Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
ORTHODONTIC CENTERS OF AMERICA, INC.
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
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or the Form or Schedule and the date of its filing.
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<PAGE>
ORTHODONTIC CENTERS OF AMERICA, INC.
5000 Sawgrass Village Circle
Suite 25
Ponte Vedra Beach, Florida 32082
April 10, 1998
TO THE STOCKHOLDERS OF
ORTHODONTIC CENTERS OF AMERICA, INC.:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Orthodontic Centers of America, Inc., to be held on Tuesday, May 12, 1998, at
1:00 p.m. (Eastern Time) at the Marriott at Sawgrass Resort in Ponte Vedra
Beach, Florida.
Please read the enclosed Annual Report to Stockholders and Proxy Statement
for the 1998 Annual Meeting of Stockholders. Whether or not you plan to attend
the Annual Meeting, please sign, date and return the enclosed proxy card as soon
as possible so that your vote will be recorded. If you attend the Annual
Meeting, you may withdraw your proxy and vote your shares personally.
Sincerely,
/s/ Gasper Lazzara, Jr., D.D.S.
Gasper Lazzara, Jr., D.D.S.
Chairman of the Board and
Chief Executive Officer
IMPORTANT
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY.
<PAGE>
ORTHODONTIC CENTERS OF AMERICA, INC.
5000 Sawgrass Village Circle
Suite 25
Ponte Vedra Beach, Florida 32082
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 12, 1998
TO THE STOCKHOLDERS OF
ORTHODONTIC CENTERS OF AMERICA, INC.:
The Annual Meeting of Stockholders of Orthodontic Centers of America, Inc.
(the "Company") will be held on May 12, 1998, at 1:00 p.m. (Eastern Time) at the
Marriott at Sawgrass Resort in Ponte Vedra Beach, Florida for the following
purposes:
(1) To elect two nominees as Class I directors;
(2) To ratify the appointment of the accounting firm of Ernst & Young LLP
as independent auditors of the Company and its subsidiaries for the
Company's 1998 fiscal year; and
(3) To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 20, 1998,
as the record date for determining stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment thereof.
By order of the Board of Directors,
/s/ Bartholomew F. Palmisano, Sr.
Bartholomew F. Palmisano, Sr.
Corporate Secretary
Metairie, Louisiana
April 10, 1998
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, TO ASSURE
THE PRESENCE OF A QUORUM, PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED
PROXY CARD AS SOON AS POSSIBLE. IF YOU ATTEND THE MEETING AND WISH TO VOTE YOUR
SHARES PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.
<PAGE>
ORTHODONTIC CENTERS OF AMERICA, INC.
5000 Sawgrass Village Circle
Suite 25
Ponte Vedra Beach, Florida 32082
----------
PROXY STATEMENT
----------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board of Directors") of Orthodontic
Centers of America, Inc. (the "Company"), to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the Marriott at Sawgrass
Resort in Ponte Vedra Beach, Florida, on May 12, 1998, at 1:00 p.m. (Eastern
Time), for the purposes set forth in the accompanying notice, and at any
adjournment thereof. This Proxy Statement and the accompanying form of proxy are
first being mailed or given to stockholders of the Company on or about April 10,
1998.
If the enclosed proxy is properly executed, returned and not revoked, it
will be voted in accordance with the instructions, if any, given by the
stockholder, and if no instructions are given, it will be voted (a) FOR the
election as Class I directors of the nominees listed thereon and described in
this Proxy Statement, (b) FOR ratification of the appointment of the firm of
Ernst & Young LLP as independent auditors of the Company and its subsidiaries
for fiscal year 1998, and (c) in accordance with the recommendations of the
Board of Directors on any other proposal that may properly come before the
Annual Meeting. The persons named as proxies in the enclosed form of proxy were
selected by the Board of Directors.
Stockholders who sign proxies have the right to revoke them at any time
before they are voted by written request to the Company. The giving of the proxy
will not affect the right of any stockholder to attend the Annual Meeting and
vote in person.
The close of business on March 20, 1998, has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting. As of the close of business on March 20, 1998, the Company had
authorized 100,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), of which 47,549,803 shares were outstanding and entitled to
vote. The Common Stock is the Company's only class of voting stock with shares
outstanding.
PROPOSAL 1: ELECTION OF DIRECTORS
Introduction
In accordance with the Bylaws of the Company, the Board of Directors has
divided the current Board of Directors into three classes, with two classes
consisting of two directors each and one class consisting of three directors.
One class of directors is elected each year for a term of three years. The term
of each of the Company's current Class I directors, Geoffrey L. Faux and A
Gordon Tunstall, expires at the Annual Meeting. The Board of Directors has
nominated Messrs. Faux and Tunstall for election at the Annual Meeting as Class
I directors to serve until the Company's Annual Meeting of Stockholders in 2001
and until their respective successors have been elected and qualified.
<PAGE>
Messrs. Faux and Tunstall have each consented to be a candidate and to serve as
a director of the Company, if elected.
