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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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ORTHALLIANCE, INC.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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ORTHALLIANCE, INC.
21535 HAWTHORNE BOULEVARD, SUITE 200
TORRANCE, CALIFORNIA 90503
April 28, 2000
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of OrthAlliance, Inc. ("OrthAlliance") to be held on Thursday, June 1, 2000 at
the Torrance Hilton Hotel, 21333 Hawthorne Blvd., Torrance, California 90503.
The meeting will begin promptly at 9:00 a.m., local time.
The items of business to be addressed at the Annual Meeting are listed in
the attached Notice of Annual Meeting of Stockholders and are more fully
described in the Proxy Statement provided herewith. In addition to these
matters, members of management will report on OrthAlliance's operations,
followed by a period for questions and discussion.
Management hopes that you will be able to attend the Annual Meeting.
However, whether or not you plan to attend the Annual Meeting, please date,
sign, and return your proxy card in the enclosed envelope as soon as possible to
ensure that your shares will be represented and voted at the Annual Meeting. If
you do attend the Annual Meeting, you may vote your shares in person even though
you have previously signed and returned your proxy.
On behalf of your Board of Directors, thank you for your continued support
and interest in OrthAlliance.
Sincerely,
Sam Westover
President and
Chief Executive Officer
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 1, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
OrthAlliance, Inc. (the "Company") will be held at the Torrance Hilton Hotel,
21333 Hawthorne Boulevard, Torrance, California 90503 on Thursday, June 1, 2000
at 9:00 a.m., local time, for the following purposes as more fully described in
the Proxy Statement provided herewith:
(1) To elect three (3) directors to serve until the 2003 Annual Meeting of
Stockholders and one (1) director to serve until the 2001 Annual
Meeting of Stockholders;
(2) To consider and act upon a proposal to amend the 1997 Non-Employee
Director Stock Plan to provide that (i) the Compensation Committee
shall have authority and discretion to administer the Director Plan
and to grant options to any director who is not a full-time employee
of the Company ("Eligible Directors"), in addition to the automatic
formula grants of options currently permitted in the Director Plan for
Eligible Directors, (ii) the automatic annual formula grant of options
to the Chairman of the Board, provided that the Chairman is an
Eligible Director, be increased from options to acquire 10,000 shares
of Class A Common Stock to options to acquire 20,000 shares of Class A
Common Stock, and (iii) the number of shares of Class A Common Stock
which may be issued subject to options granted under the Director Plan
be increased from 200,000 to 500,000, subject to certain anti-dilution
provisions set forth in the Director Plan;
(3) To ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors; and
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only the holders of record of Class A Common Stock and/or Class B Common
Stock of the Company at the close of business on April 17, 2000 are entitled to
notice of and to vote at the Annual Meeting and any adjournment thereof. A list
of stockholders as of the close of business on April 17, 2000, will be available
at the Annual Meeting for examination by any stockholder, his agent, or his
attorney.
Torrance, California By Order of the Board of Directors,
April 28, 2000
Paul H. Hayase
Senior Vice President,
General Counsel and Secretary
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED STAMPED AND
ADDRESSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE
YOUR SHARES IN PERSON.
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ORTHALLIANCE, INC.
21535 HAWTHORNE BOULEVARD, SUITE 200
TORRANCE, CALIFORNIA 90503
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 1, 2000
The 2000 Annual Meeting of Stockholders (the "Annual Meeting") of
OrthAlliance, Inc. (the "Company") will be held on Thursday, June 1, 2000, for
the purposes set forth in the Notice of Annual Meeting of Stockholders attached
hereto and as described herein. The enclosed form of proxy is solicited by the
Board of Directors of the Company (the "Board" or "Board of Directors") and the
cost of the solicitation will be borne by the Company. When a proxy is properly
executed and returned, the shares of Class A Common Stock, $.001 par value per
share ("Class A Common Stock"), and/or Class B Common Stock, $.001 par value per
share ("Class B Common Stock") (Class A Common Stock and Class B Common Stock
are sometimes hereinafter referred to collectively, as the "Common Stock")
represented thereby will be voted as directed at the Annual Meeting or any
adjournment thereof or, if no direction is indicated, such shares of Common
Stock will be voted in favor of the proposals set forth in the Notice of Annual
Meeting of Stockholders attached hereto (collectively, the "Proposals") and any
other matter that may properly come before the Annual Meeting. Any Stockholder
giving a proxy has the power to revoke it at any time before it is voted. All
proxies delivered pursuant to this solicitation are revocable at any time at the
option of the persons executing them by giving written notice to the Secretary
of the Company, by delivering a later-dated proxy to the Company or by voting in
person at the Annual Meeting.
Only holders of Common Stock of record as of the close of business on April
17, 2000 (the "Record Date") will be entitled to vote at the Annual Meeting. As
of the Record Date, the Company had outstanding 12,610,235 shares of Class A
Common Stock and 249,292 shares of Class B Common Stock. The Class A Common
Stock and Class B Common Stock vote together as a class on all Proposals.
Holders of Common Stock of record as of the close of business on the Record Date
are entitled to cast one vote for each share held. No cumulative voting rights
are authorized and dissenters' rights for Stockholders are not applicable to the
matters being proposed. It is anticipated that this Proxy Statement and the
accompanying proxy card will first be mailed to holders of Common Stock of the
Company on or about April 28, 2000.
The presence in person or by proxy of holders of a majority of the shares
of Common Stock outstanding on the Record Date will constitute a quorum for the
transaction of business at the Annual Meeting or any adjournment thereof. The
affirmative vote of a plurality of the shares of Common Stock present in person
or by proxy and entitled to vote is required to elect directors. With respect to
the other Proposals and any other matter that may properly come before the
Annual Meeting, the approval of such Proposals or such other matter requires the
affirmative vote of a majority of the shares of Common Stock present in person
or by proxy and entitled to vote thereon. The New York Stock Exchange does not
permit any of its member organizations to allow brokers who hold shares of
Common Stock in street name to exercise discretionary voting power with respect
to any proposal that authorizes the issuance of stock or options to purchase
stock to directors, officers, or employees in an amount which exceeds 5% of the
total amount of the class of stock outstanding. However, brokers may exercise
discretionary voting power for Proposals if the member organization has not
received voting instructions by the date specified herein and the member
organization has no knowledge of any contest as to the action and the action is
adequately disclosed to the shareholders. Broker non-votes will not be counted
as votes for or against the
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Proposals. Abstentions with respect to a Proposal
are counted for purposes of establishing a quorum. If a quorum is present,
abstentions have no effect on the outcome of any vote on any Proposal, including
the election of directors.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation provides
for up to nine (9) directors and divides the Board into three classes with the
directors in each class serving a term of three years. The Company's Amended and
Restated Bylaws (the "Bylaws") provide for the Company's Board of Directors (the
"Board") to determine the actual number of directors and there are currently
eight (8) directors serving on the Board. The terms of Craig L. McKnight, Sam
Westover and Jonathan E. Wilfong, the Class III members, expire at the Annual
Meeting. Mr. Westover has been nominated by the Nominating Committee of the
Board to stand for re-election, and Dr. Larry D. Dormois and Dr. Stephen G.
Tracey have been nominated for election, as directors at the Annual Meeting to
serve until the 2003 Annual Stockholders' Meeting or until their successors are
duly elected and qualified. In addition, Class I of the Board, whose members'
terms expire at the 2001 Annual Stockholders' Meeting, has a vacancy. Mr. Craig
L. McKnight has been nominated for election to fill this position as director at
the Annual Meeting to serve until the 2001 Annual Stockholders' Meeting or until
his successor is duly elected and qualified.
Except as otherwise provided herein, the proxy solicited hereby cannot be
voted for the election of a person to fill a directorship for which no nominee
is named in this Proxy Statement. The Board has no reason to believe that any
director nominee will be unavailable to serve as a director, if elected.
However, if at the time of the Annual Meeting any nominee should be unable to
serve or, for good cause, will not serve, the persons named proxies will vote as
recommended by the Board to elect a substitute nominee recommended by the Board.
In no event, however, will a proxy be voted to elect more than four (4)
directors.
Set forth below is information concerning the incumbent directors and the
nominees for election or reelection to the Board to serve until the 2003 or 2001
Annual Meeting of Stockholders, respectively, or until their successors are duly
elected and qualified. Such information includes for the nominees, and for each
of the incumbent directors, certain biographical information, a brief
description of each such individual's principal occupation and business
experience during the past five years, and directorships of companies (other
than the Company) presently held, which information has been provided by the
respective individuals.
NOMINEES FOR ELECTION -- TERM EXPIRING 2003
STEPHEN G. TRACEY, D.D.S., M.S. (age 41) has practiced orthodontics in the
Upland, California area since 1986. Dr. Tracey graduated from Loma Linda
University in 1986 with a M.S. degree in orthodontics and in 1983 with a D.D.S.
degree. He is an Assistant Professor of Orthodontics at Loma Linda University
School of Dentistry and a past Director of the California Association of
Orthodontists.
SAM WESTOVER (age 44) has served as a director, President and Chief
Executive Officer of the Company since October 1996. From August 1993 until July
1996, Mr. Westover served as President and Chief Executive Officer of SysteMed
Inc., a pharmacy benefit management company, where he also
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served as a director from July 1992 until February 1997. From January 1993 until
August 1993, Mr. Westover served as Senior Vice President, Chief Financial
Officer and Treasurer of Wellpoint Health Networks, Inc., a health insurance
company. Prior to joining Wellpoint, Mr. Westover served as Chief Financial
Officer and Senior Vice President of Corporate Financial Services of Blue Cross
of California, a position to which he was named in May 1990.
LARRY D. DORMOIS, D.D.S., M.S. (age 48) has practiced pediatric dentistry
in Memphis since 1987. Before that he was director of the Graduate Pediatric
Dental Residency Program and interim Chairman of the Department of Pediatric
Dentistry at the University of Tennessee College of Dentistry. He graduated from
the University of Tennessee College of Dentistry in 1975 with a DDS degree and
the Pediatric Dental Graduate Program in 1981 with a Master of Sciences in
Pediatric Dentistry. He has been a member of the executive committee for
LeBonheur Children's Medical Center since 1990.
THE BOARD RECOMMENDS A VOTE FOR DR. STEPHEN G. TRACEY, SAM WESTOVER AND DR.
LARRY D. DORMOIS TO HOLD OFFICE UNTIL THE 2003 ANNUAL MEETING OF STOCKHOLDERS OR
UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
NOMINEE FOR ELECTION - TERM EXPIRING 2001
CRAIG L. MCKNIGHT (age 49) has been a director of the Company since
completion of the initial public offering of Class A Common Stock (the
"Offering") in August 1997. Since June, 1999, Mr. McKnight has served as
Executive Vice President and Chief Financial Officer of Hillcrest Healthcare
System, a not-for-profit healthcare system with inpatient facilities and
clinics, including teaching hospitals. Previously, Mr. McKnight served from
March 1995 to May, 1999, as Executive Vice President of Magellan Health Services
("Magellan"), a specialty managed care company, which was previously known as
Charter Medical Corporation. Mr. McKnight practiced public accounting with
Coopers & Lybrand, LLP from 1985 through 1995. From June 1994 to March 1995, Mr.
