UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant |_| Filed by a Party other than the Registrant |X|
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 toss.240.14a-12
PEDIATRIC SERVICES OF AMERICA, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DAVID NIERENBERG
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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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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2
2003 ANNUAL MEETING OF STOCKHOLDERS
OF
PEDIATRIC SERVICES OF AMERICA, INC.
----------------------------------------
PROXY STATEMENT
OF
DAVID NIERENBERG
----------------------------------------
This Proxy Statement is being furnished to you by DAVID NIERENBERG (AND
NOT ON BEHALF OF THE BOARD OF DIRECTORS OF PEDIATRIC SERVICES OF AMERICA, INC.)
in connection with the 2003 Annual Meeting of the stockholders of Pediatric
Services of America, Inc., a Delaware corporation (the "Company"), to be held,
according to the Company, at 9:00 a.m., local time, on Wednesday, February 12,
2003, in the Medlock Auditorium at the Northeast Atlanta Hilton Hotel located at
5993 Peachtree Industrial Boulevard, Norcross, Georgia, and any adjournments
thereof (the "Annual Meeting"). The date of this Proxy Statement is February 5,
2003.
Mr. Nierenberg is President of Nierenberg Investment Management
Company, which is the General Partner of The D3 Family Fund, L.P. Nierenberg
Investment Management Company and The D3 Family Fund, L.P. may be considered
participants in this solicitation. Accordingly, Mr. Nierenberg, Nierenberg
Investment Management Company and The D3 Family Fund, L.P. will be referred to
in this Proxy Statement by "we" or "our" as the context requires, or as the
"Participants." Mr. Nierenberg is not seeking proxy authority. Rather, for the
reasons stated below, Mr. Nierenberg is soliciting against the re-election of
Joseph Sansone as a member of the Company's board of directors by urging you to
withhold your votes for the re-election of Mr. Sansone. More information about
the reasons for Mr. Nierenberg's solicitation and the background of Mr.
Nierenberg and other participants in his solicitation is provided in this proxy
statement under the headings "Introduction", "Reasons to Withhold Your Votes"
and "Beneficial Ownership of the Participants."
INTRODUCTION
David Nierenberg is President of Nierenberg Investment Management
Company, an investment adviser. The D3 Family Fund, L.P. is a Washington limited
partnership that was formed to invest in publicly traded stock and other
securities. The principal business address of Mr. Nierenberg, the Nierenberg
Investment Management Company, and the D3 Family Fund is 19605 N.E. 8th St.,
Camas, WA 98607.
None of the Participants holds any office or position with the Company.
Except as otherwise disclosed in this Proxy Statement, there are no contracts,
arrangements, understandings or relationships, legal or other, among the
Participants or their associates with respect to any securities of the Company.
Transactions by the Participants with respect to the Company's common stock over
the last two years are set forth in Schedule I to the Proxy Statement.
The Participants are investors in the Company and together beneficially
own substantially more shares of its common stock (971,830 shares, or
approximately 14.2%) than all five of the Company's existing directors together
(who, according to the Company's proxy statement, collectively hold beneficial
ownership of 594,360 shares, or approximately 8.3%, which number includes
options to purchase 265,759 shares). The Participants are extremely unhappy
about the Company's compensation package for its Chief Executive Officer Joseph
D. Sansone, who also serves as a director and is standing for re-election to the
Company's board of directors.
At the 2003 annual meeting, the stockholders of the Company will have
the opportunity to vote on the re-election of Mr. Sansone to the Company's board
of directors. Background information about Mr. Sansone and his qualifications
can be found on page four of the Company's proxy statement.
The Participants are not soliciting proxies from any stockholders.
Rather, the participants have engaged in this solicitation to urge the Company's
stockholders to withhold their votes for the re-election of Mr. Sansone.
1
REASONS TO WITHHOLD YOUR VOTES
The Participants believe that, by withholding votes for the re-election
of Mr. Sansone to the board of directors, we can send a message to the Company's
board of directors to implement compensation reform and restore value to the
Company's stockholders. There is no assurance, however, that withholding votes
for the election of Mr. Sansone will accomplish the Participants' goals of
executive compensation reform and restoration of stockholder value.
While we are pleased with the Company's recent changes in corporate
governance and the Company's reiteration of earnings guidance for fiscal 2003,
we remain extremely unhappy about the compensation paid to the Company's Chief
Executive Officer, Mr. Sansone. We believe the $200,000 bonus the board of
directors recently awarded him for 2002, plus the constructive termination
protection just added to his severance package, are not justified given the
Company's financial performance and failure to achieve its goals. For these
reasons and others discussed below we are urging stockholders to withhold their
votes with respect to the re-election of Mr. Sansone.