Unless a proxy specifies otherwise, the persons named in the proxy shall
vote the shares covered thereby for the nominee designated by the Board of
Directors listed below. Should the nominee become unavailable for election,
shares covered by a proxy will be voted for a substitute nominee selected by the
current Board of Directors.
A director of the Company is elected by the affirmative vote of a plurality
of the votes present or represented at the Annual Meeting and entitled to vote.
The Company's Restated Certificate of Incorporation does not provide for
cumulative voting and, accordingly, each stockholder may cast one vote per share
for each nominee.
Class I Nominees
The Board of Directors recommends that the stockholders vote FOR election
of the following nominees as Class I directors of the Company:
<TABLE>
<CAPTION>
Name Age Principal Occupation Director Since
- ---- --- -------------------- --------------
<S> <C> <C> <C>
Geoffrey L. Faux...................... 42 President of the Company (1997-Present); 1996
Executive Vice President and Chief
Administrative Officer of the Company
(1996-1997); Director, Investment Banking
Group, Prudential Securities Incorporated
(1992-1996)
A Gordon Tunstall..................... 54 President, Tunstall Consulting, Inc. 1996
</TABLE>
Continuing Directors
The persons named below will continue to serve as directors of the Company
until the annual meeting of stockholders in the year indicated below and until
their successors are elected and take office. Stockholders are not voting on the
election of the Class II and Class III directors. The following table shows the
names, ages and principal occupations of each continuing director and the year
in which each was first elected to the Board of Directors.
<TABLE>
<CAPTION>
Name Age Principal Occupation Director Since
- ---- --- -------------------- --------------
<S> <C> <C> <C>
Class II - Term Expires in 1999
Michael C. Johnsen.................... 45 Chief Operating Officer of the Company 1994
(1997 - Present); Vice President of
Operations of the Company and certain
of its predecessor entities
Edward J. Walters, Jr................. 51 Attorney and Partner, Moore, Walters, 1994
Shoenfelt & Thompson, Baton Rouge,
Louisiana
Ashton J. Ryan, Jr.................... 50 President, First National Bank of 1996
Commerce, New Orleans, Louisiana
Class I - Term Expires in 2000
Gasper Lazzara, Jr., D.D.S............ 55 Chairman of the Board and Chief Executive 1994
Officer of the Company and certain of its
predecessor entities
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C>
Bartholomew F. Palmisano, Sr. ........ 51 Chief Financial Officer, Senior Vice 1994
President, Treasurer and Secretary of the
Company and certain of its predecessor
entities
</TABLE>
Except as indicated above, the nominees and continuing directors have had
the principal occupations indicated for more than five years. Dr. Lazzara and
Mr. Johnsen are brothers-in-law.
Mr. Tunstall also serves on the boards of directors of Advanced Lighting
Technologies, Inc., Discount Auto Parts, Inc., Horizon Medical Products, Inc.
and Romac International, Inc.
Meetings of the Board of Directors and Committees
During 1997, the Board of Directors held two regularly scheduled and
special meetings. Each director attended at least 75% of the meetings of the
Board of Directors and committees on which such director served.
The Board of Directors has established the standing committees described
below. The Executive Committee acts on behalf of the Board of Directors on all
matters concerning the management and conduct of the business and affairs of the
Company except those matters that cannot by law be delegated by the Board of
Directors. The Executive Committee is currently comprised of Messrs. Lazzara,
Palmisano, Faux and Johnsen. The Executive Committee held one meeting during
1997.
The Audit Committee selects and engages on behalf of the Company, subject
to the approval of the stockholders, and fixes the compensation of, a firm of
certified public accountants whose duty it is to audit the books and accounts of
the Company and its subsidiaries for the fiscal year in which they are
appointed, and who also report to the Audit Committee. The Audit Committee
confers with the auditors and determines the scope of the auditing of the books
and accounts of the Company and its subsidiaries. The Audit Committee is also
responsible for determining that the business practices and conduct of employees
and other representatives of the Company and its subsidiaries comply with the
Company's policies and procedures. The Audit Committee is currently comprised of
Messrs. Walters, Tunstall and Ryan. The Audit Committee held one meeting during
1997.
The Compensation Committee establishes a general compensation policy for
the Company and has the responsibility for the approval of increases in
directors' fees and in salaries paid to officers and senior employees earning in
excess of an annual base salary of $75,000. The Compensation Committee also
possesses all of the powers of administration under all of the Company's
employee benefit plans, including any stock option plans, bonus plans,
retirement plans, stock purchase plans and medical, dental and insurance plans.
In connection therewith, the Compensation Committee determines, subject to the
provisions of the Company's plans, the directors, officers and employees of the
Company eligible to participate in any of the plans, the extent of such
participation and terms and conditions under which benefits may be vested,
received or exercised. The Compensation Committee is currently comprised of Dr.
Lazzara and Messrs. Walters and Tunstall. Dr. Lazzara was appointed to the
Compensation Committee in March 1998. The Compensation Committee held one
meeting during 1997.