McKnight was responsible for the Health Care Practice of Coopers & Lybrand,
L.L.P. in California and Philadelphia, Pennsylvania.
THE BOARD RECOMMENDS A VOTE FOR CRAIG L. MCKNIGHT TO HOLD OFFICE UNTIL THE
2001 ANNUAL MEETING OF STOCKHOLDERS OR UNTIL HIS SUCCESSOR IS ELECTED AND
QUALIFIED.
INCUMBENT DIRECTORS -- TERM EXPIRING 2001
DOUGLAS D. DURBIN, D.M.D., M.S.D. (age 45) has been a director of the
Company since the completion of the Offering in August 1997. Dr. Durbin has
served as President of The Kentucky Center for Orthodontics, P.S.C. and its
predecessors since 1983. Dr. Durbin is a member of the American Association of
Orthodontics, the American Dental Association and the Kentucky Association of
Orthodontists, a Diplomate of the American Board of Orthodontics and has served
as President, Treasurer, and Secretary of the Bluegrass Dental Society. Dr.
Durbin graduated from the University of Kentucky College of Dentistry with a
D.M.D. degree in 1978 and received his M.S.D. and Certificate in Orthodontics
from the University of Kentucky College of Dentistry in 1983.
W. DENNIS SUMMERS (age 51) has been a director of the Company since
completion of the Offering in August 1997. Effective after the 1999 Annual
Meeting of Stockholders, Mr. Summers has been serving as Chairman of the Board.
Mr. Summers is a principal in the Atlanta, Georgia office of McGuire, Woods,
Battle & Boothe, L.L.P. ("McGuire Woods"), a national law firm, since August
1999, when he moved from his previous firm, Roberts, Isaf & Summers, P.C., to
McGuire Woods. Prior to
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joining McGuire Woods, Mr. Summers served as a principal of the law firm of
Roberts, Isaf & Summers, P.C. (and its predecessor firms) since 1984. Mr.
Summers specializes in corporate and business matters.
INCUMBENT DIRECTORS-TERM EXPIRING 2002
RANDALL K. BENNETT, D.D.S., M.S. (age 44), has served as a Director of the
Company since its inception in October 1996. Dr. Bennett has practiced
orthodontics in Salt Lake City, Utah since 1989 and he practiced in Beverly
Hills, California from 1988 to 1989. Dr. Bennett graduated from Loma Linda
University in 1988 with a M.S. degree in orthodontics and from the University of
Alberta in 1981 with a D.D.S. degree.
G. HARRY DURITY (age 53), has served as a Director of the Company since
December 1998. Since August 1994, Mr. Durity has served as Corporate Vice
President/Worldwide Business Development for Automatic Data Processing, Inc., a
payroll service company. From 1992 to August 1994, Mr. Durity was Senior Vice
President/Corporate Development for Revlon Consumer Products Company, a personal
care products company, and prior thereto was Vice President/Corporate
Development for RJR Nabisco, Inc., a consumer products company.
RAYMOND G.W. KUBISCH, D.D.S., M.S.D., (age 55), has practiced orthodontics
in the Seattle, Washington area since 1976. Dr. Kubisch graduated from Indiana
University in 1968 with a Bachelor of Science in Marketing, and in 1974
graduated with a D.D.S. degree from Indiana University as Valedictorian. In
1976, Dr. Kubisch received his M.S.D. and Certificate in Orthodontics from the
University of Washington. From 1986 to 1993, Dr. Kubisch was an Assistant
Clinical Professor for the University of Washington.
With the exception of Mr. Westover, none of the directors are, or have
been, employed by any parent, subsidiary or other affiliate of the Company;
provided, however, that Dr. Bennett entered into a part-time employment
arrangement with the Company effective February 20, 1998. Mr. Wilfong received
compensation under consulting arrangements with the Company that expired in
September 1997. There are no family relationships between any directors or
executive officers.
MEETINGS OF THE BOARD OF DIRECTORS
During 1999, the Board met seven (7) times (including regularly scheduled
and special meetings). All of the directors attended at least 75% of all
meetings of the Board held during the period that they served as directors,
except for Drs. Bennett and Durbin who each attended 71% of the meetings and Dr.
Kubisch who attended 40% of the meetings. The Board also acted by written
consent on two (2) occasions.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Audit Committee currently consists of Messrs.
McKnight, Summers, and Wilfong. Mr. Wilfong served as chairman of the Audit
Committee during the prior year. The Audit Committee is responsible for (a)
recommending to the Board the firm to be employed as independent auditors of the
Company, and (b) meeting with the Company's independent auditors at least
annually to review (i) the scope of audit and non-audit assignments and related
fees, (ii) accounting principles used by the company in financial reporting, and
(iii) the adequacy of the Company's internal control procedures. During 1999,
the Audit Committee held one (1) meeting.
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COMPENSATION COMMITTEE. The Compensation Committee currently consists of
Messrs. Wilfong, McKnight and Summers. Mr. Summers is chairman of the
Compensation Committee. The Compensation Committee is responsible for (a)
reviewing, approving, recommending and reporting to the Chief Executive Officer
and the Board of Directors matters regarding the compensation of the Company's
executive officers and other key employees and compensation levels or plans
affecting the compensation of the Company's other employees and (b)
administering the Company's 1997 Employee Stock Option Plan, 1997 Non-Employee
Director Stock Plan, 1997 Orthodontist Stock Plan and 1999 Orthodontist Stock
Option Plan. During 1999, the Compensation Committee held one (1) meeting and
acted by unanimous written consent on fifty-eight (58) occasions.
EXECUTIVE COMMITTEE. The Executive Committee currently consists of Dr.
Bennett and Messrs. Durity, Summers, Westover and Wilfong. During 1999, the
Executive Committee consisted of Messrs. Westover and Wilfong and Drs. Bennett
and Durbin. The Executive Committee is authorized by the Board to take all
action which may be delegated by the Board under the Delaware General
Corporation Law. During 1999, the Executive Committee acted by unanimous written
consent on five (5) occasions.
NOMINATING COMMITTEE. The Nominating Committee currently consists of Dr.
Durbin and Messrs. Durity and Summers. During 1999, the Nominating Committee was
comprised of Messrs. Summers, Westover and Wilfong. The Nominating Committee is
responsible for (a) recommending candidates for election to the Board, and (b)
examining the performance of incumbent directors and making recommendations
concerning the retention of such directors. During 1999, the Nominating
Committee held one (1) meeting and acted by unanimous written consent on one
occasion.
Following the Annual Meeting the Board expects that it will reconsider the
composition of each of these committees.
The Bylaws require an advance notice procedure for the nomination, other
than by or at the direction of the Board of Directors or the Nominating
Committee, of candidates for election as directors (the "Nomination Procedure"),
as well as for other stockholder proposals to be considered at annual
stockholders' meetings. Notice to the Company from a stockholder who proposes to
nominate a person at a meeting for election as a director generally must be
given not less than 120 nor more than 150 days prior to the anniversary of the
date notice of the annual meeting of stockholders was given in the preceding
year and must contain: (i) the name and record address of the stockholder who
intends to make the nomination; (ii) the name, age and residence address of the
nominee; (iii) the principal occupation or employment of the nominee; (iv) the
class, series and number of shares held of record, beneficially and by proxy, by
the stockholder and the nominee as of the record date of such meeting (if such
record date is publicly available) and as of the date of such notice; and (v)
such other information relating to the nominee proposed by such stockholder as
is required to be included if the Company is then subject to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including the written consent of each nominee to be named in the proxy statement
and to serve as a director of the Company if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the Nomination Procedure. Similar advance notice must be
given of any other business which a stockholder proposes to bring before an
annual meeting of stockholders. Such notice must contain (i) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class, series and number of
shares of the Company's stock which are held of record, beneficially and by
proxy by the stockholder as of the record date of such
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meeting (if such record date is publicly available) and as of the date of such
notice, (iv) a description of all arrangements or understandings between the
stockholder and any other person or persons (naming such person or persons) in
connection with the proposing of such business by the stockholder, and (v) any
material interest of the stockholder in such business. The purpose of requiring
advance notice is to afford the Board an opportunity to consider the
qualifications of the proposed nominees or the merits of other stockholder
proposals and, to the extent deemed necessary or desirable by the Board, to
inform stockholders about those matters. Although the advance notice provisions
do not give the Board any power to approve or disapprove stockholder nominations
or proposals for action by the Company, they may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the procedures established by the Bylaws are not followed and the
effect of discouraging or deterring a third party from conducting a solicitation
of proxies to elect its own slate of directors or to approve its own proposals,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its stockholders.
COMPENSATION OF DIRECTORS
Members of the Board are reimbursed for expenses incurred in connection
with attendance at Board and committee meetings. Pursuant to the 1997
Non-Employee Director Stock Plan, the Company made the following grants of
options during 1999 to directors: Drs. Bennett, Durbin, Kubisch and Messrs.
Durity, McKnight, Summers and Wilfong each received options to acquire 10,000
shares of Class A Common Stock.
PROPOSAL 2:
APPROVAL OF THE AMENDMENT OF THE
1997 DIRECTOR STOCK OPTION PLAN
The primary purpose of the Company's 1997 Director Stock Option Plan, as
amended (the "Director Plan"), which was previously approved by the Board of
Directors and the Stockholders, is to attract and retain directors of the
Company. The Board has adopted and recommends that the Stockholders approve
amendments to the Director Plan to provide that (i) the Compensation Committee
shall have authority and discretion to administer the Director Plan and to grant
options to any director who is not a full-time employee of the Company
("Eligible Directors"), in addition to the automatic formula grants of options
currently permitted in the Director Plan for Eligible Directors, (ii) the
automatic formula grant of options to the Chairman of the Board, provided that
the Chairman is an Eligible Director, be increased from options to acquire
10,000 shares of Class A Common Stock to options to acquire 20,000 shares of
Class A Common Stock, and (iii) the number of shares of Class A Common Stock
which may be issued subject to options granted under the Director Plan be
increased from 200,000 to 500,000, subject to certain anti-dilution provisions
set forth in the Director Plan (the "Director Plan Amendment"). All other
provisions of the Director Plan will remain unchanged.
The material features of the Director Plan are described below.
ADMINISTRATION
The Director Plan is a self-governing "formula" plan within the meaning of
Note 3 to Rule 16b-3 promulgated under the Exchange Act. Upon election or
appointment, each Eligible Director receives options to purchase 10,000 shares
of Class A Common Stock at an exercise price of 100% of the fair market value of
the Class A Common Stock on the date of election or appointment and will receive
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additional options to purchase 10,000 shares of Class A Common Stock at an
exercise price of 100% of the fair market value of the Class A Common Stock on
the date of the annual meeting of stockholders for each year in which such
director remains a director of the Company. Eligible Directors appointed
mid-term receive a pro-rated initial grant of options, as determined by
multiplying 10,000 by a fraction, the numerator of which is the number of months
remaining until the next annual meeting of stockholders, and the denominator of
which is 12. Under the amendment to the Director Plan, the Chairman of the Board
shall receive options to purchase 20,000 shares of Class A Common Stock in lieu
of such options to purchase 10,000 shares of Class A Common Stock on the same
terms and conditions that such other Eligible Directors receive their options,
provided the Chairman of the Board must be an Eligible Director in order to
receive such options.
