. Payroll Deductions.
------------------
a. At the time a participant files his subscription agreement, he
shall elect to have payroll deductions made on each payday during the offering
period which cumulatively do not exceed ten percent (10%) of his aggregate
compensation during said offering period.
b. All payroll deductions made by a participant shall be credited to
his account under the Plan. A participant may not make any additional payments
into such account.
A-2
<PAGE>
c. A participant may discontinue his participation in the Plan as
provided in paragraph 11, or may lower, but not increase, the rate of his
payroll deductions during the offering period by completing or filing with the
Company a new authorization for payroll deduction. The change in rate shall be
effective fifteen (15) days following the Company's receipt of the new
authorization.
7. Grant of Option.
---------------
a. On the Offering Date of each offering period, each eligible
Employee participating in the Plan shall be granted an option to purchase (at
the per share option price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions to be
accumulated during such offering period (not to exceed an amount equal to ten
percent (10%) of his Compensation as of the date of the commencement of the
applicable offering period) by eighty-five percent (85%) of the fair market
value of a share of the Company's Common Stock on the Offering Date, subject to
the limitations set forth in Section 3(b) and 13 hereof. Fair market value of a
share of the Company's Common Stock shall be determined as provided in Section
7(b) herein.
b. The option price per share of the shares offered in a given
offering period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion; provided, however, that
where there is a public market for the Common Stock, the fair market value per
Share shall be the mean of the bid and asked prices of the Common Stock for such
date, as reported in the Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a
stock exchange, the fair market value per Share shall be the closing price on
such exchange on such date, as reported in the Wall Street Journal.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 11, his option for the purchase of shares will be
exercised automatically on the Exercise Dates of the offering period, and the
maximum number of full shares subject to option will be purchased for him at the
applicable option price with the accumulated payroll deductions in his account.
The shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Exercise Date. During his lifetime, a
participant's option to purchase shares hereunder is exercisable only by him.
9. Delivery. As promptly as practicable after the Exercise Date of each
--------
offering period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the number of whole shares purchased
upon exercise of his option. Any cash remaining to the credit of a participant's
account under the Plan after a purchase by him of full shares at the termination
of each offering period, or which is insufficient to purchase a full share of
Common Stock of the Company, shall be returned to said participant.
10. Expenses. All costs of maintaining records and executing transfers
--------
will be borne by the Company. Brokerage expenses incurred in connection with the
purchase of shares shall be included as part of the costs of the shares to the
participating employees.
11. Withdrawal; Termination of Employment.
-------------------------------------
a. A participant may withdraw all but not less than all the payroll
deductions credited to his account under the Plan at any time prior to the
Exercise Date of the offering period by giving 5 days prior written notice to
the Company. All of the participant's payroll deductions credited to his account
will be paid to him promptly after receipt of his notice of withdrawal and his
option for the current period will be automatically terminated, and no further
payroll deductions for the purchase of shares will be made during the offering
period.
A-3
<PAGE>
b. Upon termination of the participant's Continuous Status as an
Employee prior to each Exercise Date of the offering period for any reason,
including retirement or death, the payroll deductions credited to his account
will be returned to him or, in the case of his death, to the person or persons
entitled thereto under paragraph 15, and his option will be automatically
terminated.
c. In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
offering period in which the employee is a participant, he will be deemed to
have elected to withdraw from the Plan and the payroll deductions credited to
his account will be returned to him and his option terminated.
d. A Participant who withdraws from an offering may not revoke that
withdrawal and recommence payroll deductions during the same offering period.
e. A participant's withdrawal from an offering will not have any
effect upon his eligibility to participate in a succeeding offering or in any
similar plan which may hereafter be adopted by the Company.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
a. The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 1,375,000 shares,
---------
subject to adjustment upon changes in capitalization of the Company as provided
in paragraph 19. If the total number of shares which would otherwise be subject
to options granted pursuant to Section 7(a) hereof on the Offering Date of an
offering period exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.
b. The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
c. Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his spouse.