The Board of Directors has no standing nominating committee.
Compensation of Directors
Directors of the Company are paid compensation of $1,250 for each meeting
of the Board of Directors attended. Members of the Executive Committee of the
Board of Directors receive a fee of $750 per month, and members of the Audit and
Compensation Committees of the Board of Directors
3
<PAGE>
receive $625 per committee meeting attended. All directors receive reimbursement
for necessary travel expenses incurred in attending Board of Directors or
committee meetings.
The Company's 1994 Non-Qualified Stock Option Plan for Non-Employee
Directors (the "Director Plan") provides that directors who are not employees of
the Company will automatically receive options to purchase 2,400 shares of
Common Stock on the first trading date of each year at an exercise price equal
to the market price of the Common Stock on the date of grant. The options
(one-third of which may be exercised two years from the date of grant, one-third
three years from the date of grant and one-third four years from the date of
grant) terminate ten years from the date of grant. In addition, the options
terminate if not exercised within 90 days after the director ceases to be a
member of the Board of Directors unless the director dies, becomes disabled,
retires or is terminated other than for cause. At March 1, 1998, options to
purchase an aggregate of 26,400 shares of Common Stock had been granted to the
Company's outside directors under the Director Plan. Of such options, 4,800 have
become exercisable.
PROPOSAL 2: SELECTION OF AUDITORS
The Audit Committee of the Board of Directors has selected the firm of
Ernst & Young LLP as independent auditors of the Company and its subsidiaries
for 1998, subject to the approval of the stockholders. This firm has served as
the independent auditors of the Company since the Company's formation in July
1994. Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they desire and
will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares present or
represented at the Annual Meeting and entitled to vote is needed to ratify the
appointment of Ernst & Young LLP as auditors of the Company and its subsidiaries
for 1998. If the appointment is not approved, the matter will be referred to the
Audit Committee for further review.
The Board of Directors recommends that the stockholders vote FOR
ratification of the appointment of Ernst & Young LLP.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information with respect to ownership of
shares of Common Stock at March 20, 1998, by each of the Company's directors and
Named Executive Officers and by all directors and executive officers of the
Company as a group. Unless otherwise indicated, each of the stockholders listed
below has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
Number of Shares Percentage of Shares
Beneficial Owner Beneficially Owned Beneficially Owned (1)
- ---------------- ------------------ ----------------------
<S> <C> <C>
Gasper Lazzara, Jr., D.D.S. (2).............. 5,050,560 10.8%
Bartholomew F. Palmisano, Sr. (3)............ 2,802,563 6.0
Geoffrey L. Faux (4)......................... 107,338 *
Michael C. Johnsen........................... 62,738 *
Paul J. Spansel.............................. 45,070 *
Edward J. Walters, Jr. (5)................... 5,400 *
A Gordon Tunstall............................ 5,000 *
Ashton J. Ryan, Jr. ......................... 1,200 *
All Executive Officers and Directors
as a Group (nine persons).................... 8,108,038 17.4
</TABLE>
- -----------
* Less than 1%.
(1) In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person which are currently exercisable or which will
become exercisable within 60 days following March 20, 1998, are deemed to
be outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except
as otherwise indicated in a footnote to this table, the persons in this
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Includes options currently exercisable to purchase 122,025 shares of Common
Stock. In connection with the settlement of litigation initiated by two
orthodontists against the Company, such orthodontists entered into a voting
trust agreement which provides that, until the later of the time at which
the two orthodontists own no shares of Common Stock or October 18, 2004,
Dr. Lazzara or a designee of Dr. Lazzara may vote the shares of the
orthodontists. Such orthodontists hold 889,593 shares of Common Stock which
are included in the table. Dr. Lazzara disclaims beneficial ownership of
such shares. Of the shares deemed beneficially owned by Dr. Lazzara, an
aggregate of 685,016 shares are held in separate trusts by a third party
trustee for the benefit of each of Dr. Lazzara's children, and 151,832
shares are held in a charitable foundation of which Dr. Lazzara is a
co-trustee. Dr. Lazzara disclaims beneficial ownership of such shares.
(3) Includes options currently exercisable to purchase 122,025 shares of Common
Stock. Of the shares deemed beneficially owned by Mr. Palmisano, an
aggregate of 707,016 shares are held in separate trusts by a third party
trustee for the benefit of each of Mr. Palmisano's children. Mr. Palmisano
disclaims beneficial ownership of such shares.
(4) Includes options currently exercisable to purchase 50,000 shares of Common
Stock. Mr. Faux holds options to purchase an additional 80,000 shares of
Common Stock that are not included in the table above.
(5) Includes options currently exercisable to purchase 4,000 shares of Common
Stock.
5
<PAGE>
The following table sets forth information with respect to ownership of
shares of Common Stock at March 20, 1998, by each person not listed in the table
above that is known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock. Unless otherwise indicated, each of the
stockholders listed below has sole voting and investment power with respect to
the shares beneficially owned.
