<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 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:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[Logo of Orthodontic Centers of America, Inc. appears here]
5000 Sawgrass Village Circle
Suite 25
Ponte Vedra Beach, Florida 32082
April 14, 1999
TO THE STOCKHOLDERS OF
ORTHODONTIC CENTERS OF AMERICA, INC.:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders of
Orthodontic Centers of America, Inc., to be held on Thursday, May 13, 1999, at
1:00 p.m. (Eastern Time) at the Marriott at Sawgrass Resort in Ponte Vedra
Beach, Florida.
Whether or not you plan to attend the Annual Meeting, please complete, 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.
Important information about the Company and the matters to be addressed at the
Annual Meeting is contained in the accompanying Proxy Statement and Annual
Report to Stockholders. We encourage you to read them.
I look forward to seeing you at this year's Annual Meeting.
Sincerely,
/s/ Gasper Lazzara, Jr., D.D.S.
Gasper Lazzara, Jr., D.D.S.
Chairman of the Board and
Co-Chief Executive Officer
IMPORTANT
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
[Logo of Orthodontic Centers of America, Inc. appears here]
5000 Sawgrass Village Circle
Suite 25
Ponte Vedra Beach, Florida 32082
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 13, 1999
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 13, 1999, 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 II 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
year ending December 31, 1999; 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 30, 1999 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, Jr.
Bartholomew F. Palmisano, Jr.
Corporate Secretary
Metairie, Louisiana
April 14, 1999
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 RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED RETURN ENVELOPE 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>
[Logo of Orthodontic Centers of America, Inc. appears here]
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 13, 1999, 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 14, 1999.
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 (i) FOR the
election as Class II directors of the nominees listed thereon and described in
this Proxy Statement, (ii) FOR ratification of the appointment of the
accounting firm of Ernst & Young LLP as independent auditors of the Company
and its subsidiaries for the year ending December 31, 1999, and (iii) 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 30, 1999 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 30, 1999, the Company had
authorized 100,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), of which 48,002,576 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 Restated Certificate of Incorporation and 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 II directors, Michael C. Johnsen, Ashton J. Ryan, Jr. and Edward J.
Walters, Jr., expires at the Annual Meeting. The Board of Directors has
nominated Messrs. Johnsen, Ryan and Walters for election at the Annual Meeting
as Class II directors to serve until the Company's Annual Meeting of
Stockholders in 2002 and until their respective successors have been elected
and qualified. Messrs. Johnsen, Ryan and Walters 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 nominees listed below. Should a
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.
<PAGE>
Class II Nominees
The Board of Directors recommends that the stockholders vote FOR election of
the following nominees as Class II directors of the Company:
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
<C> <C> <S> <C>
Michael C. Johnsen............. 46 Chief Operating Officer of the 1994
Company (1997-Present); Vice
President of Operations of the
Company (1994-1997)
Ashton J. Ryan, Jr............. 51 President and Chief Executive 1996
Officer, FirsTrust Corp., New
Orleans, Louisiana (1998-
Present); President, First
National Bank of Commerce, New
Orleans, Louisiana (1993-1998)
Edward J. Walters, Jr.......... 52 Attorney and Partner, Moore, 1994
Walters, Shoenfelt & Thompson,
Baton Rouge, Louisiana
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 I 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.
<CAPTION>
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
<C> <C> <S> <C>
Class I--Term Expires in 2001
Geoffrey L. Faux............... 43 President of the Company (1997- 1996
Present); Executive Vice
President and Chief
Administrataive Officer of the
Company (1996-1997); Director,
Investment Banking Group,
Prudential Securities
Incorporated (1992-1996)
A Gordon Tunstall.............. 55 President, Tunstall Consulting, 1996
Inc., Tampa, Florida
Class III--Term Expires in 2000
Gasper Lazzara, Jr., D.D.S..... 56 Chairman of the Board and Co- 1994
Chief Executive Officer of the
Company
Bartholomew F. Palmisano, Sr... 52 Co-Chief Executive Officer of 1994
the Company (1998-Present);
Chief Financial Officer and
Senior Vice President of the
Company (1994-1998)
</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 1998, the Board of Directors held four 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 Dr. Lazzara
and Messrs. Palmisano, Faux and Johnsen. The Executive Committee held one
meeting during 1998.
