SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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BriteSmile, Inc.
(Name of Registrant as Specified in Charter)
(Name of Person(s) Filing Proxy Statement If Other Than The Registrant)
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BRITESMILE, INC.
490 North Wiget Lane
Walnut Creek, California 94598
(925) 941-6260
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 20, 2001
To the Shareholders:
Notice is hereby given that the Annual Meeting of the
Shareholders of BriteSmile, Inc. (the "Company") will be held at the law offices
of Bingham Dana LLP, located at 885 Third Avenue, New York, New York 10022, on
June 20, 2001, at 2:00 o'clock p.m., local time, and at any postponement or
adjournment thereof, for the following purposes, which are discussed in the
following pages and which are made part of this Notice:
1. To elect ten directors, each to serve until the next
annual meeting of shareholders and until his/her
successor is elected and shall qualify;
2. To ratify and approve an amendment to the Company's
Revised 1997 Stock Option and Incentive Plan pursuant
to which the total number of shares of common stock
issuable under the Plan has been increased from
5,000,000 to 7,000,000;
3. To approve the Board of Directors' selection of Ernst
& Young LLP as the Company's independent auditors;
and
4. To consider and act upon any other matters that
properly may come before the meeting or any
adjournment thereof.
The Company's Board of Directors has fixed the close of
business on May 10, 2001 as the record date for the determination of
shareholders having the right to notice of, and to vote at, the Annual Meeting
of Shareholders and any adjournment thereof. A list of such shareholders will be
available for examination by a shareholder for any purpose related to the
meeting during ordinary business hours at the offices of the Company at 490
North Wiget Lane, Walnut Creek, California 94598 during the ten days prior to
the meeting.
You are requested to date, sign and return the enclosed Proxy
which is solicited by the Board of Directors of the Company and will be voted as
indicated in the accompanying Proxy Statement and Proxy. Your vote is important.
Please sign and date the enclosed Proxy and return it promptly in the enclosed
return envelope, whether or not you expect to attend the meeting. The giving of
your proxy as requested will not affect your right to vote in person if you
decide to attend the Annual Meeting. The return envelope requires no postage if
mailed in the United States. If mailed elsewhere, foreign postage must be
affixed. Your proxy is revocable at any time before the meeting.
By Order of the Board of Directors,
Peter P. Hausback, CFO and Secretary
Walnut Creek, California
May 21, 2001
BRITESMILE, INC.
490 North Wiget Lane
Walnut Creek, California 94598
(925) 941-6260
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited by the Board of Directors of
BriteSmile, Inc. (the "Company") for use in voting at the Annual Meeting of
Shareholders to be held at the law offices of Bingham Dana LLP, located at 885
Third Avenue, New York, New York 10022, on June 20, 2001, at 2:00 o'clock p.m.,
local time, and at any postponement or adjournment thereof, for the purposes set
forth in the attached notice. When proxies are properly dated, executed and
returned, the shares they represent will be voted at the Annual Meeting in
accordance with the instructions of the shareholder completing the proxy. If no
specific instructions are given, the shares will be voted FOR the election of
the nominees for directors set forth herein, FOR approval of the amendment to
the Company's Revised 1997 Stock Option and Incentive Plan, and FOR ratification
of the appointment of auditors. A shareholder giving a proxy has the power to
revoke it at any time prior to its exercise by voting in person at the Annual
Meeting, by giving written notice to the Company's Secretary prior to the Annual
Meeting, or by giving a later dated proxy.
The presence at the meeting, in person or by proxy, of
shareholders holding in the aggregate a majority of the outstanding shares of
the Company's common stock entitled to vote shall constitute a quorum for the
transaction of business. The Company does not have cumulative voting for
directors; a plurality of the votes properly cast for the election of directors
by the shareholders attending the meeting, in person or by proxy, will elect
directors to office. Action on a matter, other than the election of directors,
is approved if the votes properly cast favoring the action exceed the votes cast
opposing the action. Abstentions and broker non-votes will count for purposes of
establishing a quorum, but will not count as votes cast for the election of
directors or any other questions and accordingly will have no effect. Votes cast
by shareholders who attend and vote in person or by proxy at the Annual Meeting
will be counted by inspectors to be appointed by the Company (it is anticipated
that the inspectors will be employees, attorneys or agents of the Company).
The close of business on May 10, 2001 has been fixed as the
record date for determining the shareholders entitled to notice of, and to vote
at, the Annual Meeting. Each share shall be entitled to one vote on all matters.
As of the record date there were 35,279,472 shares of the Company's common stock
outstanding of record and entitled to vote. For a description of the principal
holders of such stock, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" below.
This Proxy Statement and the enclosed Proxy are being
furnished to shareholders on or about May 21, 2001.
1
PROPOSAL 1 -- ELECTION OF DIRECTORS
As amended on July 23, 1999, the Company's Bylaws provide that
the number of directors shall range from three to ten, as determined from time
to time by the shareholders or the Board of Directors. Presently the Company's
Board of Directors consists of ten members, all of whom are nominees for
election at the Annual Meeting. Each director elected at the Annual Meeting will
hold office until a successor is elected and qualified, or until the director
resigns, is removed or becomes disqualified. Unless marked otherwise, proxies
received will be voted FOR the election of each of the nominees named below. If
any such person is unable or unwilling to serve as a nominee for the office of
director at the date of the Annual Meeting or any postponement or adjournment
thereof, the proxies may be voted for a substitute nominee, designated by the
proxy holders or by the present Board of Directors to fill such vacancy, or for
the balance of those nominees named without nomination of a substitute, or the
Board may be reduced accordingly. The Board of Directors has no reason to
believe that any of such nominees will be unwilling or unable to serve if
elected as a director.