<TABLE>
<CAPTION>
Percent of
Name and Address Number of Shares Common Stock
of Beneficial Owner Beneficially Owned (1) Beneficially Owned (1)
- ------------------- ---------------------- ----------------------
<S> <C> <C>
The Capital Group Companies, Inc. and
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071............................. 2,320,000 5.2%
Denver Investment Advisors LLC
1225 17th Street, 26th Floor
Denver, CO 80202................................... 2,295,500 5.1
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116................................... 2,957,700 6.6
T. Rowe Price Associates, Inc. and T. Rowe
Price New Horizons Fund, Inc.
100 East Pratt Street
Baltimore, MD 21202............................... 3,517,300 7.8
</TABLE>
- ----------
(1) As disclosed in Schedule 13G filed with the Securities and Exchange
Commission ("SEC").
Reports of Beneficial Ownership
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Common Stock to file
with the SEC initial reports of ownership and reports of changes in ownership of
the Common Stock. These officers, directors and stockholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) reports
they file. There are specific dates by which these reports are to be filed, and
the Company is required to report in this Proxy Statement any failure to file
reports as required during 1997.
Based solely upon its review of the copies of reports furnished to the
Company and written representations from certain of the Company's directors and
executive officers that no other reports were required, the Company believes
that all Section 16(a) reporting and filing requirements relating to ownership
of the Common Stock were complied with during 1997.
6
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table reflects the compensation of Dr. Lazzara, the Company's
Chief Executive Officer, and Messrs. Palmisano, Faux, Johnsen and Spansel, each
of whom are executive officers of the Company and whose total annual
compensation during 1997 exceeded $100,000 (the "Named Executive Officers"):
Summary Annual Compensation
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------- -----------------
Securities
Annual Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options
- --------------------------- ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Gasper Lazzara, Jr., D.D.S.,
Chief Executive Officer............. 1997 $ 90,000 -- $11,500 120,000
1996 107,164 -- 10,750 250,050
1995 150,000 -- 10,250 --
Bartholomew F. Palmisano, Sr.,
Chief Financial Officer............. 1997 $150,000 -- $11,500 120,000
1996 150,000 -- 13,375 250,050
1995 150,000 -- 10,250 --
Geoffrey L. Faux,
President.......................... 1997 $200,000 $120,000 $11,500 30,000
1996 * * * *
1995 * * * *
Michael C. Johnsen,
Chief Operating Officer............. 1997 $159,616 -- $11,500 30,000
1996 125,000 $ 5,853 3,750 11,364
1995 100,000 -- 10,250 400
Paul J. Spansel,
Vice President of Financial
Scheduling.......................... 1997 $111,598 -- -- --
1996 102,099 -- -- 40,000
1995 * * * *
</TABLE>
- ----------
* Total annual compensation did not exceed $100,000 during the period
indicated.
7
<PAGE>
Stock Option Grants and Exercises
The following table sets forth certain information concerning stock options
exercised by, and granted to, the Named Executive Officers in 1997. The Company
granted no stock appreciation rights in 1997.
<TABLE>
<CAPTION>
Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rates of Stock Price
Underlying Granted to Exercise or Appreciation for Option Term
Options Employees in Base Price Expiration ----------------------------
Name Granted Fiscal Year Per Share Date 5% 10%
- ---- --------- ----------- --------- ------------ -- ---
<S> <C> <C> <C> <C> <C> <C>
Gasper Lazzara, Jr.,
D.D.S................... 120,000 16% $17.875 Dec. 1, 2007 $1,348,979(1) $3,418,578(1)
Bartholomew F.
Palmisano, Sr. ......... 120,000 16 17.875 Dec. 1, 2007 1,348,979(1) 3,418,578(1)
Geoffrey L. Faux........ 30,000 4 17.250 Sept. 1, 2007 824,760(2) 325,451(2)
Michael C. Johnsen...... 30,000 4 17.000 Oct. 3, 2007 320,736(3) 812,809(3)
Paul J. Spansel......... -- -- -- -- -- --
</TABLE>
- ----------
(1) Based on closing price per share of the Common Stock of $17.875 on December
1, 1997, as reported on the New York Stock Exchange, less the exercise
price of the options.
(2) Based on closing price per share of the Common Stock of $17.25 on September
1, 1997, as reported on the Nasdaq Stock Market National Market, less the
exercise price of the options.
(3) Based on closing price per share of the Common Stock of $17.00 on October
3, 1997, as reported on the Nasdaq Stock Market National Market, less the
exercise price of the options.
Stock Options Exercised and Year-End Values
The following table provides certain information, with respect to the Named
Executive Officers, concerning the exercise of options during 1997 and with
respect to unexercised options at December 31, 1997.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Shares Options at Fiscal Year-End at Fiscal Year End(1)
Acquired on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gasper Lazzara, Jr.,
D.D.S..................... -- -- 122,025 248,025 $511,089 $ 536,589
Bartholomew F. Palmisano,
Sr. ...................... -- -- 122,025 248,025 511,089 336,889
Geoffrey L. Faux.......... -- -- 50,000 80,000 231,250 231,250
Michael C. Johnsen........ 54,098 $811,470 -- 159,800 -- 2,157,925
Paul J. Spansel........... -- -- 2,700 62,000 16,188 707,813
</TABLE>
- ----------
(1) Based upon the closing price per share of the Common Stock of $16.625 on
December 31, 1997, as reported on the New York Stock Exchange, less the
exercise price of the options.