2
<PAGE>
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. Ryan, Tunstall and Walters. The Audit Committee held one
meeting during 1998.
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. Tunstall and Walters. The Compensation Committee held
one meeting during 1998.
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 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 after 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 30, 1999,
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 accounting
firm of Ernst & Young LLP as independent auditors of the Company and its
subsidiaries for the year ending December 31, 1999, 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 1999. 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.
3
<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 30, 1999, by each of the Company's directors
and by all directors and executive officers of the Company as a group. Unless
otherwise indicated in a footnote to the following table, each of the
stockholders listed below has sole voting and investment power with respect to
the shares of Common Stock shown as beneficially owned by them.
<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)..... 3,871,977 8.1%
Bartholomew F. Palmisano, Sr. (3)... 3,054,519 6.4
Geoffrey L. Faux (4)................ 107,338 *
Michael C. Johnsen (5).............. 115,794 *
Ashton J. Ryan, Jr. (6)............. 2,800 *
A Gordon Tunstall (7)............... 1,800 *
Edward J. Walters, Jr. (8).......... 11,800 *
Bartholomew F. Palmisano, Jr. (9)... 720,763 1.5
All Executive Officers and Directors
as a Group (eight persons)......... 7,886,791 16.4
</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 30, 1999, are deemed to
be outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person.
(2) Includes options currently exercisable to purchase 273,981 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 his designee may vote the orthodontists' shares of
the Common Stock. Such orthodontists hold 296,530 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 685,400 shares are held in separate trusts by a
third party trustee for the benefit of each of Dr. Lazzara's children, and
301,832 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 273,981 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 289,014 shares of
Common Stock that are not included in the table above.
(5) Includes options currently exercisable to purchase 53,056 shares of Common
Stock.
(6) Includes options currently exercisable to purchase 600 shares of Common
Stock.
(7) Includes options currently exercisable to purchase 1,800 shares of Common
Stock.
(8) Includes options currently exercisable to purchase 7,800 shares of Common
Stock. Of the shares deemed beneficially owned by Mr. Walters, 4,000
shares are held in trusts, of which Mr. Walters is the trustee. Mr.
Walters disclaims beneficial ownership of such shares.
4
<PAGE>
(9) Includes options currently exercisable to purchase 15,023 shares of Common
Stock. Of the shares deemed beneficially owned by Mr. Palmisano, an
aggregate of 707,016 shares are held in trusts, of which Mr. Palmisano is
the co-trustee, for the benefit of Mr. Palmisano's siblings. Mr. Palmisano
disclaims beneficial ownership of such shares.
The following table sets forth information with respect to ownership of
shares of Common Stock at March 30, 1999, 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
in a footnote to the following table, 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 of Beneficial Number of Shares Common Stock
Owner Beneficially Owned (1) Beneficially Owned (1)
- ------------------------------ ---------------------- ----------------------
<S> <C> <C>
Amvescap, PLC
11 Devonshire Square
London, England
1315 Peachtree Street, N.E.
Atlanta, GA 30309 (2)......... 2,432,500 (3) 5.1%
Denver Investment Advisors LLC
1225 17th Street, 26th Floor
Denver, CO 80202.............. 1,831,200 (4) 3.8
Massachusetts Financial Services
Company
500 Boylston Street
Boston, MA 02116.............. 2,994,374 6.3
T. Rowe Price Associates, Inc.
and T. Rowe
Price New Horizons Fund, Inc.
100 East Pratt Street
Baltimore, MD 21202........... 3,890,600 (5) 8.1
</TABLE>
- --------
(1) As disclosed in Schedule 13G filed with the Securities and Exchange
Commission ("SEC").