The following information is furnished with respect to the
nominees. Stock ownership information is shown under the heading "Security
Ownership of Certain Beneficial Owners and Management" and is based upon
information furnished by the respective individuals.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE DIRECTOR.
Anthony M. Pilaro
Mr. Pilaro has been a director of the Company since August
1997. Presently, he serves as Chairman of CAP Advisers Limited which maintains
offices in Dublin, Ireland. He is also founder and Chairman of Excimer Vision
Leasing L.P., a partnership engaged in the business of leasing Excimer laser
systems. Mr. Pilaro has been involved in private international investment
banking. He was a Founding Director and former Chief Executive Officer of DFS
and a founder of the predecessor of VISX, Inc. A graduate of the University of
Virginia `57, and the University of Virginia Law School `60, Mr. Pilaro
practiced law in New York City through 1964.
John L. Reed
Prior to joining the Company in June 1999 as its Chief
Executive Officer, Mr. Reed was Chairman of the Pacific Retailing Division of
Duty Free Shoppers Group Limited ("DFS"), the world's leading specialty retailer
catering to international travelers. At DFS he was responsible for the
operations of multiple retail stores, including the largest single,
self-standing retail operation in the world. During his 21-year career at DFS,
prior to being named Chairman of the Pacific Retail Division in 1997, Mr. Reed
was President of DFS Hawaii. From 1982 to 1988, Mr. Reed was President of the
DFS U.S. Mainland Operation. Mr. Reed has also served as Vice President of
Merchandising for both Federated Department Stores and John Wanamaker.
Linda S. Oubre
Linda S. Oubre commenced serving as a director of the Company
in May 1998. In July 1998, she was named to the position of President, Center
Division of the Company. In September 2000, she was named the Company's
President, Chief Operating Officer. Prior to joining the Company, Ms. Oubre
served for 3 years as President of Tri Com Ventures in Walnut Creek, California.
Tri Com specialized in new venture planning and implementation consulting. At
Tri Com, Ms. Oubre's clients included McGraw Hill's Business Week Magazine,
Prodigy Online Service, and the United Nations Business Development Project in
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the Republic of Belarus. Prior to starting Tri Com Ventures in 1996, Ms. Oubre
was General Manager, New Business Development, for the Los Angeles Times, and
also served as Director of Operations for Walt Disney's Consumer Products
Division and Manager of Financial Planning for the Times Mirror Company. She has
also been a visiting instructor at the Wharton Business School. Ms. Oubre is a
graduate of the University of California, Los Angeles and received her MBA from
the Harvard Business School.
Gerald Poch
Mr. Poch has served as a director of the Company since May
2000. He has served as Managing Director of Pequot Capital Management, Inc., a
venture capital fund management company, since January 2000. From August 1998
through January 2000, he was a principal of Pequot Capital Management. From
August 1996 to June 1998 he was the Chairman, President and Chief Executive
Officer of GE Capital Information Technology Solutions, Inc., a technology
solutions provider. Prior to that, he was a founder, and served as Co-Chairman
and Co-President, of AmeriData Technologies, Inc., a value-added reseller and
systems integrator of hardware and software systems. Mr. Poch is Co-chairman of
MessageMedia, Inc. and a director of FutureLink Corp. and Elastic Networks.
Dr. Gasper Lazzara, Jr.
Dr. Gasper Lazzara, Jr. has served as Chairman of the Board
and a director of the Orthodontic Centers of America, Inc. ("OCA") since its
inception in July 1994. He has served as Co-Chief Executive Officer of
Orthodontic Centers since September 1998, and he served as Chief Executive
Officer of OCA from July 1994 to September 1998. Dr. Lazzara also served as
President of OCA from July 1994 to June 1997. From 1989 to 1994, Dr. Lazzara
served as President or Managing Partner of certain predecessor entities of OCA.
He is a licensed orthodontist and, prior to founding OCA, maintained a private
orthodontic practice for over 25 years. He is a member of the American
Association of Orthodontists and is a Diplomat of the American Board of
Orthodontists.
R. Eric Montgomery
Mr. Montgomery has been a director of the Company since May
1998. He is an experienced consultant, researcher and entrepreneur in the oral
care and cosmetic products industries, and has been granted over 65 US and
foreign patents since 1981. Previously, from November 1997 until May 1998, he
served as an independent consultant to the Company through Applied Dental
Sciences, Inc. (Monterey, MA), the oral care products research and development
firm of which he has been President since 1992. Mr. Montgomery is also the
Founding Manager and President of OraCeutical LLC (Lee, MA), an organization
dedicated to the development of innovative products and technologies for
dentistry and consumer oral care. Oraceutical is currently negotiating with the
Company to provide technology development services. Mr. Montgomery's
organizations have provided consulting services to and developed products for
companies including The Dial Corporation, Natural White, Virbac SA, Zila
Pharmaceuticals, ProHealth Laboratories, OPI Products, American Dental
Hygienics, Premiere Dental, and Boots PLC. Mr. Montgomery is also President of
IDEX Dental Sciences, Inc. (Lee, MA), an intellectual property holding firm
established by Mr. Montgomery in March 1996.
Bradford Peters
Mr. Peters has been a director of the Company since December
1999. He is the President of Blackfin Capital, a privately held investment
company based in New York. Prior to founding Blackfin Capital, from July 1993 to
June 1998, Mr. Peters was with Morgan Stanley Private Wealth Management Group.
Mr. Peters holds an MBA degree from Duke University.
4
Harry Thompson
Mr. Thompson has served as a director of the Company since
December 1999. Mr. Thompson is currently the President of The Strategy Group and
Managing Director of Swiss Army Brands, Inc. Prior to founding The Strategy
Group, Mr. Thompson served in senior management of several core units of the
Interpublic Group of Companies, one of the world's leading advertising groups.