8
<PAGE>
Employment Contracts and Change-in-Control Arrangements
The Company entered into employment agreements with each of Dr. Lazzara and
Mr. Palmisano effective as of November 21, 1994. Each such employment agreement
provides for a term of three years, which is automatically extended each year
for an additional year. Each of Dr. Lazzara and Mr. Palmisano has agreed not to
compete with the Company during the term of his respective employment agreement
and for a period of two years thereafter. Under their respective employment
agreements, Dr. Lazzara and Mr. Palmisano are each to receive an annual base
salary of $150,000, subject to cost of living adjustments and annual increases
in the discretion of the Compensation Committee of the Board of Directors, and
each are entitled to participate in the Company's stock option plans and other
benefit programs generally available to executive officers of the Company. In
addition, each of Dr. Lazzara and Mr. Palmisano is entitled to receive an annual
bonus in the discretion of the Compensation Committee.
If the Company terminates the employment of Dr. Lazzara or Mr. Palmisano
without "cause," as defined in their respective employment agreements, Dr.
Lazzara or Mr. Palmisano, as applicable, is to receive any accrued salary,
earned bonus and vested deferred compensation, and any stock options granted to
him by the Company would immediately vest. In addition, he is to receive
continued payment of his annual base salary for a period of three years (reduced
by the amount of any compensation he receives during that time through other
employment) and an amount equal to two times the average annual bonus paid to
him during the two years prior to such termination. Dr. Lazzara and Mr.
Palmisano may elect to receive a lump sum amount equal to the present value of
such severance payments, but not less than two times their respective annual
base salary.
If Dr. Lazzara or Mr. Palmisano terminates his employment upon a "change of
control" of the Company, as defined in their respective employment agreements,
Dr. Lazzara or Mr. Palmisano, as applicable, is to receive any accrued salary,
earned bonus and vested deferred compensation, and any stock options granted to
him by the Company would immediately vest. In addition, he is to receive
continued payment of his annual base salary for the remainder of the term of his
employment agreement (reduced by the amount of any compensation he receives
during that time through other employment) and an amount equal to two times the
average annual bonus paid to him during the two years prior to such termination.
Dr. Lazzara and Mr. Palmisano may elect to receive a lump sum amount equal to
the present value of such severance payments, but not less than three times
their respective annual base salary. Severance payments to Dr. Lazzara and Mr.
Palmisano upon a change of control may not, however, exceed the maximum amount
which the Company may deduct for federal income tax purposes pursuant to Section
280G of the Internal Revenue Code.
The Company entered into an employment agreement with Mr. Faux effective as
of September 1, 1996. Mr. Faux's employment agreement provides for a term of
three years, which is to be automatically extended for an additional two year
period unless either party provides the other party with prior written notice to
the contrary. Mr. Faux has agreed not to compete with the Company during the
term of his employment agreement and for a period of two years thereafter. Under
Mr. Faux's employment agreement, he is to receive an annual base salary of
$200,000, subject to annual increases in the discretion of the Compensation
Committee of the Board of Directors, and he is entitled to participate in the
Company's stock option plans and other benefit programs generally available to
executive officers of the Company. In addition, under the terms of his
employment agreement, Mr. Faux was granted options to purchase 100,000 shares
and 30,000 shares of Common Stock under the Company's 1994 Incentive Stock Plan
(the "Incentive Plan") on October 25, 1996 and September 1, 1997, respectively.
On September 1, 1998 and, if the term of the employment agreement is extended,
September 1, 1999 and 2000, Mr. Faux is to be granted options to purchase
40,000, 50,000 and 60,000 shares of Common Stock, respectively, under the
Incentive Plan.
9
<PAGE>
In addition, for each fiscal year during the term of his employment
agreement, Mr. Faux is to receive an annual cash performance bonus equal to
either: (i) 40% of Mr. Faux's annual base salary if during such year the Company
meets or exceeds certain performance criteria established by the Compensation
Committee, (ii) 60% of his annual base salary if during such year the Company
exceeds such performance criteria by at least 15%, or (iii) 80% of his annual
base salary if during such year the Company exceeds such performance criteria by
at least 22.5%. Further, at the end of each two fiscal year cycle during the
term of Mr. Faux's employment agreement (beginning with fiscal years 1997 and
1998), he is to be granted options under the Incentive Plan to purchase either:
(i) 20,000 shares of Common Stock under the Incentive Plan if the Company
exceeds certain performance criteria established by the Compensation Committee
for such two fiscal year cycle by at least 15%, (ii) 35,000 shares of Common
Stock if the Company exceeds such criteria by at least 20%, or (iii) 50,000
shares of Common Stock if the Company exceeds such criteria by at least 25%.