In addition to such formula option grants, the Compensation Committee
(composed solely of Non-Employee Directors as defined pursuant to Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) will administer the Director Plan and may make discretionary grants to
any Eligible Director. Subject to the provisions of and in accordance with the
Director Plan, the Compensation Committee will have the power to (i) grant
options, (ii) determine those directors to whom options will be granted, (iii)
interpret the Director Plan, (iv) promulgate rules and regulations relating to
the Director Plan, and (v) make all other determinations and take all other
actions necessary or desirable for the administration of the Director Plan.
Decisions of the Compensation Committee regarding interpretation and
administration of the Director Plan are binding upon all interested persons.
TERMINATION AND AMENDMENT
The Board has the right to amend the Director Plan at any time and from
time to time and the right to terminate the Director Plan at any time, provided,
however, that no such termination shall terminate any outstanding options
granted under the Director Plan and provided further that no amendment to the
Director Plan shall, without the written consent of a participant, adversely
affect the rights of such participant with respect to any outstanding options
granted under the Director Plan. No amendment to the Director Plan may be made
without stockholder approval if stockholder approval is required for options
granted thereunder to qualify or continue to qualify for exemption under Rule
16b-3 of the Exchange Act.
ELIGIBILITY
The class of persons eligible to participate in the Director Plan, as
amended, will consist of all Eligible Directors of the Company.
STOCK SUBJECT TO THE PLAN
As of April 19, 2000, 205,000 shares of Class A Common Stock were reserved
for issuance upon exercise of options previously granted under the Director Plan
and no shares of Class A Common Stock remained available for the grant of future
options under the Director Plan, provided that the reservation of 35,000 of
these shares is subject to stockholder approval of the Director Plan Amendment.
Current directors who are not executive officers have received options to
acquire 185,000 shares of Class A Common Stock pursuant to the Director Plan, of
which options to acquire 35,000 shares are subject to stockholder approval of
the Director Plan Amendment. If the Director Plan Amendment is approved, an
additional 295,000 shares of Class A Common Stock will be available for the
grant of future options
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under the Director Plan. On April 7, 2000, subject to stockholder approval of
the Director Plan Amendment, the Compensation Committee and the Board of
Directors approved the grant of options to acquire 5,000 shares each of Class A
Common Stock to Dr. Bennett, Dr. Durbin, Mr. Durity, Dr. Kubisch, Mr. McKnight,
Mr. Summers and Mr. Wilfong at an exercise price of $6 per share and an
expiration date of April 7, 2010. As of April 19, 2000, including the options
described in the preceding sentence, Dr. Bennett, Dr. Durbin, Mr. McKnight, Mr.
Summers and Mr. Wilfong had each received options to acquire 30,000 shares of
Class A Common Stock pursuant to the Director Plan; Mr. Durity had received
options to acquire 20,000 shares of Class A Common Stock pursuant to the
Director Plan; and Dr. Kubisch had received options to acquire 15,000 shares of
Class A Common Stock pursuant to the Director Plan.
TERMS
All options under the Director Plan are non-qualified stock options
("NSOs"). With respect to the formula options granted to Eligible Directors, the
Board has no discretion as to persons to whom options are granted, the timing of
grants, number of shares subject to any option, the exercise price of any
option, the periods during which any option may be exercised or the expiration
date of any option. The exercise price for such formula options will be as
described above, options will vest on the first anniversary of the date of the
grant and the exercise period will be ten years from the date of the grant.
With respect to the discretionary options granted to Eligible Directors,
the Compensation Committee shall have the authority to grant options and set the
exercise price of options granted; provided, however, that the exercise price of
a share of Class A Common Stock subject to a NSO shall be no less than the fair
market value of a share of Class A Common Stock on the date such NSO is granted.
The Compensation Committee shall also establish the exercise period for each
option grant, which period could not exceed ten years.
An option granted under the Director Plan cannot be sold or transferred
except by will or the laws of descent and distribution.
FEDERAL INCOME TAX CONSEQUENCES
A participant in the Director Plan is not taxed on the grant of an option.
Upon exercise, however, the participant generally recognizes ordinary income
equal to the excess, if any, of the fair market value of the shares of stock
transferred on the date of the exercise over the exercise price. The Company is
generally entitled to an income tax deduction in the year of exercise in an
amount equal to the ordinary income recognized by the participant. The Company's
deduction, however, is subject to a $1 million limitation on the deduction of
certain employee remuneration under Section 162(m) of the Internal Revenue Code,
unless an exemption for performance-based compensation under such section
applies. Depending upon the period that the shares of stock were held after
exercise, the sale or other taxable disposition of shares acquired through the
exercise of an option generally will result in a short-term or long-term capital
gain or loss equal to the difference between the amount realized on such
disposition and the fair market value of the shares when the option was
exercised.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE DIRECTOR PLAN AMENDMENT.
-8-
12
PROPOSAL 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has audited the accounts of the Company and its
subsidiaries for fiscal years 1997, 1998 and 1999 and has been appointed by the
Audit Committee to continue in that capacity for the Company's fiscal year
ending December 31, 2000, subject to ratification by the stockholders at the
Annual Meeting. Should this firm be unable to perform the requested services for
any reason or not be ratified by the stockholders, the Audit Committee will
appoint other independent auditors to serve for the remainder of the year. A
representative of Arthur Andersen LLP will be present at the Annual Meeting,
will have the opportunity to make a statement and will be available to respond
to appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
-9-
13
COMMON STOCK OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of shares of Class
A Common Stock and Class B Common Stock as of March 31, 2000 for (i) directors
of the Company, (ii) the Chief Executive Officer and each of the three most
highly compensated executive officers of the Company (collectively the "Named
Executive Officers"), (iii) the directors and executive officers of the Company
as a group and (iv) each person who is a stockholder of the Company holding more
than a five percent (5%) interest in the Company.
NUMBER OF
NUMBER OF SHARES SHARES OF PERCENT OF
OF CLASS A CLASS B CLASS B COMMON
COMMON STOCK PERCENT OF CLASS COMMON STOCK STOCK
BENEFICIALLY A COMMON STOCK BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1) BENEFICIALLY OWNED OWNED(1) OWNED
- ------------------------ ---------------- ------------------ ------------ --------------
Goldman Sachs Asset Management, a separate
operating division of Goldman Sachs & Co. 1,503,400(2) 10.7% ---- ----
1 New York Plaza
New York, NY 10004
Sam Westover 396,814(3) 3.1% 33,000 13.2%
James C. Wilson 15,000(4) * ---- ----
Paul H. Hayase 128,204(5) 1.0% 6,000 2.4%
Stephen M. Toon 51,677(6) * ---- ---
Randall K. Bennett, D.D.S., M.S. 353,396(7) 2.7% 24,000 9.6%
Douglas D. Durbin, D.M.D., M.S.D. 110,068(8) * 1,062 *
G. Harry Durity 5,000(9) * ---- ----
Raymond G.W. Kubisch, D.D.S., M.S.D. 0 * ---- ----
Craig L. McKnight 15,000(10) * ---- ----
W. Dennis Summers 15,000(10) * ---- ----
Jonathan E. Wilfong 470,762(11) 3.6% 15,930 6.4%
Robert N. Pickron, D.D.S. 926,104(12) 6.8% 91,632 35%
All executive officers & directors as a 3,990,425 24.0% 174,667 67.8%
group (12 persons)
- --------------------------
* Less than 1.0%.
-10-
14
(1) Based on an aggregate of 12,610,235 shares of Class A Common Stock and
249,242 shares of Class B Common Stock issued and outstanding as of
March 31, 2000. Includes shares of Class A Common Stock that may be
acquired upon the exercise of stock options and warrants exercisable
within 60 days. Each share of Class B Common Stock automatically
converts into 8 shares of Class A Common Stock upon the attainment of
certain average closing price calculations for the Class A Common Stock
in 5 increments of 20% each. If not converted on or before August 21,
2003, each share of Class B Common Stock automatically converts into 1
share of Class A Common Stock. Each person named above has sole voting
and dispositive power with respect to all shares listed opposite such
person's name, except as otherwise noted. The address of all persons
listed, except Goldman Sachs Asset Management, Mr. Wilfong and Dr.
Pickron, is 21535 Hawthorne Boulevard, Suite 200, Torrance, California
90503.
(2) The business address of Goldman Sachs Asset Management ("GSAM") is 1
New York Plaza, New York, New York 10004. Share ownership for GSAM, a
separate operating division of Goldman, Sachs & Co. is as of February
10, 2000 and was obtained from a Schedule 13G/A, dated December 31,
1999, filed with the Securities and Exchange Commission. GSAM has sole
voting power with respect to 1,174,000 shares and sole dispositive
power with respect to 1,503,400 shares.
(3) Includes 250,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Employee Plan.
(4) Consists of 15,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Employee Plan.
(5) Includes 107,500 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Employee Plan.
(6) Includes 49,677 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Employee Plan.
(7) Includes 55,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within sixty days pursuant to the Employee Plan and 15,000 shares of
Class A Common Stock purchasable upon exercise of stock options that
are currently exercisable or exercisable within 60 days pursuant to the
Director Plan.
(8) Includes 15,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Director Plan. This amount also includes
1,600 shares of Class A Common Stock that are indirectly owned.
(9) Consists of 5,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Director Plan.
(10) Consists of 15,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Director Plan.
(11) The business address of Mr. Wilfong is 536 Manor Ridge Drive, N.W.,
Atlanta, Georgia 30305. Includes 318,750 shares of Class A Common Stock
subject to warrants that are currently exercisable and 15,000 shares of
Class A Common Stock purchasable upon exercise of stock options that
are currently exercisable or exercisable within 60 days pursuant to the
Director Plan. The 470,762 shares of Class A Common Stock also includes
26,300 shares of Class A Common Stock that are indirectly held by Mr.
Wilfong through a Keogh account and a retirement plan. The 15,930
shares of Class B Common Stock includes 1,600 shares of Class B Common
Stock gifted by Mr. Wilfong's to nieces and a nephew and held by such
nieces and nephew for their benefit. Mr. Wilfong disclaims beneficial
ownership of the 1,600 shares of Class B Common Stock held by his
nieces and nephew.
(12) The business address of Dr. Pickron is 3294 Medlock Bridge Road,
Building A, Norcross, Georgia 30092. Class A Common Stock share
ownership of Dr. Pickron is as of December 31, 1998 and was obtained
from a Schedule 13G/A, dated December 31, 1998, filed with the
Securities and Exchange Commission March 26, 1999. Excludes 84,252
shares of Class A Common Stock held in separate trusts by a third party
trustee for the benefit of each of Dr. Pickron's children and a niece.