We believe strongly, as a matter of first principle, that CEO
compensation must be driven only by corporate performance and by the creation of
stockholder value. CEO compensation is not an entitlement and must be earned.
Given the Company's actual financial performance compared with its forecasted
earnings for fiscal 2002, we believe Mr. Sansone was not entitled to a bonus
(which was 55% of his base salary).
During quarterly earnings calls with analysts and shareholders on
December 4, 2001and February 1, 2002, the Company's management forecast an
EBITDA margin of 9% for fiscal 2002 in addition to double-digit revenue growth.
Although EBITDA is only one of several widely used and accepted measurements of
a company's financial performance, it was voluntarily chosen by the Company's
senior management and disclosed during those earnings calls as a useful
measurement of its present and future financial performance and the Company's
operating cash flow. Accordingly, it is our belief that EBITDA is a key metric
that management and its investors and analysts focused on. But instead of
exiting the fourth fiscal quarter of 2002 at 9%, the Company delivered an EBITDA
margin of only 6% although the revenue growth target was achieved.
The board of directors responded to the Company's financial performance
by giving the CEO a $200,000 bonus and a 5% raise. Judging from the disclosure
in the Company's proxy statement dated December 17, 2002, it is unclear exactly
what the basis was for the compensation committee of the board of directors to
award Mr. Sansone a bonus and raise. As stockholders of the Company, based on
the Company's financial performance for fiscal 2002 compared to its
twice-forecasted EBITDA targets, we believe such compensation--in particular a
55% bonus--is inappropriate and sends the wrong message.
Instead, we have urged the Company's compensation committee to adopt
reforms to the CEO's compensation. Specifically, we believe that the following
five changes should be made to the CEO's compensation package:
o The $200,000 bonus for 2002 should be reduced to zero. If
already paid, the funds should be returned to the Company.
o The change in the CEO's severance package, enabling him to
yank his golden parachute if a majority of directors, not
previously approved by the board, are elected to the board,
should be eliminated completely.
o Revise the CEO severance package recently approved by the
board of directors. We believe the economics of Mr. Sansone's
severance package are excessively generous--providing the CEO,
according to our analysis, with up to 42 months of salary plus
150% of his prior year bonus plus full vesting of options plus
full funding of deferred compensation.
o Drastically reduce the $80,000 car allowance given to the CEO.
A public company CEO does not need an $80,000 luxury
automobile at company expense even if the CEO does not fully
use the allowance. A $20,000 vehicle should be perfectly
adequate and that is what we recommend.
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o The CEO should have no more raises in his salary until the
Company returns to the 9% EBITDA margin that was originally
forecasted by Company management. We are not opposed to raises
for other executives or for the employees. We continue to
believe that the 9% EBITDA margin voluntarily chosen by the
Company as a future indicator of its financial performance
will provide an accurate measurement of the Company's
profitability and cash flow and momentum for growth.
It is our belief that the board's compensation committee needs to be
changed to bring its views and composition into proper alignment with the
economic realities of the Sarbanes-Oxley world of improved corporate governance.
We believe the changes suggested below will go a long way toward this goal by
seeking out directors who are fully independent of the CEO and the Company's
senior management. We do not expect these committee changes to occur before the
upcoming annual meeting, but we would like to see them made by the middle of the
new calendar year. Specifically, we believe two changes are needed:
o The Company needs to have a new compensation committee chair
who has not served on the Company's board since its founding
in 1989. We believe it is possible that someone who has served
as a director with the CEO since the Company was founded could
grow too close to and supportive of the CEO and, due to this
relationship, might fail to take the actions necessary to put
shareholder interests first as opposed to the interests of
management.
o The majority of the members of the compensation committee also
need to be relatively new and fully independent so that they
will serve as stockholder advocates.
We have communicated our suggestions to the Company's board of
directors. To date, none of our recommendations has been adopted formally by the
board. Accordingly, because these suggestions have not been accepted by the
board and will not be implemented by the Company before the annual meeting, we
have voted all of our shares against the re-election of the CEO as a director
and we urge all other stockholders to vote the same way.
At this time, we have no intention--regardless of the election's
outcome--of calling a special meeting of stockholders to elect a new slate of
directors or taking any other action with respect to control of the Company.
However, as stockholders of just over 14% of the Company's outstanding shares,
we expect the Company's board of directors to listen and respond to our
reasonable suggestions regarding executive compensation.