If the Company terminates Mr. Faux's employment without "cause," or if Mr.
Faux terminates his employment for "good reason," each as defined in his
employment agreement, Mr. Faux is to receive any accrued salary, earned bonus
and vested deferred compensation, and any stock options granted to Mr. Faux by
the Company would immediately vest. In addition, Mr. Faux is to receive
continued payment of his annual base salary for a period of three years (reduced
by the amount of any compensation he receives during that time through other
employment) and an amount equal to two times the average annual bonus paid to
Mr. Faux during the two years prior to such termination. Mr. Faux may elect to
receive a lump sum amount equal to the present value of such severance payments,
up to an amount equal to three times his annual base salary.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board of Directors during
1997 were Messrs. Walters and Tunstall. There are no interlocks among the
members of the Compensation Committee.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The following report is submitted by the Compensation Committee of the
Board of Directors pursuant to rules established by the SEC and provides certain
information regarding compensation of the Company's executive officers. The
Compensation Committee is responsible for establishing and administering a
general compensation policy and program for the Company. The Compensation
Committee also possesses all of the powers of administration under the Company's
employee benefit plans, including all stock option plans and other employee
benefit plans. Subject to the provisions of those plans, the Compensation
Committee must determine the individuals eligible to participate in each one of
the plans, the extent of such participation and the terms and conditions under
which benefits may be vested, received or exercised.
Compensation Policies
The Company's executive compensation policies are designed to complement
the Company's business objectives by motivating and retaining quality members of
senior management, by aligning management's interests with those of the
Company's stockholders and by linking total compensation to the performance of
the Company. The Company's executive compensation policies generally consist of
equity-based long term incentives, short term incentives and competitive base
salaries. The Compensation Committee will continue to monitor the performance of
the Company and its executive officers in reassessing executive compensation.
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During 1996, the Company retained the services of an independent consultant
to assist the Company in developing a comprehensive executive compensation
policy and to provide recommendations to the Compensation Committee on
compensation of the Company's executive officers. The consultant conducted a
review of the Company's executive compensation and presented a report to the
Compensation Committee assessing the effectiveness of the Company's executive
compensation policies and providing a comparison of base salaries and long term
incentives paid to executive officers of 11 other publicly-traded, health care
management companies. The consultant generally recommended that the Company
adjust the base salaries of its executive officers to reflect competitive market
practices, tie annual incentive amounts to certain performance criteria and
establish long term incentives that align financial interests of the executives
with increases in value to the Company's stockholders.
Section 162(m) of the Code generally disallows a tax deduction by a public
company for compensation in excess of $1,000,000 paid to the company's chief
executive officer and four other most highly compensated executive officers.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met. The Compensation Committee intends to structure
the future compensation of the Company's executive officers so as to preserve
the deductibility of such compensation under Section 162(m).
Base Salary
The Compensation Committee reviews the base salaries of the Company's
executive officers on an annual basis. Base salaries are determined based upon a
subjective assessment of the nature and responsibilities of the position
involved, the performance of the particular officer and of the Company, the
officer's experience and tenure with the Company and base salaries paid to
persons in similar positions with companies comparable to the Company. The base
salaries paid to Dr. Lazzara, Mr. Palmisano and Mr. Faux are subject to the
terms of their respective employment agreements with the Company.
Annual Bonus
The employment agreements with Dr. Lazzara and Mr. Palmisano provide for
annual bonuses in the discretion of the Compensation Committee. Dr. Lazzara and
Mr. Palmisano have not been granted bonuses with respect to 1997. The Company's
employment agreement with Mr. Faux provides for annual cash performance bonuses
beginning in fiscal year 1997, in the event that the Company achieves certain
performance criteria established by the Compensation Committee. Mr. Faux
received a cash bonus during 1997 in the amount of $120,000.
Long-Term Incentives
The Company's long-term compensation strategy is focused on the grant of
stock options under the Company's Incentive Plan, which the Compensation
Committee believes rewards executive officers for their efforts in improving
long-term performance of the Common Stock and creating value for the Company's
stockholders and aligns the financial interests of management with those of the
Company's stockholders. During 1997, the Compensation Committee granted stock
options to purchase 120,000 shares of Common Stock to each of Dr. Lazzara and
Mr. Palmisano under the Incentive Plan. During 1997, Mr. Faux was granted stock
options to purchase 30,000 shares of Common Stock under the Incentive Plan.
Under the terms of his employment agreement, beginning in 1998, Mr. Faux is to
be granted stock options in the event that the Company achieves certain
long-term performance criteria established by the Compensation Committee. During
1997, Mr. Johnsen was granted options to purchase 30,000 shares of Common Stock
under the Incentive Plan.