The 91,632 shares of Class B Common Stock includes 12,036 shares of
Class B Common Stock held in separate trusts by a third party trustee
for the benefit of each of Dr. Pickron's children and a niece. Dr.
Pickron disclaims beneficial ownership of the shares of Common Stock
held in such trusts.
-11-
15
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation paid to the Company's Chief Executive Officer and each of the Named
Executive Officers whose salary and bonus compensation for the year ended
December 31, 1999 exceeded $100,000.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------------- ------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) COMPENSATION($) OPTIONS(#) COMPENSATION($)
------------------ ---- --------- ----------- --------------- ---------- ---------------
Sam Westover................. 1999 257,500 103,000 ----- 100,000 -----
President and Chief 1998 250,000 117,857 ----- 100,000 -----
Executive Officer 1997 84,615 75,000 271,461(3) 300,000 -----
Paul H. Hayase............ 1999 169,950 67,980 ----- 100,000 -----
Senior Vice President- 1998 165,000 77,786 ----- 75,000 -----
Human 1997 55,846 49,500 172,647(3) 75,000 -----
Resources
General Counsel and Secretary
James C. Wilson.............. 1999 174,996 32,083 ----- 75,000 -----
Senior Vice President-Chief 1998 ----- ----- ----- ----- -----
Financial Officer 1997 ----- ----- ----- ----- -----
Stephen M. Toon.......... 1999 186,850 74,740 115,948(4) 72,015
Senior Vice President 1998 63,327 92,500 ----- 75,000 -----
Chief Development 1997 ---- ----- ----- ----- -----
Officer
- ----------------------
(1) Represents annual salary.
(2) Represents annual bonuses earned for the periods indicated.
(3) Represents fees for consulting services provided to Premier Orthodontic
Group, Inc., which company merged with and into the Company.
(4) Represents commission payments for practice affiliations paid during 1999.
-12-
16
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock option grants
for the year ended December 31, 1999 to the Chief Executive Officer and each of
the Named Executive Officers:
INDIVIDUAL GRANTS
----------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS GRANTED TO AT ASSUMED ANNUAL RATES OF
UNDERLYING EMPLOYEES IN EXERCISE STOCK PRICE APPRECIATION
OPTIONS GRANTED FISCAL 1999 PRICE PER EXPIRATION FOR OPTION TERM (1)
SHARE DATE 5% 10%
---------------- ------------------ ---------- ---------- --------------------------
Sam Westover 100,000 20.77% $7.38 03/19/09 1,202,124 1,914,182
Paul H. Hayase 100,000 20.77% $7.38 03/19/09 1,202,124 1,914,182
James C. Wilson 75,000 15.58% $7.44 017/19/09 908,923 1,447,308
Stephen M. Toon 1,305 0.27% $11.00 01/01/09 23,383 37,233
2,519 0.52% $10.69 01/13/09 43,863 69,845
2,765 0.57% $11.00 01/31/09 49,543 78,889
1,423 0.30% $10.50 02/24/09 24,338 38,754
3,120 0.65% $8.13 03/09/09 41,318 65,792
1,141 0.24% $7.63 03/17/09 14,181 22,581
2,782 0.58% $8.00 03/22/09 36,253 57,726
2,123 0.44% $7.75 03/25/09 26,801 42,675
646 0.13% $7.94 03/29/09 8,355 13,304
2,246 0.47% $7.75 03/31/09 28,353 45,148
378 0.08% $7.75 04/07/09 4,772 7,598
1,890 0.39% $7.63 04/23/09 23,490 37,404
1,648 0.34% $7.31 05/03/09 19,623 31,247
1,913 0.40% $7.38 05/17/09 22,997 36,618
1,972 0.41% $7.19 06/21/09 23,096 36,776
12,813 2.66% $7.38 06/30/09 154,028 245,264
1,637 0.34% $7.44 07/19/09 19,839 31,590
851 0.18% $7.44 07/20/09 10,313 16,422
7,002 1.45% $6.50 09/07/09 74,136 118,049
1,023 0.21% $7.13 09/15/09 11,881 18,919
6,722 1.40% $7.25 09/30/09 79,383 126,405
366 0.08% $6.94 11/15/09 4,137 6,588
619 0.13% $7.25 12/03/09 7,310 11,640
9,002 1.87% $6.25 12/30/09 91,646 145,930
4,109 0.85% $6.25 12/31/09 41,832 66,611
- ------------------------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC. There can be no assurance provided to any
executive officer or any other holder of the Company's securities that the
actual stock price appreciation over the term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of the
Class A Common Stock appreciates over the option term, no value will be
realized from the option grants made to the Chief Executive Officer or the
Named Executive Officers.
-13-
17
The following table sets forth certain information with respect to the
value of unexercised in-the-money options held by the Named Executive Officers
of the Company at December 31, 1999. No options were exercised by the Named
Executive Officers of the Company during 1999.
SECURITIES UNDERLYING VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FY-END (#) AT FY-END ($)(1)
---------------------- ----------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Sam Westover 220,000 280,000 0 0
Paul H. Hayase 80,000 170,000 0 0
James C. Wilson 15,000 60,000 0 0
Stephen M. Toon 44,403 102,612 0 0
- ----------------------
(1) Based on a closing price of $6.25 per share of Class A Common Stock on
December 31, 1999, none of the options were in-the-money.
NONCOMPETITION AND EMPLOYMENT CONTRACTS
The Company entered into employment agreements, each dated May 13, 1997,
with Messrs. Westover and Hayase providing for annual base salaries of $250,000
and $165,000, respectively, with each person being eligible for a cash bonus of
up to 30% of his base salary (the "Employment Agreements"). Additionally, the
Employment Agreements provided for the grant of options for the purchase of
Class A Common Stock to each of Messrs. Westover and Hayase for 300,000 and
75,000 shares, respectively, which such options (i) vested 20% on August 21,
1997 and (ii) will vest 20% per year on the first through the fourth anniversary
dates thereof. These options expire ten years from the date of grant and are
exercisable at $12.00 per share.
Each Employment Agreement is for an initial term of five years with an
automatic renewal for successive 1 year terms unless prior notice of termination
is provided. The Company may terminate an Employment Agreement (i) for cause,
(ii) without cause upon 30 days prior notice, or (iii) upon death or disability
of the employee. The employee may terminate the Employment Agreement within 120
days after a constructive termination (as defined therein). If the employee is
terminated by the Company without cause or the employee terminates the
Employment Agreement within 120 days following a constructive termination, the
Company is required to pay such employee a lump sum severance equal to 2 times
the applicable annual base salary. Each Employment Agreement provides that if
the employee is terminated within a twelve-month period following a change in
control of the Company (as defined therein), the Company will pay such employee
three times the sum of (i) the employee's annual base compensation, plus (ii)
the maximum possible cash bonus for such year. In addition, upon a change in
control, the Company will pay the employee any accrued salary, benefits or
reimbursements and the employee's options will fully vest and become immediately
exercisable for the longer of (i) 90 days from the change in control or (ii) the
time period specified in the stock plan. Each Employment Agreement prohibits the
employee from competing with the Company for a period of 2 years following
termination of employment.
-14-
18
The Company entered into a letter agreement with Mr. Wilson on June 16,
1999 providing for an annual base salary of $174,996, and a cash bonus of up to
40% of his annualized base salary. Additionally, the Company granted Mr. Wilson
an option to purchase 75,000 shares of Class A Common Stock, with a vesting
schedule consistent with the vesting schedule described above for the Employment
Agreements.
The Company entered into a letter agreement with Mr. Toon on May 22, 1998
providing for an initial base salary of $185,000 with a guaranteed management
bonus in the amount of $92,500, and such bonus was paid in February of 1999.
Thereafter, Mr. Toon is eligible to receive a bonus of up to 40% of his base
salary, subject to the approval of the Board of Directors and the achievement of
certain financial goals of the Company established by the Board of Directors and
management. Additionally, the Company granted Mr. Toon an option to purchase
75,000 shares of Class A Common Stock, 20% of which vested on the date of grant,
and 20% of which vests on each anniversary of the grant date. The letter
agreement term is for a two year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Wilfong,
Summers and McKnight. Mr. McKnight and Summers are not and have not been
officers or employees of the Company or any of its subsidiaries. A predecessor
of the Company, U.S. Orthodontic Care, Inc. ("USOC"), entered into a consulting
agreement with Newfound Capital Associates ("Newfound") and Newfound's
president, Mr. Wilfong. The Company succeeded to the rights and obligations of
USOC with respect to this agreement upon the merger of USOC with and into the
Company and Mr. Wilfong entered into a separate consulting agreement with the
Company whereby Mr. Wilfong agreed to provide financial and general business
services to the Company in return for consulting fees of $300,000. In addition
to the consulting fees, the Company granted Mr. Wilfong a warrant to purchase
150,000 shares of Class A Common Stock at an exercise price of $12.00 per share.
A warrant granted to Mr. Wilfong to purchase 168,750 shares of USOC's common
stock was converted in such merger to a warrant to purchase 168,750 shares of
Class A Common Stock at $11.16 a share. Both warrants are exercisable for five
(5) years from August 21, 1997. Mr. Wilfong's consulting agreements terminated
on September 30, 1997.
CERTAIN TRANSACTIONS
Dr. Randall Bennett, a director and shareholder, serves as Chairman of the
OrthAlliance Clinical Advisory Committee as an independent contractor at the
rate of $2,000 per month. In addition, Dr. Bennett assists in the development
and improvement of OrthAlliance's orthodontic programs, procedures and training
materials as a part-time employee of OrthAlliance Properties, Inc. for a salary
of $2,000 per month. On April 7, 1998, the Company loaned $49,885 to Randall K.
Bennett, D.D.S., M.S., P.C. of which Dr. Bennett, a director of the Company, is
the 100% owner to purchase office equipment. Interest in the loan accrues at the
prime rate plus 10% and the term of the loan is thirty-six months. At March 31,
2000, principal in the amount of $18,003.08 was outstanding.
W. Dennis Summers, Esq., Chairman of the Board of Directors, is a partner
of the law firm McGuire, Woods, Battle & Boothe, L.L.P. ("McGuire Woods").
OrthAlliance has retained McGuire Woods to assist with certain transactions,
including, but not limited to, the Purchase and Sale Agreement dated February
29, 2000 by and among OrthAlliance, New Image Orthodontic Group, Inc. and
OrthAlliance New Image, Inc.