(2) Amvescap, PLC filed a Schedule 13G with the SEC on behalf of a group
consisting of the following entities: AIM Management Group, Inc., Amvescap
Group Services, Inc., Amvescap, PLC, Amvescap, PLC (GA), AVZ, Inc.,
Invesco (NY) Asset Management, Inc., Invesco Capital Management, Inc.,
Invesco Funds Group, Inc., Invesco Management & Research, Inc., Invesco
North American Holdings, Inc., Invesco Realty Advisors, Inc. and Invesco,
Inc.
(3) Voting and investment power is shared with respect to each of such shares.
(4) Includes 1,010,700 shares with respect to which sole voting power is held.
(5) Includes 609,800 shares with respect to which T. Rowe Price Associates,
Inc. has sole voting power, and 2,900,000 shares as to which T. Rowe New
Horizons Fund, Inc. has sole voting power.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, 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 for 1998.
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 for 1998.
5
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table reflects the compensation of Dr. Lazzara and Bartholomew
F. Palmisano, Sr., the Company's Co-Chief Executive Officers, and Messrs. Faux,
Johnsen and Bartholomew F. Palmisano, Jr., each of whom are executive officers
of the Company and whose total annual compensation during 1998 exceeded
$100,000 (collectively, 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.,
Co-Chief Executive Officer... 1998 $180,000 -- -- 120,000
1997 120,000 -- $11,500 120,000
1996 120,000 -- 10,750 44,050
Bartholomew F. Palmisano, Sr.,
Co-Chief Executive Officer... 1998 $150,000 -- -- 120,000
1997 150,000 -- $11,500 120,000
1996 150,000 -- 13,375 44,050
Geoffrey L. Faux,
President.................... 1998 $200,000 -- -- 40,000
1997 200,000 $120,000 $11,500 199,014
1996 * * * *
Michael C. Johnsen,
Chief Operating Officer...... 1998 $200,000 -- -- --
1997 159,616 -- $11,500 30,000
1996 125,000 $ 5,853 3,750 11,364
Bartholomew F. Palmisano, Jr.,
Chief Financial Officer...... 1998 $105,000 -- -- --
1997 * * * *
1996 * * * *
</TABLE>
- --------
* Total annual compensation did not exceed $100,000 during the period
indicated.
6
<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 1998. The
Company granted no stock appreciation rights in 1998.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise or for Option Term (3)
Options Employees in Base Price Expiration -------------------------
Name Granted(1) Fiscal Year (2) Per Share Date 5% 10%
- ---- ---------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gasper Lazzara, Jr.,
D.D.S.................. 120,000 38.1% $13.8125 10/18/08 $1,042,385 (4) $2,641,624 (4)
Bartholomew F.
Palmisano, Sr.......... 120,000 38.1 13.8125 10/18/08 1,042,385 (4) 2,641,624 (4)
Geoffrey L. Faux........ 40,000 12.7 13.2500 9/18/08 333,312 (5) 844,683 (5)
Michael C. Johnsen...... -- -- -- -- -- --
Bartholomew F.
Palmisano, Jr.......... -- -- -- -- -- --
</TABLE>
- --------
(1) 50% of such options vest 13 months following the date of grant, and the
remaining 50% vest on the third anniversary of the date of grant.
(2) Based on the grant of options to purchase a total of 314,987 shares of
Common Stock.
(3) Represents hypothetical gains that could be achieved with respect to the
grants of options if the options were to be exercised at the end of the
option term, based upon assumed rates of appreciation in the market price
of Common Stock of 5% and 10%, compounded annually from the date of grant
to the expiration date. Actual gains, if any, could vary and will depend
upon the actual date or dates, if any, on which the options are exercised
and the actual rates of appreciation, if any, in the price of Common
Stock.
(4) Based on closing price per share of the Common Stock of $13.8125 on
October 18, 1998, as reported on the New York Stock Exchange, less the
exercise price of the options.
(5) Based on closing price per share of the Common Stock of $13.25 on
September 11, 1998, as reported on the New York Stock Exchange, 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 1998 and with
respect to unexercised options at December 31, 1998.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-
Options at Fiscal Year- the-Money Options at
Shares End Fiscal Year End(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gasper Lazzara, Jr.,
D.D.S.................. -- -- 273,981 210,069 $298,595 $ 973,595
Bartholomew F.