Three members of the board of directors contacted us on January 20,
2003 by telephone to discuss our suggestions. They made clear to us they were
speaking only as individual directors and not on behalf of the Company's board.
Although the three directors indicated to us that they will examine the CEO's
compensation package prospectively and also consider the addition of independent
directors to the Company's existing board of directors, we nonetheless urge
stockholders to vote "withhold" on your proxy cards.
The recent enactment of the Sarbanes-Oxley legislation signifies that
the Congress, the SEC, and the White House see themselves as stockholder
advocates. The nation is disgusted with corporate cronyism, angered by excessive
executive compensation, and committed to seeing CEO compensation tightly and
directly linked to performance which builds real long term stockholder value. A
vote to withhold your shares from voting for the re-election of Mr. Sansone will
send a message to the Company's board of directors that its stockholders want
the Company's executives to be compensated properly and be focused on restoring
value.
BENEFICIAL OWNERSHIP OF THE PARTICIPANTS
The following table sets forth information regarding the beneficial
ownership of shares of the Company's common stock as of December 31, 2002 by the
Participants. According to the Company's proxy statement, the Company had
6,850,397 shares of common stock outstanding as of December 16, 2002.
SHARES BENEFICIALLY
NAME OWNED AS OF DECEMBER 31, 2002 PERCENT BENEFICIALLY OWNED
- ---- ----------------------------- --------------------------
D3 Family Fund, L.P. 920,830 13.4%
David Nierenberg 971,830 (1) 14.2%
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Nierenberg Investment Management 0 *
Company, Inc.
All participants in solicitation as a group 971,830 (2) 14.2%
* Less than 1% of the Company's outstanding shares.
(1) David Nierenberg is President of Nierenberg Investment Management Company,
the General Partner of The D3 Family Fund, L.P. (the "Fund"). The Fund has sole
voting and dispositive power over 920,830 shares of common stock. The address
for the Fund is 19605 North East 8th Street, Camas, Washington 98607. By virtue
of his position with Nierenberg Investment Management Company, Mr. Nierenberg
has the sole power to vote and dispose of the common stock owned by The D3
Family Fund. In addition, Mr. Nierenberg has sole voting and dispositive power
with respect to 20,000 shares of common stock owned by Haredale, Ltd, a Bahamian
corporation. The address for Haredale, Ltd is P.O. Box N-4465, Nassau, New
Providence, The Bahamas. Mr. Nierenberg disclaims beneficial ownership of the
shares held by Haredale, Ltd. Mr. Nierenberg also has sole voting and
dispositive power over 7,500 shares of common stock held by Olivier Roux of
Talisman Management, Ltd., 3,000 shares of common stock held by Mr. James Henry
Hildebrandt of Bain & Company, 3,000 shares of common stock held by Toxford
Corporation, 10,000 shares of common stock held by The David and Patricia
Nierenberg 1993 Irrevocable Trust, 3,000 shares of common stock directly held by
Bruno Tiphine, and 4,500 shares of common stock jointly held by Rita and Bruno
Tiphine.
(2) Does not equal the sum of the above figures because of joint beneficial
ownership of shares.
A list of transactions by the Participants with respect to the
Company's common stock over the past two years is attached to this Proxy
Statement as Schedule I. No Participant and no associate of any Participant
(within the meaning of the federal proxy rules) beneficially owns any securities
of the Company other than the common stock described above. No Participant
beneficially owns any securities of any parent or subsidiary of the Company. No
Participant has record but not beneficial ownership with respect to any
securities of the Company.
The Participants have not entered into any contracts, arrangements or
understandings within the past year with any person with respect to any of the
Company's securities, including, but not limited to, joint ventures, loan or
option arrangements, puts or calls, guarantees against loss or guarantees of
profit, division of losses or profits, or the giving or withholding of proxies.
In addition, the Participants do not know of any transactions during the past
year, currently proposed transactions, or series of similar transactions, to
which the Company was or is to be a party, in which the amount involved exceeds
$60,000 and in which any of them or their respective affiliates had, or will
have, a direct or indirect material interest.
The Participants have not entered into any agreement or understanding
with any person with respect to (i) any future employment by the Company or its
affiliates or (ii) any future transactions to which the Company or any of its
affiliates will or may be a party.
VOTING
General
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As set forth in the Company's proxy statement, the securities that can be
voted at the Annual Meeting consist of common stock of the Company, $.01 par
value per share, with each share entitling its owner to one vote on each matter
properly submitted to the stockholders. The record date for determining the
holders of common stock who are entitled to receive notice of and to vote at the
Annual Meeting is December 16, 2002 (the "Record Date"). On the Record Date,
6,850,397 shares of common stock were outstanding and eligible to be voted at
the Annual Meeting.