-15-
19
Effective March 1, 2000, OrthAlliance acquired substantially all of the
assets of New Image Orthodontic Group, Inc. ("New Image"). The consideration
paid to New Image included approximately $5.5 million in cash, the issuance of
approximately $12.9 million in promissory notes to New Image and the assumption
of approximately $13.4 million in indebtedness from New Image. At the time of
the sale, New Image was controlled by certain entities which OrthAlliance
believes are affiliated with Goldman Sachs Asset Management. Goldman Sachs Asset
Management has reported beneficially owning 10.7% of OrthAlliance's Class A
Common Stock. See "Common Stock Ownership by Management and Principal
Stockholders." The purchase price in the New Image acquisition was determined in
arms'-length negotiations between officers and directors of OrthAlliance, on one
hand, and officers and directors of New Image, on the other hand. OrthAlliance
believes the purchase price is within the range of purchase prices generally
paid by OrthAlliance and similar companies for similar assets and rights related
to orthodontic practices.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for ensuring that a proper system
of short and long-term compensation is in place to provide performance-oriented
incentives to management. Its report on compensation is as follows:
The Compensation Committee (the "Committee") of the Board of Directors is
responsible for administering the Company's executive compensation program. None
of the members of the Committee are officers or employees of the Company,
although Mr. Wilfong served as a consultant to the Company until September 30,
1997.
EXECUTIVE COMPENSATION PROGRAM
The Committee believes that a portion of the compensation paid to executive
officers should relate to both the short-term and long-term profitability of the
Company. Therefore, the executive officers' compensation program is composed of
base salary, bonus and long-term incentive compensation.
Base Salary and Bonus. Base salaries for Messrs. Westover and Hayase are
paid pursuant to the Employment Agreements and the base salary for Messrs. Toon
and Wilson is paid pursuant to Letter Agreements.
Each of Messrs. Westover, Hayase, Wilson and Toon is eligible for an annual
cash bonus of up to forty percent (40%) of his annualized base salary. The
individual bonus percentages for 1999 were established by the Committee based
upon each officer's level of responsibility within the Company and his
contributions toward improving operating performance and profitability. The
bonus percentages will be reviewed annually by the Committee and may be adjusted
in accordance with these factors or others that the Committee determines to be
relevant at the time.
The Committee believes that the bonus portion of the executive compensation
program is effective in motivating the executive officers of the Company to
improve the current profitability of the Company. The Committee also believes
that an adequate base salary is necessary to retain effective executive officers
and to discourage management decisions which might improve short-term
profitability but may not always be in the long-term best interest of the
Company.
-16-
20
Long-Term Incentives. The Committee believes that, in addition to the
annual cash bonus arrangements, it is appropriate for the Company to provide
long-term incentive awards to motivate the executive officers to improve
long-term profitability of the Company and create value for the stockholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Compensation arrangements for Mr. Westover as President and Chief Executive
Officer were determined based on his Employment Agreement with respect to base
salary and long-term compensation and based on consideration of the factors
described above with respect to the bonus amounts. The Committee noted the
growth of the Company, attainment of financial objectives and the increase in
Mr. Westover's responsibilities related thereto.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code, added as part of the Omnibus
Budget Reconciliation Act of 1993, imposes a limitation on deductions that can
be taken by a publicly held corporation for compensation paid to certain of its
executives. Under Section 162(m), a deduction is denied for compensation paid in
a tax year beginning on or after January 1, 1994, to a corporation's chief
executive officer or any of its other four most highly compensated officers to
the extent that such compensation exceeds $1 million. Certain performance-based
compensation, however, is specifically exempt from the deduction limit.
The Committee's current policy with respect to the Section 162(m)
limitations is to preserve the federal income tax deductibility of executive
compensation payments when it is appropriate and in the best interests of the
Company and its stockholders. For the foreseeable future, the Committee does not
expect Section 162(m) to have any practical effect on the Company's compensation
program. However, the Committee reserves the right to approve the payment of
nondeductible compensation in the future if it deems such payment to be
appropriate.
COMPENSATION COMMITTEE
W. Dennis Summers, Chairman
Jonathan E. Wilfong
Craig L. McKnight
THE FOREGOING REPORT SHOULD NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY
GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY
FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE EXCHANGE ACT
(TOGETHER, THE "ACTS"), EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED
FILED UNDER SUCH ACTS.
-17-
21
STOCK PRICE PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in
cumulative stockholder return on the Common Stock with (a) the performance of a
broad equity market indicator, and (b) the performance of a published industry
index. The graph compares the percentage change in the return on the Common
Stock since August 21, 1997 with the cumulative total return on the Nasdaq Stock
Market Index and Nasdaq Health Services Stock Index. The stock price performance
graph assumes an investment of $100 in the Company on August 21, 1997 and an
investment of $100 in the two (2) indexes on August 21, 1997 and further assumes
the reinvestment of all dividends. Stock price performance, presented monthly
for the period from August 21, 1997 through December 31, 1999 is not necessarily
indicative of future results.
Cumulative Total Return
------------------------------------------------------------------------------------------------------
8/21/97 8/97 9/97 10/97 11/97 12/97 1/98 2/98 3/98 4/98 5/98 6/98
ORTHALLIANCE, INC. 100.00 115.63 122.92 112.50 92.71 76.04 90.63 107.29 116.67 130.21 120.31 120.83
NASDAQ STOCK MARKET (U.S.) 100.00 99.85 105.75 100.27 100.78 99.16 102.29 111.89 116.02 117.99 111.52 119.38
NASDAQ HEALTH SERVICES 100.00 98.43 106.74 99.76 95.40 95.93 93.36 101.93 105.24 105.07 95.87 95.63
Cumulative Total Return
-----------------------------------------------------------------------------------------------------
7/98 8/98 9/98 10/98 11/98 12/98 1/99 2/99 3/99 4/99 5/99 6/99
ORTHALLIANCE, INC. 95.83 75.00 67.71 87.50 94.79 91.67 91.67 75.00 64.58 60.42 62.50 61.46
NASDAQ STOCK MARKET (U.S.) 118.12 94.96 108.08 112.49 123.58 139.39 159.89 145.55 156.14 160.53 156.83 170.84
NASDAQ HEALTH SERVICES 81.95 64.09 72.43 78.31 75.91 82.26 77.91 70.63 72.77 76.42 82.07 90.51
Cumulative Total Return
-------------------------------------------------
7/99 8/99 9/99 10/99 11/99 12/99
ORTHALLIANCE, INC. 61.46 52.60 60.42 53.13 72.92 52.08
NASDAQ STOCK MARKET (U.S.) 168.35 175.02 174.73 187.43 207.43 252.18
NASDAQ HEALTH SERVICES 78.27 70.27 67.31 57.47 60.83 67.18
- -------------------------
* Specified ending dates or ex-dividends dates.
** All Closing Prices and Dividends are adjusted for stock splits and stock
dividends.
*** 'Begin Shares' based on $100 investment.
THE STOCK PRICE PERFORMANCE GRAPH SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE ACTS EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE
BE DEEMED FILED UNDER SUCH ACT.
-18-
22
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires executive officers and directors
of the Company and persons who beneficially own more than ten percent of the
Company's Common Stock to file with the Securities and Exchange Commission
certain reports, and to furnish copies thereof to the Company, with respect to
each such person's beneficial ownership of the Company's equity securities.
Based solely upon a review of the copies of such reports furnished to the
Company and certain representations of such persons, the Company believes that
all filings were timely.
ANNUAL REPORT TO STOCKHOLDERS
The Annual Report of the Company for the year ended December 31, 1999,
including audited financial statements, accompanies this Proxy Statement. The
Annual Report does not form any part of the material for the solicitation of
proxies.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE, AT THE WRITTEN REQUEST OF ANY
RECORD HOLDER OF COMMON STOCK AS OF THE CLOSE OF BUSINESS ON THE RECORD DATE, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, EXCEPT EXHIBITS THERETO. The Company will provide copies of
the exhibits, should they be requested by eligible stockholders, and the Company
may impose a reasonable fee for providing such exhibits. Request for copies of
the Company's Annual Report on Form 10-K should be mailed to:
OrthAlliance, Inc.
21535 Hawthorne Boulevard, Suite 200
Torrance, California 90503
Attention: Investor Relations
-19-
23
STOCKHOLDER PROPOSALS
Any stockholder proposals intended to be presented at the Company's 2001
Annual Meeting of Stockholders must be received by the Company on or before
December 29, 2000 to be eligible for inclusion in the Proxy Statement and form
of proxy to be distributed by the Board of Directors in connection with such
meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. However, should any additional matters come before the Annual
Meeting, the enclosed proxy grants discretionary authority to the proxies named
therein with respect to any such matters.
EXPENSES OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In an
effort to have as large a representation at the meeting as possible, special
solicitation of proxies may, in certain instances, be made personally or by
telephone, telegraph or mail by 1 or more employees of the Company. The Company
also will reimburse brokers, banks, nominees and other fiduciaries for postage
and reasonable clerical expenses of forwarding the proxy material to their
principals who are beneficial owners of the Company's Common Stock.
By Order of the Board of Directors,
Paul H. Hayase
Secretary
Torrance, California
April 28, 2000
-20-
24
ORTHALLIANCE, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
ON THURSDAY, JUNE 1, 2000
The undersigned hereby appoints Sam Westover and Paul H. Hayase and each of
them, with full power of substitution and resubstitution, as proxies for and in
the name of the undersigned, to vote all shares of Class A Common Stock and
Class B Common Stock of OrthAlliance, Inc. (the "Company") which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Stockholders to be held on June 1, 2000, at 9:00 a.m., local time, at the
Torrance Hilton Hotel, 21333 Hawthorne Boulevard, Suite 200, Torrance,
California 90503, or at any adjournment thereof, upon the matters described in
the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement,
receipt of which is hereby acknowledged, and upon any other business that may
properly come before the meeting or any adjournment thereof. Such proxies are
directed to vote on the matters described in the Notice of Annual Meeting of
Stockholders and Proxy Statement as follows, and otherwise in their discretion
upon such other business as may properly come before the meeting or any
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS LISTED BELOW.
1. To elect three (3) directors to serve until the 2003 Annual
Meeting of Stockholders and to elect one (1) director (Craig L.
McKnight) to serve until the 2001 Annual Meeting of Stockholders,
as described in the Proxy Statement:
Larry D. Dormois, D.D.S., M.S.
Craig L. McKnight
Stephen G. Tracey, D.D.S., M.S.
Sam Westover
[ ] FOR all nominees (except as [ ] WITHHOLD AUTHORITY to vote
marked to the contrary below) for all nominees listed
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
2. To approve the amendments to the 1997 Director Stock Option Plan as
described in the Proxy Statement:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify appointment of Arthur Andersen LLP as the Company's
independent public accountants:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE PROPOSALS.
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE)
25
Date: , 2000
------------------------
-----------------------------------
(Signature)
-----------------------------------
(Signature if held jointly)
-----------------------------------
(Title or authority, if applicable)
Please sign exactly as your name or
names appear hereon. Where more than
one owner is shown above, each
should sign. When signing in a
fiduciary or representative
capacity, please give full title.
If this proxy is submitted by a
corporation, it should be executed
in the full corporate name by a duly
authorized officer. If a
partnership, please
sign in partnership name by
authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING ON JUNE 1, 2000.
IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
26
Attachment A
------------
ORTHALLIANCE, INC
1997 DIRECTOR STOCK OPTION PLAN
27
ORTHALLIANCE, INC.
1997 DIRECTOR STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless the
context clearly indicates to the contrary:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Chairman of the Board" shall mean any Eligible Director who is the
Chairman of the Board of the Company.
1.3 "Change in Control" shall mean the occurrence of either of the
following events:
(a) any of the following events:
(i) the dissolution or liquidation of the Company; or
(ii) a reorganization, merger or consolidation of the Company
with one or more other corporations (except with respect to
a transaction, the sole purpose of which is to change the
domicile or name of the Company), as a result of which the
Company ceases to exist or becomes a subsidiary of another
corporation (which shall be deemed to have occurred if
another corporation shall own, directly or indirectly, more
than fifty percent (50%) of the aggregate voting power of
all outstanding equity securities of the Company); or
(iii) a sale of all or substantially all of the Company's assets;
or
(b) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than any person who is a stockholder of
the Company on or before the effective date of the Plan, by the
acquisition or aggregation of securities is or becomes the
beneficial owner, directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities
ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of Directors
(the "Base Capital Stock"); except that any change in the
relative beneficial ownership of the Company's securities by any
person resulting solely from a reduction in the aggregate number
of outstanding shares of Base Capital Stock, and any decrease
thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly
or indirectly, such person's beneficial ownership of any
securities of the Company.
28
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended,
including effective date and transition rules (whether or not codified). Any
reference herein to a specific section of the Code shall be deemed to include a
reference to any applicable corresponding provision of future law.
1.5 "Committee" shall mean a committee of at least two (2) Directors
appointed from time to time by the Board, having the duties and authority set
forth herein in addition to any other authority granted by the Board; provided,
however, that with respect to any Options granted to an individual who is also a
Section 16 Insider, the Committee shall consist of at least two (2) Directors
(who need not be members of the Committee with respect to Options granted to any
other individuals) who are Non-Employee Directors (within the meaning of Rule
16b-3), and all authority and discretion shall be exercised by such Non-Employee
Directors, and references herein to the "Committee" shall mean such Non-Employee
Directors insofar as any actions or determinations of the Committee shall relate
to or affect Options made to or held by any Section 16 Insider. At any time that
the Board shall not have appointed a committee as described above, any reference
herein to the Committee shall mean a reference to the Board.
1.6 "Company" shall mean OrthAlliance, Inc., a Delaware corporation.
1.7 "Director" shall mean a member of the Board.
1.8 "Disabled Optionee" shall mean an Optionee who suffers a Disability.
1.9 "Disability" shall mean shall mean a physical or mental infirmity which
impairs an Optionee's ability to substantially perform his duties with the
Company for a period of 180 consecutive days, as determined by an independent
physician selected by agreement between the Company and the Optionee or, failing
such agreement, selected by two physicians (one of which shall be selected by
the Company and the other by the Optionee).
1.10 "Discretionary Grant" shall mean all Options issued to Eligible
Directors at the discretion of the Committee pursuant to Section 5.3 of this
Plan.
1.11 "Eligible Director" shall mean a member of the Board who is not a
full-time employee of the Company.
1.12 "Eligible Director Grant" shall mean those non-discretionary Options
that are automatically issued to Eligible Directors pursuant to Section 5.2 of
this Plan.
1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended. Any reference herein to a specific section of the Exchange Act shall be
deemed to include a reference to any applicable corresponding provision of
future law.
1.14 "Exercise Price" shall mean the price at which an Optionee may
purchase a share of Stock under a Stock Option Agreement, determined in
accordance with Section 5.3 of this Plan.
29
1.15 "Fair Market Value" on any date shall mean (i) the average closing
sales price of the Stock on the national securities exchange having the greatest
volume of trading in the Stock during the five (5) trading days preceding such
date; (ii) if the Stock is not traded on any national securities exchange, the
average of the closing bid prices of the Stock on the over-the-counter market
for the five (5) trading days preceding the date such value is to be determined;
or (iii) if the Stock is not traded on a national securities exchange or an
over-the-counter market, the fair market value as determined in good faith by
the Board based on such relevant facts as may be available, including, without
limitation, the price at which recent sales of Stock have been made, the book
value of the Stock and the Company's current and future earnings.
1.16 "Option" shall mean the right and option to purchase Stock, whether
through a Discretionary Grant or an Eligible Director Grant, pursuant to the
provisions of Article V hereof. All Options under the Plan are non-qualified
stock options.
1.17 "Optionee" shall mean a person to whom an Option has been granted
hereunder or his or her permitted assign.
1.18 "Plan" shall mean the OrthAlliance, Inc. 1997 Director Stock Option
Plan, the terms of which are set forth herein.
1.19 "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act,
as the same may be in effect or set forth from time to time.
1.20 "Stock" shall mean the Class A Common Stock, $.001 par value per
share, of the Company, subject to the antidilution provisions of Section 4.2 of
this Plan.
1.21 "Stock Option Agreement" shall mean a written agreement between the
Company and an Optionee under which the Optionee may purchase Stock hereunder,
in substantially the form attached hereto.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "1997 Director Stock Option
Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
Company, its subsidiaries and its stockholders by affording the Eligible
Directors of the Company an opportunity to acquire or increase their proprietary
interests in the Company. The objective of the Plan is to (i) attract able
persons to serve as Eligible Directors of the Company and (ii) promote the
growth and profitability of the Company and its subsidiaries by providing
Optionees with an additional incentive to achieve the Company's objectives
through participation in its success and growth and by encouraging their
continued association with or service to the Company.
2.3 Effective Date. The effective date of this Plan is May 13, 1997,
subject to stockholder approval of the Plan on or before the next annual meeting
of the Company's stockholders.
30
2.4 Participants. All Eligible Directors of the Company shall participate
in the Plan.
ARTICLE III
ADMINISTRATION
3.1 Plan Administration.
(a) With respect to the Eligible Director Grants only, this Plan shall
be self-governing and provides for automatic grants of the Eligible Director
Grants in accordance with the provisions of Article V hereof. With respect to
the Eligible Director Grants only, this Plan is intended to be a "formula plan"
within the meaning of Note 3 to Rule 16b-3 and the Board shall have no
discretion as to (i) the selection of persons to whom Eligible Director Grant
Options are to be granted, (ii) the timing of such Eligible Director Grants,
(iii) the number of shares subject to any Option, (iv) the Exercise Price of any
Option, (v) the period(s) during which any Option may be exercised or (vi) the
expiration date of any option that is an Eligible Director Grant. With respect
to all Discretionary Grants, this Plan shall be administered by the Committee of
the Board of Directors.
(b) With respect to all Discretionary Grants, the Committee may make
discretionary grants to any Eligible Director. Subject to the provisions of and
in accordance with the Plan, with respect to Discretionary Grants, the Committee
will have the power to (i) grant options, (ii) determine those directors to whom
options will be granted, (iii) interpret the Director Plan, (iv) promulgate
rules and regulations relating to the Director Plan, and (v) make all other
determinations and take all other actions necessary or desirable for the
administration of the Director Plan. Decisions of the Committee regarding
interpretation and administration of the Director Plan are binding upon all
interested persons.
3.2 Interpretation; Rules. Subject to Sections 3.1 and 7.1 and the other
provisions of the Plan, the Board shall have complete authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it and
to make all other determinations necessary or advisable for the administration
of the Plan, including, without limitation, amending or altering the Plan as may
be required to comply with or to conform to any federal, state or local laws or
regulations.
3.3 No Liability. No Director shall be liable to any person for any act or
determination made in good faith with respect to the Plan or any Option granted
hereunder.
ARTICLE IV
SHARES OF STOCK SUBJECT TO PLAN
4.1 Limitations. Subject to adjustment pursuant to the antidilution
provisions of Section 4.2 hereof, the maximum number of shares of Stock that may
be issued hereunder shall be Five Hundred Thousand (500,000). Shares of Stock
subject to an Option may be either authorized and unissued shares or shares
issued and later acquired by the Company. The shares covered by any unexercised
portion of an Option that has terminated for any reason (except as set forth in
the following paragraph) may again be optioned under this Plan, and such shares
shall not be
31
considered as having been optioned or issued in computing the number of shares
of Stock remaining available for Options hereunder.
4.2 Antidilution.
(a) If (i) the outstanding shares of Stock are increased, decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of merger (excluding mergers of orthodontic
practices with and into the Company), consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend (excluding the conversion of the Company's Class B
Common Stock into shares of Stock as set forth in the Company's Amended and
Restated Certificate of Incorporation), (ii) any spin-off, split-off or other
distribution of assets materially affects the price of the Company's stock, or
(iii) there is any assumption and conversion to this Plan by the Company of an
acquired company's outstanding option grants, then:
(A) the aggregate number and kind of shares of Stock for which
Options may be granted hereunder shall be adjusted appropriately by
the Board; and
(B) the rights of Optionees (concerning the number of shares of
Stock subject to Options and the Exercise Price) under outstanding
Options shall be adjusted appropriately by the Board.
(b) If not provided in a Stock Option Agreement to the contrary, if a
Change in Control occurs, the Board, in its discretion, may provide:
(i) notwithstanding other provisions hereof, that all Options
granted under this Plan shall become exercisable immediately,
notwithstanding the provisions of the respective Stock Option
Agreements regarding exercisability, and that all such Options shall
terminate ninety (90) days after the Board gives written notice of the
immediate right to exercise all such Options and of the decision to
terminate all Options not exercised within such 90-day period; or
(ii) notice to all Optionees that all Options granted under this
Plan shall be assumed by the successor corporation or substituted on
an equitable basis with options issued by such successor corporation.
(c) If the Company is to be liquidated or dissolved in connection with
a Change in Control, the provisions of Section 4.2(b) shall apply. In all other
instances, the adoption of a plan of dissolution or liquidation of the Company
shall, notwithstanding other provisions hereof, cause all then-remaining
restrictions pertaining to Options under the Plan to lapse, and shall cause
every Option outstanding under the Plan to terminate to the extent not exercised
prior to the adoption of the plan of dissolution or liquidation by the
stockholders; provided, however, that, notwithstanding any other provisions
hereof, the Board may declare all Options granted under the Plan to be
exercisable at any time on or before the fifth (5th) business day following such
adoption, notwithstanding the provisions of the respective Stock Option
Agreements regarding exercisability.
32
(d) The adjustments described in paragraphs (a) through (c) of this
Section 4.2, and the manner of their application, shall be determined solely by
the Board, and any such adjustment may provide for the elimination of fractional
share interests. The adjustments required under this Article IV shall apply to
any successors of the Company and shall be made regardless of the number or type
of successive events requiring such adjustments.
ARTICLE V
OPTIONS
5.1 Types of Options Granted. All Options granted under this Plan shall be
non-qualified stock options (i.e., stock options which do not qualify as
incentive stock options under Sections 422 and 423 of the Code).