Mr. Thompson also has served as either manager or chairman of several
telecommunication companies of The Galesi Group. Mr. Thompson holds an MBA
degree from Harvard Business School.
Peter Schechter
Mr. Schechter was appointed a director of the Company in July
1999. Mr. Schechter is a founder of Chlopak, Leonard, Schechter and Associates,
an international communications consulting firm. Previously, Mr. Schechter was
Managing Director in charge of international business at the Sawyer/Miller
Group, specializing in the management of international financial issues,
political campaigns and country image programs. A graduate of the School of
Advanced International Studies at Johns Hopkins University, Mr. Schechter has
lived in Europe and Latin America and has extensive experience in the area of
governmental relations. He is fluent in six languages.
Dennis F. Hightower
Mr. Hightower was named a director of the Company in March
2001. Most recently, Mr. Hightower served as Chief Executive Officer of Europe
Online. Previously, he was one of the highest-ranking executives at Walt Disney,
having served as President of Walt Disney Television and Telecommunications, and
President, Disney Consumer Products for Europe, Middle East and Africa. He was
also Professor of Management at the Harvard Business School. His career includes
positions with Xerox, McKinsey & Co., General Electric, Mattel and Russell
Reynolds. In addition, he is a member of the Board of Directors of The Gillette
Company, Northwest Airlines, Pan Am Sat Corporation, Phillips Van-Huessen and
the TJX Companies. Mr. Hightower received his MBA from the Harvard Business
School.
There is no family relationship between any executive officer
or director of the Company and any other executive officer or director.
DIRECTOR COMPENSATION
Outside directors of the Company (non-employees,
non-consultants) receive options to purchase 20,000 shares of common stock per
year for each year during which they serve as a director. The exercise price of
such options is 100% of the fair market price on the date of grant. Actual
expenses incurred by outside directors are reimbursed.
Until January 2, 2001, certain directors of the Company had
been granted Units of Company equity participation by LCO. As of May 11, 1998,
LCO adopted an Incentive Compensation Plan (the "LCO Plan"). Under the LCO Plan,
certain key employees, consultants or directors of the Company may be given the
opportunity to benefit from the appreciation in the value of LCO's present
equity holdings in the Company. Such appreciation rights are granted by way of
incentive compensation units ("Units"), whose value is determined by the
increase in value of LCO's present holdings of Company Common Stock above a
prescribed base value of $4.75 per share. Each Unit represents a percentage
interest (determined by the total number of Units granted under the LCO Plan) in
such increase in value of LCO's holdings. LCO had granted Units to the following
4
directors or former directors of the Company as incentive compensation: John
Reed, Brian Delaney and Linda Oubre.
Effective January 2, 2001, all interests of Company directors
and officers in the LCO Plan were vested, terminated, and satisfied in full by
way of transfer of the following Company shares from LCO: 75,000 shares to John
Reed, and 20,000 shares to Linda Oubre.
MEETINGS OF THE BOARD OF DIRECTORS
The Company's Board of Directors took action at three duly
noticed special meetings of the Board during the nine-month transition period
ended December 30, 2000. Each nominee for director then serving as a director
attended all of the Company's special meetings of the Board of Directors except
Messrs. Poch and Peters, who were not available for the Board meeting held on
December 15, 2000.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee,
an Audit Committee, and a Compensation Committee. Subject to certain
restrictions, the Executive Committee possesses and exercises the powers of the
Board of Directors during the intervals between regular meetings of the Board.
The members of the Executive Committee are Anthony Pilaro, John Reed, Gerald
Poch, Bradford Peters, and Harry Thompson.
Members of the Audit Committee and the Compensation Committee
are Gerald Poch, Bradford Peters, Harry Thompson and John Reed. The Audit
Committee held one meeting during the nine-month transition period ended
December 2000. Among other things, the Compensation Committee is responsible for
and reviews and recommends to the Board of Directors the salaries, bonuses and
other forms of compensation and benefit plans for management of the Company and
administers the Company's 1997 Stock Option and Incentive Plan.
REPORT OF AUDIT COMMITTEE
The following report of the Audit Committee shall not be
deemed incorporated by reference by any general statement incorporating this
Proxy Statement into any other filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
BriteSmile's Audit Committee (referred to as "we" and "us") is
composed of three independent directors, Gerald Poch, Bradford Peters, and Harry
Thompson, and one director, John Reed, who is also the Company's Chief Executive
Officer. The Committee operates under a written charter. The Committee assists
the directors in fulfilling their responsibility to our shareholders, potential
shareholders and the investment community relating to accounting and financial
reporting practices.
We meet with management periodically to consider the adequacy
of the Company's internal controls and the objectivity of its financial
reporting. We discuss these matters with the Company's independent auditors and
with appropriate Company financial personnel.
As needed, we meet privately with both the independent
auditors and the appropriate Company financial personnel, each of whom has
unrestricted access to the members of the Committee. We also recommend to the
board of directors the appointment of the independent auditors and review
periodically their performance and independence from management.
5
The independent directors who serve on the committee are all
"independent" for purposes of Rule 4200(a)(15) of The National Association of
Securities Dealers' listing standards and National Market Marketplace Rules.
That is, the board of directors has determined that none of them has a
relationship to the Company that might interfere with their independence from
the Company and its management.
The Committee has adopted a written charter setting out the
functions of the committee. You can find a copy of that charter attached to this
Proxy Statement as Appendix A.