Quorum and Vote Required
- -------------------------
According to the Company's proxy statement, the presence, in person or by
proxy, of a majority of the outstanding shares of common stock is necessary to
constitute a quorum at the Annual Meeting. In counting the votes to determine
whether a quorum exists at the Annual Meeting, the proposal receiving the
greatest number of all votes cast "for" or "against," as well as abstentions
(including instructions to withhold authority to vote) and broker non-votes
(which occur when shares held by brokers or nominees for beneficial owners are
voted on some matters but not on others), will be used.
As set forth in the Company proxy statement, in voting for the proposal to
elect one director, stockholders may vote in favor of the nominee or withhold
their votes as to the nominee. Pursuant to the Bylaws of the Company, the
affirmative vote of the holders of a majority of the shares of common stock
represented in person or
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by proxy at the Annual Meeting is required to approve the proposal. As a result,
shares which are withheld or abstained from voting and any broker non-votes with
regard to a proposal will have the same legal effect as a vote against the
proposal.
According to the Company's proxy statement, any stockholder delivering a
proxy has the power to revoke it at any time before it is voted by giving
written notice to James M. McNeill, Secretary of the Company, at 310 Technology
Parkway, Norcross, Georgia 30092-2929, by executing and delivering to Mr.
McNeill a proxy card bearing a later date, or by voting in person at the Annual
Meeting.
ADDITIONAL INFORMATION
Other than the election of directors, we are not aware of any proposals
to be brought before the Company's Annual Meeting. If other proposals are
brought before the Annual Meeting, the persons named as proxies in the proxy
card distributed by the Company will vote on these matters in their discretion.
The Company's proxy statement is required to set forth information
regarding:
o the beneficial ownership of shares of the Company's voting
securities by:
o any person known to the Company to beneficially own more
than 5% of any class of voting securities of the Company;
o each director and nominee, and certain executive officers
of the Company; and
o all directors as a group;
o information concerning the Company's directors and management,
including information relating to management compensation; and
The information concerning the Company contained in this Proxy
Statement has been taken from or is based upon publicly available information.
Although Mr. Nierenberg does not have any information that would indicate that
any information contained in this Proxy Statement concerning the Company is
inaccurate or incomplete, Mr. Nierenberg does not take any responsibility for
the reliability of such information.
The Participants are soliciting security holders of the Company through
the mail, and may solicit security holders of the Company in person or by
telephone, e-mail, facsimile or the internet. Solicitations may be made by
employees of the Participants, none of whom will receive any additional
compensation for such solicitations. The entire expense of this solicitation is
being borne by the Participants, and the Participants do not intend to seek
reimbursement for this expense from the Company. Costs of this solicitation are
currently estimated to be approximately $10,000. The Participants estimate that
expenses incurred to date are approximately $7,500.
STOCKHOLDERS' PROPOSALS FOR 2004 ANNUAL MEETING
According to page 16 of the Company's proxy statement, proposals of
stockholders, including nominations for the Board of Directors, intended to be
included in the Company's proxy materials for the 2004 Annual Meeting of
Stockholders or to be presented in person at the 2004 Annual Meeting of
Stockholders must be submitted to the Company in accordance with the procedures
set forth in Article II, Sections 5 and 6, respectively, of the Bylaws of the
Company. Accordingly, stockholders must submit such proposals and nominations in
writing to the Company no earlier than June 20, 2003 and no later than August
19, 2003 in order for such matters to be presented for consideration and voted
upon at the 2004 Annual Meeting. All such proposals and nominations should be
submitted by certified mail, return receipt requested, and must be received by
the Secretary at the Company's corporate offices at 310 Technology Parkway,
Norcross, Georgia 30092-2929.
WE URGE YOU TO TAKE ADVANTAGE OF THIS OPPORTUNITY TO WITHHOLD YOUR
VOTES AS TO THE PROPOSED RE-ELECTION OF JOSEPH D. SANSONE AS A MEMBER OF THE
BOARD OF DIRECTORS OF THE COMPANY.
5
Questions, or requests for additional copies of this Proxy Statement,
should be directed to:
Mr. David Nierenberg
Nierenberg Investment Management Company, Inc.
19605 NE 8th Street
Camas, Washington 98607
Telephone: (360) 604-8600
Facsimile: (360) 604-1811
email: david@d3familyfund.com
Dated: February 5, 2003
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SCHEDULE I
TRANSACTIONS IN SECURITIES OF THE COMPANY DURING THE PAST TWO YEARS
BY THE D3 FAMILY FUND, L.P.