5.2 Eligible Director Grants. Automatic grants of Options shall be made as
follows:
(a) An initial grant of an Option to purchase 10,000 shares of Stock
shall be made to each Eligible Director, on the date he or she is initially
elected or appointed to the Board as an Eligible Director, pro-rated to the date
of the next annual meeting of the stockholders if appointed mid-term, provided
however, the Chairman of the Board shall receive an initial grant of an Option
to purchase 20,000 shares of Stock in lieu of such options to purchase 10,000
shares of Stock made to each Eligible Director; and
(b) An annual grant of an Option to purchase 10,000 shares of Stock
shall be made on the date of the annual meeting of the Company's stockholders to
each Eligible Director, other than the Chairman of the Board, who continues as
such following such annual meeting. To the Chairman of the Board, an annual
grant of an Option to purchase 20,000 shares of Stock shall be made on the date
of the annual meeting of the Company's stockholders provided he continues to
serve as Chairman of the Board following such annual meeting.
5.3 Discretionary Grants. With respect to Discretionary Grants, this Plan
shall be administered by the Committee. The Committee shall select one of its
members as its Chairman and shall hold its meetings at such times and places as
it may determine. The Committee shall keep minutes of its meetings and shall
make such rules and regulations for the conduct of its business as it may deem
necessary. The Committee shall have the power to act by unanimous written
consent in lieu of a meeting, and to meet telephonically. In administering
Discretionary Grants under this Plan, the Committee's actions and determinations
shall be binding on all interested parties. The Committee shall have the power
to grant Options in accordance with the provisions of this Plan. Subject to the
provisions of this Plan, the Committee shall have the discretion and authority
to determine those persons to whom Options will be granted, the number of shares
of Stock subject to each Option, such other matters as are specified herein, and
any other terms and conditions of a Stock Option Agreement. To the extent not
inconsistent with the provisions of this Plan, the Committee may give an
Optionee an election to surrender an Option in exchange for the grant of a new
Option, and shall have the authority to amend or modify an outstanding Stock
Option Agreement or to waive any provision thereof, provided that the Optionee
consents to such action.
33
5.4 Exercise Price of Eligible Director Grants. The Exercise Price of the
Stock subject to each Option granted as an Eligible Director Grant shall be
equal to: (i) for initial grants, 100% of the Fair Market Value of the Company's
Stock on the date of the Eligible Director's election or appointment as a
Director or the initial public offering price for options granted before the
effective date of the Company's initial offering of shares of Stock; and (ii)
for annual grants, 100% of the Fair Market Value of the Company's Stock on the
date of the annual meeting of stockholders relating thereto.
5.5 Exercise Price of Discretionary Grants. The Exercise Price of the Stock
subject to each Option granted as a Discretionary Grant shall not be less than
the Fair Market Value of the Stock as of the date such Option is granted.
5.6 Exercise Period of Eligible Director Grants. Each Eligible Director
Option shall vest and become exercisable on the first anniversary of the grant
date of the Option and shall terminate and cease to be exercisable after the
expiration of ten (10) years from the grant date of the Option (the "Exercise
Period"). No Option shall be exercisable prior to the expiration of six (6)
months from the grant date of such Option, other than in the case of the death
or Disability of the Optionee.
5.7 Exercise Period for Discretionary Grants. The period for the exercise
of each Discretionary Grant Option granted hereunder shall be determined by the
Committee, but shall not be exercisable after the expiration of ten (10) years
from the date of grant (or modification) of the Option. In addition, no Option
granted to a Section 16 Insider shall be exercisable prior to the expiration of
six (6) months from the date such Option is granted, other than in the case of
the death or Disability of the Optionee.
5.8 Stock Option Agreement; Copy of Plan. Each Option granted hereunder
shall be evidenced by a written Stock Option Agreement executed by the Company
and the Optionee in substantially the form attached hereto. The terms of the
Option, including the Exercise Period and Exercise Price, shall be stated in the
Stock Option Agreement. Every Optionee shall be given a copy of the Plan.
5.9 Termination of Service; Death or Disability. In the event an Optionee
ceases to be a Director by reason of his or her death or Disability, the
Optionee or the Optionee's, heirs, administrators, executors or personal
representatives may exercise the Optionee's Options, to the extent such Options
are vested and purchasable on the date of such death or Disability, at any time
prior to the earlier of (i) the last day of the one year period following the
Optionee's death or the beginning of the Optionee's Disability or (ii) the
expiration of the Optionee's Options.
5.10 Termination of Service; Other. In the event an Optionee ceases to be a
Director for any reason other than his or her death or Disability, the Optionee
(or his or her personal representative) may exercise his or her Options, to the
extent such Options are vested and purchasable on the date of termination, at
any time prior to the earlier of (i) the last day of the one year period
following the date the Optionee ceases to be a Director or (ii) the expiration
of the Optionee's Options.
34
5.11 Option Exercise.
(a) An Option may be exercised at any time or from time to time during
the Exercise Period as to any or all full shares which are subject to the
Option, but not at any time as to less than one hundred (100) shares unless the
remaining vested shares purchasable under the Option are less than one hundred
(100) shares.
(b) An Option shall be exercised by (i) delivery to the Company at its
principal office of a written notice of exercise with respect to a specified
number of shares of Stock and (ii) payment to the Company at that office of the
full amount of the Exercise Price for such number of shares in accordance with
Section 5.11(c). If requested by an Optionee, an Option may be exercised with
the involvement of a stockbroker in accordance with the federal margin rules set
forth in Regulation T (in which case the certificates representing the
underlying shares will be delivered by the Company directly to the stockbroker).
(c) The Exercise Price is to be paid in full in cash by a certified or
cashier's check payable to the Company upon the exercise of the Option and the
Company shall not be required to deliver certificates for the shares purchased
until such payment has been made. In lieu of cash, (i) all or any portion of the
Exercise Price may be paid by tendering to the Company shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in each case to be credited against the Exercise Price at the Fair
Market Value of such shares on the date of exercise (however, no fractional
shares may be so transferred, and the Company shall not be obligated to make any
cash payments in consideration of any excess of the aggregate Fair Market Value
of shares transferred over the aggregate Exercise Price); or (ii) full payment
may be effected through a broker-dealer sale and remittance procedure pursuant
to which the Optionee (A) shall provide irrevocable written instructions to a
designated brokerage firm to effect the immediate sale of the purchased shares
and remit to the Company, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price (plus all
applicable Federal and State income and employment taxes required to be withheld
by the Company by reason of such purchase) and (B) shall provide written
directives to the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
(d) In addition to and at the time of payment of the Exercise Price,
the Company may withhold, or require the Optionee to pay to the Company in cash,
the amount of any federal, state and local income, employment or other
withholding taxes which the Company determines are required to be withheld under
federal, state or local law in connection with the exercise of an Option;
provided, however, that all or any portion of such tax obligations may, upon the
election of the Optionee, be paid by tendering to the Company whole shares of
Stock duly endorsed for transfer and owned by the Optionee, or by authorization
to the Company to withhold shares of Stock otherwise issuable upon exercise of
the Option, in either case in that number of shares having a Fair Market Value
on the date of exercise equal to the amount of such taxes thereby being paid.
(e) The holder of an Option shall not have any of the rights of a
stockholder with respect to the shares of Stock subject to the Option until such
shares have been issued and transferred to the Optionee upon the exercise of the
Option.
35
(f) Notwithstanding anything to the contrary herein or in a Stock
Option Agreement, a given Option shall not be exercisable to the extent the
exercise thereof would cause the Company to be a reporting company under the
Exchange Act.
5.12 Nontransferability of Option. No Option shall be transferable by an
Optionee other than by will or the laws of descent and distribution. During the
lifetime of an Optionee, Options shall be exercisable only by such Optionee (or
by such Optionee's guardian or legal representative, should one be appointed).
5.13 Service Rights. Nothing in the Plan or in any Stock Option Agreement
shall confer on any person any right to continue as a Director of the Company,
or shall interfere in any way with the right of the stockholders of the Company
to terminate such person's service as a Director at any time.
ARTICLE VI
STOCK CERTIFICATES
6.1 Certificates. The Company shall not be required to issue or deliver any
certificate for shares of Stock purchased upon the exercise of any Option
granted hereunder or any portion thereof, prior to fulfillment of all of the
following conditions:
(a) The authorization to list such shares on all stock exchanges or
over-the-counter markets on which the Stock is then listed or quoted;
(b) The completion of any registration or other qualification of such
shares which the Board shall deem necessary or advisable under any federal or
state law or under the rulings or regulations of the Securities and Exchange
Commission or any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from any federal
or state governmental agency or body which the Board shall determine to be
necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Board from time to time may establish for reasons of
administrative convenience.
6.2 Legends. Stock certificates issued and delivered to Optionees shall
bear such restrictive legends as the Company shall deem necessary or advisable
pursuant to applicable federal and state securities laws.
36
ARTICLE VII
TERMINATION AND AMENDMENT OF PLAN
7.1 Termination and Amendment. The right to amend the Plan at any time and
from time to time and the right to terminate the Plan at any time are hereby
specifically reserved to the Board, provided always that no such termination
shall terminate any outstanding Options granted under the Plan and provided
further that no amendment to the Plan shall (i) be made without stockholder
approval if stockholder approval of the amendment is at the time required for
Options under the Plan to qualify for the exemption from Section 16 of the
Exchange Act provided by Rule 16b-3, or any successor rule, or by the rules of
any stock exchange or over-the-counter market on which the Stock may then be
listed, or (ii) otherwise amend the Plan in any manner that would cause Options
under the Plan not to qualify for the exemption provided by Rule 16b-3, or any
successor rule. No amendment or termination of the Plan shall, without the
written consent of the holder of an outstanding Option awarded under the Plan,
adversely affect the rights of such Optionee with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any other
provision of the Plan or any Stock Option Agreement, the Board shall have the
power to amend the Plan in any manner deemed necessary or advisable for Options
granted under the Plan to qualify for the exemption provided by Rule 16b-3 (or
any successor rule relating to exemption from Section 16(b) of the Exchange
Act). Any such amendment shall, to the extent deemed necessary or advisable by
the Board, be applicable to any outstanding Options granted under the Plan
notwithstanding any contrary provisions contained in any Stock Option Agreement.
In the event of any such amendment of the Plan, the holder of any Option shall,
upon request by the Board and as a condition to the exercisability of such
Option, execute a conforming amendment in a form prescribed by the Board to his
or her Stock Option Agreement within such reasonable time as the Board shall
specify in such request.
ARTICLE VIII
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
subsidiaries.
ARTICLE IX
MISCELLANEOUS
9.1 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
9.2 Singular; Plural; Gender. Whenever used herein, nouns in the singular
shall include the plural and the masculine pronoun shall include the feminine
gender and vice versa.
37
9.3 Headings Not Part of Plan. Headings of Articles and Sections hereof are
inserted for convenience and reference and do not constitute part of the Plan.
9.4 Interpretation. All transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act.
9.5 Governing Law. This Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware without regard to conflicts
of laws principles.
* * * *
38
OrthAlliance, Inc.