14. Administration. The Plan shall be administered by the Board of the
---------------
Company or a committee of members of the Board appointed by the Board. The
administration, interpretation or application of the Plan by the Board or its
committee shall be final, conclusive and binding upon all participants. Members
of the Board who are eligible Employees are permitted to participate in the
Plan, provided that:
a. Members of the Board who are eligible to participate in the Plan
may not vote on any matter affecting the administration of the Plan or the grant
of any option pursuant to the Plan.
b. If a Committee is established to administer the Plan, no member
of the Board who is eligible to participate in the Plan may be a member of the
Committee.
15. Designation of Beneficiary.
--------------------------
a. A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent
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<PAGE>
to the end of the offering period but prior to delivery to him of such shares
and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to the Exercise Date of the
offering period.
b. Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with paragraph 11.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees
promptly following the Exercise Date, which statements will set forth the
amounts of payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization. Subject to any required
------------------------------------------
action by the shareholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
offering period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock, including shares as to
which the option would not otherwise be exercisable. If the Board makes an
option fully exercisable in lieu of assumption or
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<PAGE>
substitution in the event of a merger or sale of assets, the Board shall notify
the participant that the option shall be fully exercisable for a period of (30)
days from the date of such notice, and the option will terminate upon the
expiration of such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
20. Amendment or Termination. The Board of Directors of the Company may at
------------------------
any time terminate or amend the Plan. Except as provided in paragraph 19, no
such termination can affect options previously granted, nor may an amendment
make any change in any option theretofore granted which adversely affects the
rights of any participant, nor may an amendment be made without prior approval
of the shareholders of the Company (obtained in the manner described in
paragraph 22) if such amendment would:
a. Increase the number of shares that may be issued under the Plan;
b. Permit payroll deductions at a rate in excess of ten percent
(10%) of the participant's Compensation;
c. Change the designation of the employees (or class of employees)
eligible for participation in the Plan; or
d. If the Company has a class of equity securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") at the time of such amendment, materially increase the benefits which may
accrue to participants under the Plan.
If any amendment requiring shareholder approval under this paragraph 20 of
the Plan is made subsequent to the first registration of any class of equity
securities by the Company under Section 12 of the Exchange Act, such shareholder
approval shall be solicited as described in paragraph 22 of the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Shareholder Approval.
--------------------
a. Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 423 of the Code.
b. If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such
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<PAGE>
registration shall be solicited substantially in accordance with Section 14(a)
of the Exchange Act and the rules and regulations promulgated thereunder.
c. If any required approval by the shareholders of the Plan itself
or of any amendment thereto is solicited at any time otherwise than in the
manner described in paragraph 21(b) hereof, then the Company shall, at or prior
to the first annual meeting of shareholders held subsequent to the later of (1)
the first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an option hereunder to an
officer or director after such registration, do the following:
i. furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment were
then being solicited) by the rules and regulations in effect under Section 14(a)
of the Exchange Act at the time such information is furnished; and
ii. file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (ii) hereof not later than the date on which such information is
first sent or given to shareholders.
23. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
24. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in paragraph 21. It shall continue in
effect for a term of ten (10) years unless sooner terminated under paragraph 20.
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<PAGE>
Patterson Dental Company
Patterson Dental Company
1031 Mendota Heights Road Proxy
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, 2000, 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 2000 Annual Meeting of Shareholders of the Company to be held
at the Decathlon Club, 1700 East 79th Street, Bloomington, Minnesota, on Monday,
September 11, 2000, 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
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<S> <C>
1. To elect one director of the Company to have a term expiring in [_] FOR [_] WITHHOLD AUTHORITY
2003 and until his successor shall be elected and duly qualified. the nominee to vote for the nominee
listed at left listed at left
Burt E. Swanson
2. To approve the amendment to the Company's Employee Stock Purchase [_] For [_] Against [_] Abstain
Plan to increase the number of shares reserved thereunder for
issuance from 675,000 to 1,375,000 and to modify the
eligibility requirements for participation therein.
3. To ratify the selection of Ernst & Young LLP as the Company's [_] For [_] Against [_] Abstain
independent public auditors for the fiscal year ending April 28,
2001.
4. 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, 2 AND 3. ABSTENTIONS WILL BE COUNTED TOWARDS THE EXISTENCE OF A QUORUM.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. Dated: _________________________, 2000
Address Change? Mark Box [_]
Indicate changes below:
___________________________________________________
___________________________________________________
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.
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