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Chief Executive Officer Compensation for Fiscal Year 1997
The compensation for Dr. Lazzara during 1997 focused on the grant of stock
options. Based upon a subjective assessment of the performance of the Company
and of Dr. Lazzara's contribution to that performance, in 1997 the Compensation
Committee granted stock options to purchase 120,000 shares of Common Stock to
Dr. Lazzara under the Company's Incentive Plan. Dr. Lazzara did not receive a
cash bonus or salary increase during 1997.
COMPENSATION COMMITTEE
Edward J. Walters, Jr., Chairman
Gasper Lazzara, Jr., D.D.S.
A Gordon Tunstall
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COMPARATIVE PERFORMANCE GRAPH
The SEC requires the Company to include in this Proxy Statement a line
graph which compares the yearly percentage change in cumulative total
stockholder return on the Common Stock with (i) the performance of a broad
equity market indicator, and (ii) the performance of a published industry index
or peer group index. Set forth below are two line graphs comparing the yearly
percentage change in the cumulative total stockholder return on the Common Stock
against the cumulative total return of (i) the CRSP Index for Nasdaq Stock
Market (U.S. Companies) and CRSP Index for Nasdaq Health Services Stocks, and
(ii) the S&P 500 Index and a self-determined peer group. Each of the graphs
assumes the investment of $100 on December 20, 1994 and the reinvestment of all
dividends. The Common Stock was quoted on the Nasdaq Stock Market National
Market until October 20, 1997, when the Common Stock was listed for trading on
the New York Stock Exchange. Because of the October 20, 1997 listing of the
Common Stock on the New York Stock Exchange, the Company is required to use a
broad-based index which includes companies listed on the New York Stock
Exchange. Pursuant to SEC requirements, the first graph has been prepared to
compare the performance of the Common Stock on the CRSP Index for Nasdaq Stock
Market (U.S. Companies) and the CRSP Index for Nasdaq Health Services Stocks
used in its 1997 Proxy Statement.
For the second graph, the Company has chosen the S&P 500 Index, a New York
Stock Exchange-based index, as the broad equity market index and a peer group
consisting of 24 publicly-traded healthcare practice management companies for
use in this Proxy Statement. The peer group includes American Oncology
Resources, Inc., Apogee, Inc., Apple Orthodontix, Inc., Castle Dental Centers,
Inc., Coast Dental Services, Inc., Coastal Physician Group, Inc., Complete
Management, Inc., EquiMed Inc., FPA Medical Management, Inc., MedCath, Inc.,
MedPartners, Inc., Monarch Dental Corp., Omega Orthodontics, Inc., OrthAlliance,
Inc., PHP Healthcare Corp., Pediatrix Medical Group, PhyCor, Inc., Phymatrix
Corp., Physician Reliance Network, Inc., Physicians Resource Group, Inc.,
Physicians Specialty Corp., ProMedCo Management Company, Sheridan Healthcare,
Inc. and Specialty Care Network, Inc. The Company believes that the S&P 500
Index is the most appropriate broad market indicator because the S&P 500 Index
generally is considered the leading New York Stock Exchange-based index. The
Company selected the companies included in the peer group based on the
similarity of the nature of the companies' business, as orthodontic, dental and
other healthcare practice management companies, to that of the Company.
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE PERIOD ENDING DECEMBER 31, 1997
GRAPH #1
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
12/20/94 12/29/95 12/31/96 12/31/97
-------- -------- -------- --------
Orthodontic Centers of America, Inc. 100.0 410.6 544.7 566.0
Nasdaq Stock Market (US Companies) 100.0 146.0 179.5 220.4
Nasdaq Health Services Stocks 100.0 129.0 129.1 131.6
SIC 8000-8099 US & Foreign
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GRAPH #2
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
12/20/94 12/29/95 12/31/96 12/31/97
-------- -------- -------- --------
Orthodontic Centers Of America, Inc. 100.0 410.6 544.7 566.0
S&P 500 Stocks 100.0 138.4 170.7 227.8
Self-Determined Peer Group 100.0 178.4 133.1 133.5
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's 1997 Key Employee Stock Purchase Plan (the
"Plan"), the Company financed 50% of the purchase price for each employee who
purchased shares of the Common Stock pursuant to the Plan. Among those employees
participating in the Plan were Messrs. Faux, Johnsen, Spansel and Anthony J.