Management has primary responsibility for the Company's
financial statements and the overall reporting process, including the Company's
system of internal controls. The independent auditors audit the annual financial
statements prepared by management, express an opinion as to whether those
financial statements fairly present the financial position, results of
operations and cash flows of the Company in conformity with auditing standards
generally accepted in the United States of America, and discuss with us any
issues they believe should be raised with the Committee.
This year, we reviewed the Company's audited financial
statements and met with both management and Ernst & Young LLP, the Company's
independent auditors, to discuss those financial statements. Management has
represented to us that the financial statements were prepared in accordance with
auditing standards generally accepted in the United States of America.
We have received from and discussed with Ernst & Young the
written disclosure as required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees). These items relate to that
firm's independence from the Company. We also discussed with Ernst & Young any
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
Based on these reviews and discussions, we recommended to the
board of directors that the Company's audited consolidated financial statements
be included in the Company's Report on Form 10-K for the nine-month transition
period ended December 30, 2000.
Management has advised us that for the nine-months ended
December 30, 2000, the Company paid fees to Ernst & Young LLP for services in
the following categories:
Audit fees.................................... $ 269,595
Financial information systems design
and Implementation fees..................... $ 0
Tax work.................................... $ 244,642
Financial Consulting........................ $ 0
----------
$ 514,237
==========
6
We have considered and determined that the provision of the
non-audit services noted in the foregoing table is compatible with maintaining
Ernst & Young's independence.
Members of the Audit Committee
Gerald Poch
Bradford Peters
Harry Thompson
John Reed
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES/CONSULTANTS
The following individuals serve as executive officers or
significant employees or consultants of the Company:
NAME AGE CURRENT POSITION(S)1
---- --- -------------------
John Reed 59 Chief Executive Officer and Director
Paul Dawson 46 Chief Executive Officer of BriteSmile
International Limited, a subsidiary of the
Company
Linda S. Oubre 42 President, Chief Operating Officer and Director
Michael Whan 36 President Worldwide Marketing
Peter P. Hausback 41 Executive Vice-President, Chief Financial
Officer and Secretary
Stephen Miller 54 Executive Vice-President, Manufacturing and
Distribution
Anthony M. Pilaro 65 Chairman of the Board
John W. Warner 56 Research and Development Director
Salim A. Nathoo 45 Consultant
1. All officers serve at the pleasure of the Board of Directors. There are
no family relationships between any of the officers and directors.
Biogrophical information regarding John Reed, Anthony Pilaro,
and Linda Oubre, each of whom currently also serves as a director of the
Company, is included in this Proxy Statement under "Proposal 1-Election of
Directors." Biographical information regarding the other executive officers and
significant consultants of the Company follows:
Peter P. Hausback
Effective April 2, 2001, the Company named Peter P. Hausback
as its new Executive Vice President, Chief Financial Officer and Secretary. Mr.
Hausback served as the CFO, VP-Finance and Secretary for Il Fornaio, a
multi-state fine dining and commercial bakery company. While at Il Fornaio, Mr.
Hausback was responsible for planning, directing and managing human resources,
MIS and all financial functions, including budget and analysis, SEC reporting,
accounting, cost, treasury, cash, credit and tax functions. Mr. Hausback also
previously served as a manager at Price Waterhouse LLP in San Francisco, and as
a senior auditor with Security Pacific Corporation in Los Angeles.
Paul Dawson
Mr. Dawson, prior to joining the Company's subsidiary,
BriteSmile International as its Chief Executive Officer, was Chief Executive
Officer of Camus International, a global marketer of luxury goods. During his
7
nine-year tenure with Camus, he spearheaded an aggressive worldwide market
expansion program of the company's premium cognac market. Prior to Camus, Mr.
Dawson held the position of Engagement Manager at McKinsey & Company, an
international consulting firm. While at McKinsey, he advised a broad range of
multinational consumer companies on international expansion strategies. Mr.
Dawson has lived and worked in the United States, Europe, Asia and the Middle
East. He holds masters degrees from Cambridge University and UC Berkeley, and an
MBA from Stanford University.
Stephen Miller
In October 2000, Stephen Miller was appointed Executive Vice
President, Manufacturing and Distribution. Prior to joining BriteSmile in May
1999 as it Executive Vice President, Real Estate and Construction, Mr. Miller
was for 11 years Vice President of Facility Development for DFS. While at DFS,
Mr. Miller was responsible for the development of the flagship retail gallerias,
high-end boutiques, duty free stores and entertainment complexes in the U.S.,
Oceania and the Pacific. Prior to DFS, Mr. Miller was Senior Vice President of
Commercial and Industrial Development for Castle and Cooke, Inc. where for 17
years he was responsible for commercial, industrial and retail development for
Hawaii's second largest private landowner.
Michael P. Whan
Mr. Whan joined BriteSmile as its President of World Wide
Marketing in May 2000. Prior to joining BriteSmile, Mr. Whan had served as Vice
President, General Manager of Taylor Made Golf from 1996 to 2000. From 1987 to
1995 Mr. Whan held various posts at Proctor & Gamble Company, including Director
of Marketing, oral care and Brand Manager of Crest toothpaste. Mr. Whan is a
graduate of Miami (Ohio) University.
Dr. John W. Warner
Dr. Warner accepted the position of Research and Development
Director for the Company in May 1998. Mr. Warner is an experienced research and
technology consultant and entrepreneur who was one of the leading contributors
to the development of ophthalmic applications of laser technology. Dr. Warner
leads the Company's assessment of existing products and LATW development
efforts. Dr. Warner has served as a consultant to Northwestern University in the
areas of technology development and commercialization. From March 1986 to
December 1990 he was the founder and CEO of Taunton Technologies, Inc., a
predecessor of VISX, Inc., engaged in the business of developing and
manufacturing Excimer laser systems to perform ophthalmic surgery.