Palmisano, Sr.......... -- -- 273,981 210,069 298,595 973,595
Geoffrey L. Faux........ -- -- 50,000 203,014 371,875 1,047,007
Michael C. Johnsen...... -- -- 53,056 245,908 837,808 1,518,205
Bartholomew F.
Palmisano, Jr.......... -- -- 15,023 78,372 237,822 477,683
</TABLE>
- --------
(1) Based upon the closing price per share of the Common Stock of $19.4375 on
December 31, 1998, as reported on the New York Stock Exchange, less the
exercise price of the options.
7
<PAGE>
Employment Contracts and Change-in-Control Arrangements
The Company entered into employment agreements with each of Dr. Lazzara and
Bartholomew F. Palmisano, Sr. 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 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, 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. 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, 30,000
and 40,000 shares of Common Stock under the Company's 1994 Incentive Stock
Plan (the "Incentive Plan") on October 25, 1996, September 1, 1997 and
September 1, 1998, respectively.
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
8
<PAGE>
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
1998 were Dr. Lazzara and Messrs. Walters and Tunstall. Dr. Lazzara is the
Chairman of the Board and Co-Chief Executive Officer of the Company. 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.
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.
9
<PAGE>
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, Bartholomew F. Palmisano, Sr. 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 Bartholomew F. Palmisano, Sr.
provide for annual bonuses in the discretion of the Compensation Committee.
The Company's employment agreement with Mr. Faux provides for annual cash
performance bonuses in the event that the Company achieves certain performance
criteria established by the Compensation Committee. Dr. Lazzara and Messrs.
Palmisano and Faux have not been granted bonuses with respect to 1998.
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 1998, the Compensation Committee granted
stock options to purchase 120,000 shares of Common Stock to each of Dr.
Lazzara and Bartholomew F. Palmisano, Sr. under the Incentive Plan. Under the
terms of Mr. Faux's 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 1998,
Mr. Faux was granted stock options to purchase 40,000 shares of Common Stock
under the Incentive Plan.
Section 162(m)
Section 162(m) of the Code generally disallows a tax deduction by a
publicly-held 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).
Co-Chief Executive Officer Compensation for Fiscal Year 1998
The compensation for Dr. Lazzara and Bartholomew F. Palmisano, Sr. during
1998 focused on the grant of stock options. Based upon a subjective assessment
of the performance of the Company and of Dr. Lazzara's and Mr. Palmisano's
contributions to that performance, in 1998 the Compensation Committee granted
stock options to purchase 120,000 shares of Common Stock to each of Dr.
Lazzara and Mr. Palmisano under the Company's Incentive Plan. During 1998, Dr.
Lazzara and Mr. Palmisano did not receive a cash bonus, and Mr. Palmisano did
not receive a salary increase. Dr. Lazzara received a salary increase of
$60,000 in 1998, based upon the Compensation Committee's subjective assessment
of his performance and that of the Company.
COMPENSATION COMMITTEE
Edward J. Walters, Jr., Chairman
Gasper Lazzara, Jr., D.D.S.
A Gordon Tunstall
10
<PAGE>
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 is a line graph comparing the yearly percentage
change in the cumulative total stockholder return on the Common Stock against
the cumulative total return of (i) the S&P 500 Index, as the broad equity
market index, and (ii) a self-determined peer group consisting of 19 publicly-
traded healthcare practice management companies for use in this Proxy
Statement. The peer group includes American Oncology Resources, Inc., Apple
Orthodontix, Inc., Castle Dental Centers, Inc., Coast Dental Services, Inc.,
Coastal Physician Group, Inc., Complete Management, Inc., Integra, Inc.,
MedPartners, Inc., Monarch Dental Corp., Omega Orthodontics, Inc.,
OrthAlliance, Inc., Pediatrix Medical Group, PhyCor, Inc., Phymatrix Corp.,
Physician Reliance Network, Inc., Physicians Specialty Corp., ProMedCo
Management Company, Sheridan Healthcare, Inc. and Specialty Care Network, Inc.