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TYPE OF SECURITIES SHARES OF SECURITIES PURCHASED/(SOLD) DATE OF PURCHASE/(SALE)
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common stock 3,500 6/26/00
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common stock 2,500 7/6/00
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common stock 68,500 7/10/00
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common stock 13,500 7/14/00
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common stock 6,000 7/17/00
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common stock 3,500 7/19/00
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common stock 10,000 7/21/00
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common stock 20,000 7/24/00
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common stock 5,000 7/25/00
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common stock 3,930 7/26/00
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common stock 53,000 7/28/00
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common stock 2,500 7/31/00
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common stock 15,500 8/2/00
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common stock 5,500 8/8/00
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common stock 70,000 8/10/00
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common stock 10,000 8/11/00
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common stock 7,500 8/14/00
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common stock 14,000 8/15/00
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common stock 16,500 8/17/00
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common stock 13,500 8/21/00
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common stock 8,500 8/22/00
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common stock 34,000 8/24/00
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common stock 10,000 8/25/00
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common stock 11,000 8/28/00
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common stock 3,000 8/29/00
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common stock 2,500 8/31/00
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common stock 14,000 9/1/00
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common stock 4,000 9/5/00
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common stock 372,000 9/7/00
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common stock 11,500 9/8/00
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common stock 4,000 9/11/00
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common stock 16,000 9/12/00
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common stock 4,000 9/13/00
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common stock 14,000 9/14/00
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common stock 33,000 9/15/00
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common stock 4,000 9/18/00
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common stock 4,000 9/27/00
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common stock 3,000 9/28/00
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common stock 500 10/6/00
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common stock 2,500 10/9/00
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TYPE OF SECURITIES SHARES OF SECURITIES PURCHASED/(SOLD) DATE OF PURCHASE/(SALE)
common stock 1,500 10/10/00
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common stock 3,000 10/11/00
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common stock 7,500 10/12/00
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common stock 5,000 10/13/00
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common stock 2,000 10/16/00
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common stock 3,500 10/25/00
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common stock 1,500 11/17/00
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common stock 6,000 11/21/00
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common stock 8,000 11/22/00
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common stock 2,500 11/28/00
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common stock 15,000 11/29/00
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common stock 4,000 11/30/00
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common stock 7,000 12/14/00
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common stock 2,000 12/15/00
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common stock 4,500 12/22/00
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common stock 19,500 12/26/00
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common stock 2,500 12/27/00
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common stock 5,000 12/28/00
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common stock 30,500 12/29/00
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common stock 2,500 1/4/01
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common stock 28,500 1/5/01
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common stock 88,000 1/9/01
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common stock 5,000 1/10/01
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common stock 2,500 1/24/01
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common stock 8,500 1/25/01
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common stock 1,500 1/30/01
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common stock 10,000 1/31/01
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common stock 1,500 2/1/01
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common stock 5,000 2/21/01
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common stock 2,000 2/22/01
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common stock 36,300 2/23/01
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common stock 3,000 2/28/01
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common stock 10,000 3/5/01
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common stock 5,000 3/6/01
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common stock 3,500 3/8/01
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common stock 10,000 6/21/01
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common stock 12,000 6/27/01
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common stock 15,000 6/29/01
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common stock 1,000 7/2/01
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common stock 4,000 7/13/01
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common stock 4,000 7/17/01
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common stock 2,000 7/18/01
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common stock 2,000 7/20/01
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common stock 2,500 7/23/01
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common stock 1,500 7/24/01
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common stock 16,000 7/25/01
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TYPE OF SECURITIES SHARES OF SECURITIES PURCHASED/(SOLD) DATE OF PURCHASE/(SALE)
common stock 29,600 12/20/02
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common stock 15,000 12/31/02
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common stock (8,000) (2/4/02)
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common stock (300,000) (2/13/02)
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common stock (2,500) (2/14/02)
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common stock (32,500) (2/25/02)
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common stock (50,000) (2/26/02)
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common stock (15,000) (2/27/02)
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common stock (4,000) (3/4/02)
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common stock (25,000) (3/5/02)
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BY DAVID NIERENBERG*
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common stock 30,000 7/28/00
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common stock (10,000) (2/13/02)
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common stock 3,000 10/1/02
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common stock 3,000 10/1/02
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common stock 3,000 11/14/02
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common stock 2,000 11/14/02
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common stock 2,500 11/15/02
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common stock 7,500 10/1/02
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common stock 10,000 10/1/02
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* Includes transactions on behalf of accounts over which Mr. Nierenberg has sole
voting and dispositive authority.
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