Salim A. Nathoo, D.D.S.
Dr. Nathoo was formerly employed by Colgate-Palmolive Co. as a
Senior Researcher from 1990 to 1998 and was a key member in the successful
worldwide launch of the Colgate Whitening program during his tenure there. Dr.
Nathoo has lectured globally on both the clinical and scientific aspects of
teeth whitening, and he is recognized as one of the leading authorities on the
subject. Dr. Nathoo is one of the founders of Oral Health Clinical Services, LLC
("Oral Health"). The Company has entered into a consulting agreement with Oral
Health in order to assist the Company in obtaining an American Dental
Association ("ADA") seal of approval for its LATW system. Dr. Nathoo holds both
a PhD and DDS from New York University, and has published over 40 papers in
major scientific journals.
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 10, 2001
regarding beneficial stock ownership of (i) all persons known to the Company to
be beneficial owners of more than 5% of the outstanding common stock; (ii) each
director or director nominee, and any other executive officer of the Company
whose compensation is required to be reported in this Proxy Statement, and (iii)
all officers and directors of the Company as a group. Each of the persons in the
table below has sole voting power and sole dispositive power as to all of the
shares shown as beneficially owned by them, except as otherwise indicated.
Number of Percent of
Shares Outstanding
Name and Address Beneficially Shares (2)
Owned (1)
Executive Officers and Directors
Paul Dawson 427,397 (3) 1.2%
36 Fitzwilliam Place
Dublin 2, Ireland
Peter P. Hausback 50,000 (4) *
490 North Wiget Lane
Walnut Creek, California 94598
Dr. Gasper Lazzara, Jr. 533,754 (5) 1.5%
Orthodontic Centers of America
500 Sawgrass Village Circle
Ponte Vedra Beach, Florida 32082
R. Eric Montgomery 221,250 *
29 Fairview Road
P. O. Box 487
Monterey, Massachusetts 01245
Linda S. Oubre 210,331 (6) *
490 North Wiget Lane
Walnut Creek, California 94598
Bradford Peters 2,106,639 (7) 5.9%
Blackfin Capital, LLC
622 Third Avenue, 38th Floor
New York, New York 10017
Anthony M. Pilaro 15,327,823 (8) 42.7%
36 Fitzwilliam Place
Dublin 2, Ireland
Gerald Poch 4,800,426 (9) 13.5%
Pequot Capital Management, Inc.
500 Nyala Farm Road
Westport, Connecticut 06880
9
John L. Reed 1,406,367 (10) 3.9%
490 North Wiget Lane
Walnut Creek, California 94598
Peter Schechter 42,000 (11) *
Chlopak, Leonard, Schechter & Assoc.
3021 O Street, N.W.
Washington, D.C. 20007
Harry Thompson 100,000 (12) *
169 E. 78th Street
New York, New York 10021
Dennis F. Hightower 100,000 (13) *
2600 Rock Creek Drive, N.W.
Washington, DC 20008-2704
Michael P. Whan 120,000 (14) *
490 North Wiget Lane
Walnut Creek, California 94598
All Officers and Directors as a Group 25,530,987 (15) 67.1%
(13 persons)
5% Beneficial Owners
LCO Investments Limited 15,327,823 (8) 42.7%
Canada Court
Upland Road
St. Peter Port
Guernsey
Channel Islands
Pequot Capital Funds 4,800,426 (9) 13.5%
c/o Pequot Capital Management, Inc.
500 Nyala Farm Road
Westport, CT 06880
Andrew J. McKelvey 2,066,639 (16) 5.9%
c/o Blackfin Capital, LLC
622 Third Avenue, 38th Floor
New York, New York 10017
* Constitutes less than 1%.
(1) Includes any options or warrants to purchase shares which are presently
exercisable or exercisable within 60 days.
(2) All percentages are calculated based upon a total number of shares
outstanding which includes 35,279,472 shares of the Company issued and
outstanding as of May 10, 2001, plus that number of options or warrants
presently exercisable or exercisable within 60 days by the named
security holder.
(3) Consists of 227,397 shares owned beneficially, options to purchase
180,000 shares at $6.00 per share, and options to purchase 20,000
shares at $5.875 per share.
10
(4) Consists of options to purchase 50,000 shares at $3.50 per share.
(5) Consists of 392,395 shares held indirectly through OCAI Two Limited
Partnership, warrants to purchase 121,359 shares at $5.00 per share,
and options to purchase 20,000 shares at $9.25 per share.
(6) Consists of 45,331 shares owned beneficially, options to purchase
140,000 shares at $1.75 per share, options to purchase 25,000 shares at
$5.875 per share.
(7) Consists of 1,704,584 shares held of record by Andrew J. McKelvey in
which Mr. Peters has an economic interest in any appreciation, and in
which he shares control over their disposition, warrants held by Mr.
McKelvey or Brad Peters to purchase 382,055 shares at $5.00 per share,
and options held by Mr. Peters to purchase 20,000 shares at 9.375 per
share.
(8) Consists of 13,339,026 shares owned of record and beneficially by LCO,
1,330,000 shares held indirectly through PdeP Tech Limited, a
subsidiary of LCO, 638,797 warrants to purchase shares at $5.00 per
share held by LCO, and 20,000 warrants to purchase shares held by PdeP,
also exercisable at $5.00 per share. LCO is a wholly owned subsidiary
of the ERSE Trust. The sole trustee of the ERSE Trust is CAP. Mr.
Pilaro, a director of the Company, is Chairman of CAP.