[CHART OF CRSP TOTAL RETURNS INDEX APPEARS HERE]
<TABLE>
<CAPTION>
12/20/94 12/29/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Orthodonic Centers of America, Inc. 100.0 410.6 544.7 566.0 661.7
S&P 500 Stocks 100.0 138.4 170.7 227.8 293.9
Self-Determined Peer Group 100.0 173.5 125.6 137.1 56.6
</TABLE>
11
<PAGE>
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 and Bartholomew
F. Palmisano, Jr. Each loan is 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 Bartholomew F. Palmisano, Sr.
personally financed the remaining 50% of the purchase price for each employee
(including Messrs. Faux, Johnsen and Bartholomew F. Palmisano, Jr.) 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 56,338
shares of Common Stock, for a total purchase price of $999,990.50. Bartholomew
F. Palmisano, Jr. purchased 15,211 shares of Common Stock for a total purchase
price of $269,996. 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 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. At December 31, 1998, the total original principal amount of the
loans to Messrs. Faux, Johnsen and Bartholomew F. Palmisano, Jr. remained
outstanding.
Moore, Walters, Shoenfelt & Thompson, a law firm of which Edward J. Walters,
Jr., a director of the Company, is a partner, provided certain legal services
to the Company during 1998, and may provide additional legal services to the
Company in the future.
GENERAL INFORMATION
Stockholder Proposals for 2000 Annual Meeting
Stockholder proposals intended to be presented at the 2000 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 11, 1999 in order to be included in the Company's proxy
statement and proxy for the 2000 annual meeting.
Discretionary Authority
As to any proposal(s) that a stockholder intends to present for
consideration by stockholders at the Company's 2000 annual meeting of
stockholders other than by including the proposal(s) in the Company's proxy
statement, the individuals named as proxies on the proxy card for the 2000
annual meeting may exercise their discretionary authority in voting such
proxies unless the Company receives notice of the matter(s) to be proposed not
later than February 24, 2000. Even if proper notice is received on or prior to
February 24, 2000, the individuals named as proxies on the proxy card for that
meeting may nevertheless exercise their discretionary authority in voting such
proxies with respect to such matter(s) by advising stockholders of the
proposal(s) and how the proxies intend to exercise their discretion to vote on
these matter(s), unless the stockholder making the proposal(s) solicits
proxies with respect to the proposal(s) to the extent required by Rule 14a-
4(c)(2) under the Securities Exchange Act of 1934, as amended.
12
<PAGE>
Other Matters
The Board of Directors is not aware of any business to be presented at the
Annual Meeting other than that described in the accompanying Notice of Annual
Meeting. If other matters do properly come before the Annual Meeting, it is
intended that the persons named on the enclosed proxy card will vote on such
matters in accordance with the recommendation of the Board of Directors.
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 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 1998 Annual Report to Stockholders has been mailed
to all stockholders entitled to notice of and to vote at the Annual Meeting.
April 14, 1999
13
<PAGE>
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 Thursday, May 13,
1999, 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 (I)
FOR THE ELECTION AS CLASS II DIRECTORS OF THE NOMINEES NAMED ON THIS CARD, (II)
FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS OF THE COMPANY AND ITS SUBSIDIARIES FOR THE YEAR ENDING DECEMBER 31,
1999 AND (III) 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)
1. Election of Class II Directors. Nominees: Michael C. Johnsen
Ashton J. Ryan, Jr.
FOR all WITHHOLD Edward J. Walters, Jr.
nominees AUTHORITY
listed to vote for
(except as all
marked to nominees
the listed
contrary)
[_] [_] INSTRUCTION: To withhold authority to vote for
any individual nominee, write his name or
their names in the following space:
-----------------------------------------------
2. Proposal to ratify the
appointment of Ernst & Young
LLP as independent auditors
of the Company and its
subsidiaries for the year
ending December 31, 1999.
FOR AGAINST ABSTAIN Dated: _________________________, 1999
[_] [_] [_]
______________________________________
Signature
______________________________________
Signature if held jointly
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.