1997 Director Stock Plan
Form of Stock Option Agreement
ORTHALLIANCE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
_____ day of ________________, 1997 by and between OrthAlliance, Inc., a
Delaware corporation (the "Company"), and _________________ (the "Optionee").
WHEREAS, on May 13, 1997, the Board of Directors of the Company adopted a
stock option plan known as the "OrthAlliance, Inc. 1997 Director Stock Plan"
(the "Plan") and recommended that the Plan be approved by the Company's
stockholders; and
WHEREAS, on August 11, 1997, the stockholder of the Company approved the
Plan; and
WHEREAS, Optionee has been granted an Option (as defined below) to purchase
_________________________ shares of the Company's Class A Common Stock, par
value $.001 per share (the "Stock") and the Company and the Optionee desire to
enter into a written agreement with respect to the Option in accordance with the
Plan.
NOW, THEREFORE, as an incentive to serve as an Eligible Director of the
Company and to encourage stock ownership, and also in consideration of the
mutual covenants contained herein, the parties hereto agree as follows:
1. Incorporation of Plan. This Option is granted pursuant to the provisions
of the Plan and the terms and conditions of the Plan are incorporated herein by
reference and made a part hereof. A copy of the Plan has been delivered to, and
receipt is hereby acknowledged by, the Optionee. Notwithstanding anything in
this Agreement to the contrary, to the extent the terms of this Agreement
conflict with or otherwise attempt to exceed the authority set forth under the
Plan, the Plan shall govern and control in all respects. Unless otherwise
defined herein, capitalized terms used in this Agreement shall have the meanings
given such terms in the Plan.
2. Grant of Option. Subject to the terms, restrictions, limitations, and
conditions stated herein and the terms of the Plan, the Company hereby evidences
its grant to the Optionee of the right and option (the "Option") to purchase all
or any part of ____________________________ shares of Stock. The Option shall
expire and shall not be exercisable after the date specified on Schedule A as
the expiration date or on such earlier date as determined pursuant to the Plan.
3. Vesting Date. The Option shall vest and become exercisable in accordance
with Schedule A.
4. Expiration Date. The Option shall expire and shall cease to be
exercisable on the date set forth on Schedule A. In the event this Option is not
exercised with respect to all or any part of
39
the shares of Stock subject to this Option prior to its expiration, the shares
with respect to which this Option has not been exercised shall no longer be
subject to this Option.
5. Exercise Price. The price per share to be paid by the Optionee for the
shares of stock subject to this Option (the "Exercise Price") shall be
determined in accordance with the Plan and specified on Schedule A.
6. Restrictions on Transferability. No Option shall be transferable by
Optionee other than by will or the laws of descent and distribution. During the
lifetime of Optionee, Options shall be exercisable only by Optionee (or by
Optionee's guardian or legal representative, should one be appointed).
7. Notice of Exercise of Option. This Option may be exercised by the
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 15(c) hereof to the attention of the
President, Vice President, General Counsel or such other officer as the Company
may designate. Any such notice shall (a) specify the number of shares of Stock
which the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, then elects to purchase hereunder, (b)
contain such information as may be reasonably required pursuant to Section 13
hereof, and (c) be accompanied by (i) a certified or cashier's check payable to
the Company in payment of the total Exercise Price applicable to such shares as
provided herein, (ii) shares of Stock owned by the Optionee and duly endorsed or
accompanied by stock transfer powers having a Fair Market Value equal to the
total Exercise Price applicable to such shares purchased hereunder, or (iii) a
certified or cashier's check accompanied by the number of shares of Stock whose
Fair Market Value when added to the amount of the check equals the total
Exercise Price applicable to such shares purchased hereunder, or (iv) payment
through a broker-dealer sale and remittance procedure pursuant to which Optionee
shall provide irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the Company, out
of the sale proceeds available on the settlement date, sufficient funds to cover
the aggregate Exercise Price (plus all applicable Federal and State income and
employment taxes required to be withheld by the Company by reason of such
exercise) and written directives to the Company to deliver the certificates for
the purchased shares directly to such brokerage firm in order to complete the
sale transaction. Upon receipt of any such notice and accompanying payment, and
subject to the terms hereof, the Company agrees to issue to the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, stock certificates for the number of shares specified in such notice
registered in the name of the person exercising this Option.
8. Adjustment in Option. The number of shares of Stock subject to this
Option, the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with the Plan.
9. Service as a Director. Nothing in this Stock Option Agreement shall
confer upon the Optionee any right with respect to continuance of service as a
Director of the Company, or shall interfere in any way with the right of the
stockholders of the Company to terminate such person's service as a Director at
any time.
40
10. Termination of Service as a Director. In the event of the termination
of the Optionee's service as a Director for any reason other than his or her
death or Disability, the Optionee (or his or her personal representative) may
exercise this Option, to the extent such Option is vested and purchasable on the
date of termination, at any time prior to the earlier of (i) the last day of the
one year period following the date the Optionee ceases to be a Director or (ii)
the expiration of the Optionee's Option.
11. Disabled Optionee. In the event of termination of service as a Director
of the Company because of the Optionee's becoming a Disabled Optionee, the
Optionee (or his or her legal representative) may exercise this Option, to the
extent such Option is vested and purchasable on the date of termination, at any
time prior to the earlier of (a) the last day of the one year period following
the beginning of the Optionee's Disability or (b) the expiration date of this
Option.
12. Death of Optionee. In the event of the Optionee's death, the Optionee's
administrators, executors or personal representatives or persons to whom all or
a portion of this Option is transferred in accordance with Section 6 hereof may
exercise this Option at any time prior to the earlier of (a) the last day of the
one year period following the Optionee's death or (b) the expiration date of
this Option. If the Optionee was a Director of the Company at the time of death,
this Option may be so exercised to the extent of the number of shares that were
vested and purchasable hereunder at the date of death. If the Optionee's service
as a Director of the Company terminated prior to his or her death, this Option
may be exercised only to the extent of the number of shares covered by this
Option which were vested and purchasable hereunder at the date of such
termination.
13. Compliance with Regulatory Matters. The Optionee acknowledges that the
issuance of Stock of the Company is subject to limitations imposed by federal
and state law and the Optionee hereby agrees that the Company shall not be
obligated to issue any shares of Stock upon exercise of this Option that would
cause the Company to violate law or any rule, regulation, order or consent
decree of any regulatory authority (including without limitation the Securities
and Exchange Commission) having jurisdiction over the affairs of the Company.
The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 13.
14. Investment Representation of Optionee.
(a) Optionee represents to the Company the following: (i) that
Optionee has read and understands the terms and provisions of the Plan, and
hereby accepts this Agreement subject to all the terms and provisions of the
Plan; and (ii) Optionee understands that, unless at the time of exercise of the
Option, a registration statement under the Securities Act of 1933, as amended,
is in effect covering the Stock, as a condition to the exercise of the Option
the Company may require Optionee to represent that Optionee is acquiring the
Stock for Optionee's own account only and not with a view to, or for sale in
connection with, any distribution of the Stock.
41
(b) The Optionee understands and agrees that the certificate or
certificates representing any shares of Stock acquired hereunder may bear an
appropriate legend relating to registration and resale under federal and state
securities laws.
(c) The Optionee shall not have any rights of a stockholder of the
Company with respect to the shares of Stock which may be purchased upon exercise
of this Option, unless and until such shares shall have been issued and
delivered and his/her name has been entered as a stockholder on the stock
transfer records of the Company.
15. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be governed
by the laws of, the State of Delaware, without regard to conflicts of laws
principles.
(c) Any notice, request, document or other communication given
hereunder shall be deemed to be sufficiently given upon personal delivery to the
other party or upon the expiration of three (3) days after depositing same in
the United States mail, return receipt requested, properly addressed to the
respective parties or such other address as they may give to the other party in
writing in the same manner as follows:
Company: OrthAlliance, Inc.
21535 Hawthorne Blvd., Suite 200
Torrance, California 90503
Attention: Senior Vice President, General Counsel
Optionee: __________________________________________________
__________________________________________________
__________________________________________________
(d) This Agreement may not be modified except in writing executed by
each of the parties hereto.
(e) This Agreement, together with the Plan, contains the entire
understanding of the parties hereto and supersedes any prior understanding
and/or written or oral agreement between them respecting the subject matter
hereof.
(f) The parties agree that the provisions of this Agreement are
severable and the invalidity or unenforceability of any provision in whole or
part shall not affect the validity or enforceability of any enforceable part of
such provision or any other provisions hereof.
(g) The headings of Articles and Sections herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
42
(h) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(i) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf and the Optionee has executed this Agreement, all as of
the day and year first above written.
ORTHALLIANCE, INC.
By: __________________________________
Title: _______________________________
OPTIONEE:
______________________________________
43
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
ORTHALLIANCE, INC.
AND
[Name of Optionee]
Dated [Date of Agreement]
1. Number of Shares Subject to Option: _________________ shares of Stock.
2. Option Exercise Price: $ ________ per share.
3. Grant Date: ___________________________________
4. Option Vesting Schedule:
Options are exercisable with respect to the number of shares of Stock
indicated below on or after the dated indicated next to the number of shares:
No. of Shares Vesting Date
------------- ------------
5. Option Expiration Date:
The Option shall expire and shall cease to be exercisable on _____________
__________________, subject to any earlier termination of this Option that may
be set forth in the Plan or in this Agreement.
6. Change in Control.
Notwithstanding the vesting schedule and option expiration date set forth
above, upon a Change in Control, as defined in the Plan, all Options granted
hereunder shall become exercisable immediately upon the occurrence of such
Change in Control for a period of ninety (90) days after written notice to
Optionee of the right to such Options. Any Options not exercised within such
ninety (90) day period shall terminate after the expiration of such period.
44
SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
ORTHALLIANCE, INC.
AND
[Name of Optionee]
Dated [Date of Agreement]
NOTICE OF EXERCISE
The undersigned hereby notifies OrthAlliance, Inc. (the "Company") of this
election to exercise the undersigned's stock option to purchase ________________
shares of Stock (as defined under the Plan) pursuant to the Stock Option
Agreement (the "Agreement") between the undersigned and the Company dated
___________________. Accompanying this Notice is (1) a certified or a cashier's
check in the amount of $________________ payable to the Company, and/or (2)
_______________ shares of Stock (as defined under the Plan) presently owned by
the undersigned and duly endorsed or accompanied by stock transfer powers,
having an aggregate Fair Market Value (as defined under the Plan) as of the date
hereof of $__________________, such amounts being equal, in the aggregate, to
the purchase price per share set forth in Section 5 of the Agreement multiplied
by the number of shares being purchased hereby (in each instance subject to
appropriate adjustment pursuant to Section 8 of the Agreement), and/or (3)
evidence of a cashless exercise as set forth in Section 7 of the Agreement.
The undersigned is a resident of the State of ___________________________.
IN WITNESS WHEREOF, the undersigned has set his/her hand this ________ day
of ____________________, ______.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
_________________________________________
Name:
Position (if other than Optionee):