(9) Consists of 2,211,660 shares held of record by Pequot Private Equity
Fund II, L.P., 1,105,829 shares held of record by Pequot Partners Fund,
L.P., 1,105,829 shares held of record by Pequot International Fund,
Inc., warrants held by Pequot Private Equity Fund II, L.P. to purchase
178,554 shares at $5.00 per share, warrants held by Pequot Partners
Fund, L.P. to purchase 89,277 shares at $5.00 per share, warrants held
by Pequot International Fund, Inc. to purchase 89,277 shares at $5.00
per share, and options held by Mr. Poch to purchase 20,000 shares at
$11.25 per share. Mr. Poch is a Managing Director of Pequot Capital
Management, Inc., which holds voting and dispositive power for all
share held of record by the Pequot Funds. Mr. Poch disclaims
beneficial ownership of the shares held by the Pequot Funds, except to
the extent of his pecuniary interest therein.
(10) Consists of 805,461 shares owned beneficially, warrants to purchase
100,906 shares at $5.00 per share, options to purchase 450,000 shares
at $2.50 per share, and options to purchase 50,000 shares at $9.25 per
share.
(11) Consists of 2,000 shares owned beneficially in a Revocable Living
Trust, options to purchase 20,000 shares at $11.25 per share, and
options to purchase 20,000 shares at $4.25 per share.
(12) Consists of options to purchase from LCO 100,000 shares at $1.50 per
share.
(13) Consists of 100,000 shares owned beneficially.
(14) Consists of options to purchase 120,000 shares at $7.391 per share.
(15) Includes exercisable options and warrants to purchase 2,755,225 shares.
(16) Consists of 1,704,584 shares held of record by Andrew J. McKelvey, and
warrants held by Mr. McKelvey to purchase 362,055 shares at $5.00 per
share.
11
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers, directors and persons who beneficially own more than 10
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10 percent shareholders are
required by regulation of the Securities and Exchange Commission to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely upon its review of the copies of such forms
furnished to it during the nine-month transition period ended December 30, 2000,
and representations made by certain persons subject to this obligation that such
filings were not required to be made, the Company believes that all reports
required to be filed by these individuals and persons under Section 16(a) were
filed in a timely manner, except as follows (all such transactions have since
been reported to the SEC on Form 5 reports filed in April and May, 2001): Form 4
report of J. Reed for reporting transaction in December 2000; Form 4 report of
G. Lazzara for reporting transaction in December 2000; Form 4 report of B.
Peters for reporting transaction in December 2000; Form 4 report of R.
Montgomery for reporting transactions in December 2000.
Except as disclosed, the Company is not aware of any
transactions in its outstanding securities by or on behalf of any director,
executive officer or 10 percent holder, which would require the filing of any
report pursuant to Section 16(a) during the nine-month transition period ended
December 30, 2000, that has not been filed with the Securities and Exchange
Commission.
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation
paid by the Company for services rendered during the nine-month transition
period, and during the fiscal years ended March 31, 1999 and April 1, 2000, to
John Reed, the Company's Chief Executive Officer, and to the Company's four most
highly compensated executive officers during the transition period other than
the CEO. Paul Boyer's employment as CFO of the Company terminated in March 2001.
Peter Hausback, the Company's new CFO, commenced employment in April 2001.
Summary Compensation Table
Long Term
Compensation
----------------------
Annual
Compensation Awards
------------------- ----------------------
Securities
Underlying
Name and Options/
Principal Position Period Salary ($) SARs (#)
-------------------------- ------------------------ ------------------- ----------------------
John Reed, CEO Transition Period FY $ 187,500 0
April 1, 2000 FY March 201,923 250,000(1)
31, 1999 0(2) 750,000(2)
12
Paul Dawson Transition Period FY 150,000 0
CEO, BriteSmile April 1, 2000 FY March 167,723 320,000(3)
International, Ltd. 31, 1999 0(4) 0
Paul A. Boyer Transition Period FY $ 148,333 0
Chief Financial April 1, 2000 FY March 67,692 150,000(5)
Officer 31, 1999 0 0
Linda S. Oubre Transition Period FY $ 148,958 0
President, Chief April 1, 2000 FY March 176,058 25,000(6)
Operating Officer 31, 1999 117,883 200,000(7)
Michael P. Whan Transition Period FY $ 428,987(8) 200,000(9)
President, Worldwide April 1, 2000 FY March 0 0
Marketing 31, 1999 0 0
(1) Options vest 50,000 each year over 5 years beginning on March 24, 2001.
(2) Mr. Reed received no cash compensation from the Company in fiscal 1999.
Prior to commencing full-time work for the Company at the Company's
offices, Mr. Reed performed occasional services for the Company
beginning January 1999. Mr. Reed's employment contract with the Company
provides for an annual salary of $250,000, commencing June 1999, and
options to purchase 750,000 shares granted January 22 1999, 250,000 of
which vested immediately, and the remainder of which vest 100,000 per
year beginning January 22, 2000.
(3) Mr. Dawson was granted options to purchase 20,000 shares on November 1,
1999, which options vested on November 20, 2000, and options to
purchase 300,000 shares on April 19, 1999, of which 100,000 options
vested immediately and the remainder vest 40,000 per year beginning on
April 19, 2000.
(4) Mr. Dawson received no compensation from the Company in fiscal 1999.
Mr. Dawson's employment commenced with the Company effective April
19, 1999.
(5) 50,000 vested on December 1, 1999.
(6) Options vested on November 1, 2000.
(7) 50,000 of the options granted vested immediately, and the remainder
vest 30,000 per year beginning on July 1, 1999.
(8) Mr. Whan received $200,000 for relocation expenses during the
transition period.
(9) 100,000 of the options granted vested immediately and the remainder
vest 20,000 per year beginning on April 23, 2001.