Paternostro, Vice President of Insurance Services of the Company. Each loan was
evidenced by a promissory note, is a full recourse obligation of the employee
secured by all of the shares of Common Stock acquired by the employee in
connection with the loan, and bears interest at 6.01% per annum. In addition,
Dr. Lazzara and Mr. Palmisano personally financed the remaining 50% of the
purchase price for each employee, including Messrs. Faux, Johnsen, Spansel and
Paternostro, who purchased shares of the Common Stock pursuant to the Plan, on
terms comparable to the loans from the Company. Mr. Faux purchased 56,338 shares
of Common Stock, for a total purchase price of $999,990.50. Mr. Johnsen
purchased 56,388 shares of Common Stock, for a total purchase price of
$999,990.50. Mr. Spansel purchased 45,070 shares of Common Stock, for a total
purchase price of $779,992.50. Mr. Paternostro purchased 28,169 shares of Common
Stock, for a total purchase price of $499,999.75. The outstanding principal and
accrued interest under each loan is payable, in one lump-sum payment, on the
earlier of (i) November 3, 2002 or (ii) termination of the employee's employment
with the Company. If the employee sells or transfers any of the shares of Common
Stock purchased under the Plan prior to that date, a proportionate amount of the
loans and accrued interest will be become due and payable. If the employee holds
the shares of Common Stock purchased under the Plan for three to five years, he
or she will be entitled to 100% of any gains from a sale of the shares, and the
Company will reduce the balance amount of its loan to the employee by 50% of the
losses from such a sale or transfer. If the employee holds the shares of Common
Stock for less than three years, he or she will be responsible for 100% of any
losses, but entitled to only 50% of any gains, from such a sale or transfer.
GENERAL INFORMATION
Stockholder Proposals for 1999 Annual Meeting
Stockholder proposals intended to be presented at the 1999 annual meeting
of stockholders must be received by the Company at its executive offices at 5000
Sawgrass Village Circle, Suite 25, Ponte Vedra Beach, Florida 32082 not later
than December 1, 1998 in order to be included in the proxy statement and proxy
for the 1999 annual meeting.
Counting of Votes
All matters specified in this Proxy Statement that are to be voted on at
the Annual Meeting will be by written ballot. Inspectors of election will be
appointed to, among other things, determine the number of shares outstanding,
the shares represented at the annual meeting, the existence of a quorum and the
authenticity, validity and effect of proxies, to receive votes of ballots, to
hear and determine all challenges and questions in any way arising in connection
with the right to vote, to count and tabulate all votes and to determine the
result. Each item presented herein to be voted on at the Annual Meeting must be
approved by the affirmative vote of the holders of the number of shares
described under each such item. The inspectors of election will treat shares
represented by proxies that reflect abstentions as shares that are present and
entitled to vote for purposes of
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determining the presence of a quorum. Abstentions, however, do not constitute a
vote "for" or "against" any matter and thus will be disregarded in the
calculation of a plurality or of "votes cast."
Inspectors of election will treat shares referred to as "broker non-votes"
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum. However, for purposes of determining the outcome of any
matter as to which the broker has physically indicated on the proxy that it does
not have discretionary authority to vote, those shares will be treated as not
present and not entitled to vote with respect to that matter (even though those
shares are considered entitled to vote for quorum purposes and may be entitled
to vote on other matters).
Miscellaneous
The Company will bear the cost of printing, mailing and other expenses in
connection with this solicitation of proxies and will also reimburse brokers and
other persons holding shares in their names or in the names of nominees for
their expenses in forwarding this proxy material to the beneficial owners of
such shares. Certain of the directors, officers and employees of the Company
may, without any additional compensation, solicit proxies in person or by
telephone.
A copy of the Company's 1997 Annual Report to Stockholders has been mailed
to all stockholders entitled to notice of and to vote at the Annual Meeting.
April 10, 1998
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PROXY CARD
ORTHODONTIC CENTERS OF AMERICA, INC.
Proxy for Annual Meeting of Stockholders
The undersigned hereby appoints Gasper Lazzara, Jr., D.D.S. and Bartholomew
F. Palmisano, Sr., and either of them, as proxies, with full power of
substitution and resubstitution, to vote all of the shares of Common Stock which
the undersigned is entitled to vote at the Annual Meeting of Stockholders of
Orthodontic Centers of America, Inc. (the "Company") to be held at the Marriott
at Sawgrass Resort in Ponte Vedra Beach, Florida on Tuesday, May 12, 1998, at
1:00 p.m. (Eastern Time), and at any adjournment thereof.
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Annual Meeting or any adjournment
thereof.
This proxy is being solicited by the Board of Directors and will be voted
as specified. If not otherwise specified, the above named proxies will vote (a)
FOR the election as Class I directors of the nominees named on this card, (b)
FOR the ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company and its subsidiaries for 1998 and (c) in accordance with
the recommendations of the Board of Directors on any other matters that may
properly come before the Annual Meeting.
(Continued on reverse side)
<PAGE>
1. Election of Class I Directors.
Nominees: Geoffrey L. Faux
A Gordon Tunstall
FOR all nominees WITHHOLD AUTHORITY
listed (except as to vote for all
marked to the nominees listed
contrary below)
|_|
|_|
INSTRUCTION: To withhold authority to Dated: _________________, 1998
vote for an individual nominee, write
his name in the following space:
- ---------------------------------------- -------------------------------
Signature
2. Proposal to ratify the appointment
of Ernst & Young LLP as independent
auditors of the Company and its
subsidiaries for 1998. -------------------------------
Signature if held jointly
FOR AGAINST ABSTAIN IMPORTANT: Please sign exactly
|_| |_| |_| as your name or names appear
on this proxy and mail
promptly in the enclosed
envelope. If you sign as agent
or in any other capacity,
please state the capacity in
which you sign.