13
The following table lists individual grants of stock options made during the
Company's last completed fiscal year as compensation for services rendered as an
officer of the Company:
OPTION/SAR GRANTS IN TRANSITION PERIOD
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Individual Grants Appreciation for Option
Term
------------------------------------------------------------------------ --------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration 5% 10%
Name Granted (#) Transition ($/Share) Date
Period
--------------------- ------------- --------------- --------------- -------------- --------------------------
John L. Reed 0 N/A N/A N/A N/A N/A
Paul Dawson 0 N/A N/A N/A N/A N/A
Linda S. Oubre 0 N/A N/A N/A N/A N/A
Michael P. Whan 200,000 15.1% 7.391 4-23-10 929,632 2,335,870
Paul A. Boyer 0 N/A N/A N/A N/A N/A
AGGREGATED OPTION EXERCISES IN TRANSITION PERIOD
AND DECEMBER 30, 2000 OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In the Money Options at
Acquired on Value December 30, 2000 (1) December 30, 2000 (1)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------ ------------------------- -------------------------
John L. Reed 0 0 350,000 / 650,000 $109,200 / $124,800
Paul Dawson 0 0 160,000 / 160,000 0 / 0
Linda S. Oubre 0 0 135,000 / 90,000 $143,370 / $95,580
Michael P. Whan 0 0 100,000 / 100,000 0 / 0
Paul A. Boyer (2) 0 0 70,000 / 80,000 0 / 0
(1) Potential unrealized value is calculated as the fair market value at
December 30, 2000 ($2.813 per share), less the option exercise price,
times the number of shares.
(2) Mr. Boyer's employment with the Company as Chief Financial Officer
terminated effective March 2, 2001. Peter Hausback, Mr. Boyer's
successor as Company CFO, will commence employment on April 2, 2001.
14
The following table lists individual grants of stock options
made during the Company's nine-month transition period ended December 30, 2000
as compensation for services rendered as an officer of the Company:
EMPLOYMENT CONTRACTS AND
TERMINATION OF EMPLOYMENT ARRANGEMENTS
Certain of the Company's executive officers whose compensation
is required to be reported in the Summary Compensation Table are parties to
written employment agreements with the Company as follows:
John Reed
Pursuant to a letter agreement between the Company and John
Reed dated January 20, 1999, Mr. Reed agreed to serve as Chief Executive Officer
of the Company. The agreement provides that the Company will pay Mr. Reed
$250,000 a year for his services. Mr. Reed also received options to purchase
750,000 shares of the Company's common stock at the closing price on the date of
the agreement. Mr. Reed's employment began full-time and on location on June 2,
1999. On March 24, 2000, Mr. Reed was granted options to purchase 250,000 shares
of the Company's common stock at the closing price on that date.
Linda Oubre
The Company entered into an employment agreement with Linda
Oubre on January 22, 1999. Under the terms of the agreement, Ms. Oubre initially
served as President, Center Division. The agreement expired on June 30, 2000.
Her employment with the Company continues on an at-will basis. She currently
serves as President, Chief Operating Officer of the Company. The Company paid
Ms. Oubre $165,000 per annum from January 22, 1999 through June 30,1999 and
$175,000 per annum from July 1, 1999 through June 30, 2000. On July 1, 2000, Ms.
Oubre's salary increased to $200,000 per annum. Ms. Oubre is eligible to receive
bonus compensation under such cash bonus plan as the Company may adopt for its
key executives. If no such plan is adopted, Ms. Oubre will be eligible for bonus
compensation based on the attainment of annual profitability and management
objectives relating to the Company's Center Division as agreed upon by Ms. Oubre
and the Company. Ms. Oubre was also granted options to purchase 200,000 shares
of the Company's common stock at $1.75 per share. Options to purchase 110,000 of
the 200,000 shares have vested and are currently exercisable; the right to
purchase an additional 30,000 of such shares will vest each of July 1, 2001,
July 1, 2002 and July 1, 2003 if Ms. Oubre has remained in the employ of the
Company from the date of the agreement to such date.
Paul Dawson
BriteSmile International, Ltd. entered into an employment
agreement with Paul Dawson on April 19, 1999. Under the terms of the agreement,
Mr. Dawson has served as Chief Executive Officer of BriteSmile International, a
wholly-owned subsidiary of the Company. The Company pays Mr. Dawson $16,666 per
month for his services. Mr. Dawson is eligible for a bonus based on the number
of paid teeth whitening procedures performed in a designated international area.
The bonus will be paid in cash and Common Stock of the Company. In addition, Mr.
Dawson received options to purchase 300,000 shares of the Company's common stock
at the closing price on the date of the agreement. Options to purchase 100,000
shares vested on the date of the agreement. The remaining 200,000 options vest
in equal installments over five years.
15
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Preliminary Note: Notwithstanding anything to the contrary set forth in any of
the previous filings made by the Company under the Securities Act or the 1934
Act that might incorporate future filings, including, but not limited to, the
Company's Report on Form 10-K for the transition period ended December 30, 2000,
in whole or in part, the following Executive Compensation Report and the Stock
Performance Graph appearing herein shall not be deemed to be incorporated by
reference into any such future filings.
The Compensation Committee of the Board establishes and
recommends executive compensation levels to the Board of Directors. The
Committee currently consists of three non-employee directors (Gerald Poch,
Bradford Peters and Harry Thompson) and John Reed, also a director and the
Company's CEO. This Compensation Report discusses the Company's compensation
policies and the basis for the compensation paid to its executive officers
(including the Named Executive Officers), during the nine-month transition
period ended December 30, 2000.
The Committee is currently responsible for setting the
Company's policies regarding compensation and benefits, and administering the
Company's employee stock option and stock purchase plans. In particular, the
Committee evaluates the performance of management and determines the
compensation and benefits of executive officers.
Compensation Policy
The Committee's policy with respect to executive compensation
has been designed to:
o Adequately and fairly compensate executive officers in
relation to their responsibilities, capabilities and
contributions to the Company and in a manner that is
commensurate with compensation paid by companies of comparable
size or within the Company's industry;
o Reward executive officers for the achievement of key operating
objectives and for the enhancement of the long-term value of
the Company; and
o Use equity-based incentives designed to motivate executives to
focus on long-term strategic objectives, to align the
interests of management and the stockholders, and to provide
opportunities for management to share in the benefits that
they achieve for the Company's stockholders.
The components of compensation paid to executive officers
consist of: (a) base salary, (b) incentive compensation in the form of stock
options awarded by the Company under the Company's Stock Option Plan and (c)
certain other benefits.
Components of Compensation
The primary components of compensation paid to executive
officers and senior management personnel, and the relationship of these
components of compensation to the Company's performance, are discussed below:
o Base Salary. The Committee periodically reviews and approves
the base salary paid to executive officers and members of
the Company's senior management team. Adjustments to
base salaries are determined based upon a number of factors,
including the Company's performance (to the extent such
performance can fairly be attributed or related to each
executive's performance), as well as the nature of each
executive's responsibilities, capabilities and contributions.
In addition, the Committee periodically reviews the base
salaries of senior management personnel in an attempt to
ascertain whether those salaries fairly reflect job
responsibilities and prevailing market conditions and rates
of pay. The Committee believes that base salaries for the
Company's executive officers have historically been
reasonable, when considered together with other elements of
compensation (such as stock options and the bonus plans) in
relation to the Company's size and performance and in
comparison with the compensation paid by similarly sized
companies or companies within the Company's industry. John
L. Reed has served as the Chief Executive Officer of the
Company since June 1998. For the nine-month transition
period ended December 2000, Mr.Reed declined any increase in
his base salary (which has remained at $250,000 per year
since he commenced his service as CEO), notwithstanding his
contributions toward the Company's long-term strategic
objectives, particularly his performance in leading the
Company's expansion in the prior year. With respect to
salary adjustments for other Company executives, Ms.
Linda Oubre received a 14% salary increase for 2000,
reflecting primarily changes in position and responsibilities
and her contributions to the Company in connection with the
execution of the Company's long-term strategic initiatives.
o Incentive Compensation. As discussed above, a substantial
portion of each executive officer's compensation package is in
the form of incentive compensation designed to reward the
achievement of key operating objectives and long-term
increases in shareholder value. The Committee believes that
the stock options granted under the Stock Option Plan
reward executive officers only to the extent that shareholders
have benefited from increases in the value of the common
stock. In establishing the size of an executives opportunity
for incentive compensation, including bonus and stock options,
the Committee takes into account, in addition to general
comparative information, the individual performance of the
executive and the financial performance and strategic
achievements of the Company during the prior year, the
executive's level of responsibility and potential to influence
or contribute to the Company's operations and direction, and
the quality of the executive's long-term strategic decisions
made during the year. The Committee generally does not base
its considerations on any single performance factor, nor does
it specifically assign relative weights to factors, but rather
considers a mix of factors and evaluates Company and
individual performance against that mix. To the extent that
qualitative factors are involved in the determination, the
Committee must necessarily make a subjective assessment of
performance.
o Other Benefits. The Company maintains certain other plans and
arrangements for the benefit of its executive officers and
members of senior management. The Company believes these
benefits are reasonable in relation to the executive
compensation practices of other similarly sized companies or
companies within the Company's industry.
Conclusion
The Committee believes that its policies further the
shareholders' interests because a significant part of executive compensation is
based upon the Company achieving its financial and other goals and objectives.
At the same time, the Committee believes that its policies encourage responsible
management of the Company in the short-term. The Committee regularly considers
executive compensation issues so that its practices are as effective as possible
in furthering shareholder interests.
The Committee bases its review on the experience of its own
members, on information requested from management personnel, and on discussions
with and information compiled by various independent consultants retained by the
Company.
Respectfully submitted,
Compensation Committee:
Gerald Poch
Bradford Peters
Harry Thompson
John Reed
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of
three non-employee directors (Gerald Poch, Bradford Peters and Harry Thompson)
and John Reed, also a director and the Company's CEO. During the Company's
nine-month transition period ended December 2000, the Company engaged in note
purchase private financings with certain investors, including investors
affiliated with Messrs. Poch and Peters. See "Certain Relationships and Related
Transactions-Year 2000 Note Purchase Financings," below. In March 2001, the
Company also received certain working capital shortfall guarantees from existing
shareholders and directors of the Company, including entities affiliated with
Mr. Poch, and from Mr. Peters. See "Certain Relationships and Related
Transactions-Guarantees of working Capital Shortfall," below.
STOCK PERFORMANCE GRAPH
The following graph compares the yearly cumulative total
returns from the Company's common stock, the Total Return Index for the Nasdaq
Stock Market, and an industry graph for public companies engaged in the Medical
Appliances and Equipment line of business, as such industry information is
monitored by Media General Financial Services, Richmond Virginia.
[OBJECT OMITTED]
19
The graph assumes an investment on December 29, 1995 of $100
and reinvestment of all dividends, if any, into additional shares of the same
class of equity, if applicable to the stock or index.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Year 2000 Note Purchase Financings
On June 29 and August 3, 2000, the Company sold to eleven
investors (the "Investors") in a private placement its 5% Subordinated
Convertible Notes due June 29, 2005 (the "August 2000 Notes") in the aggregate
principal amount of $20,000.
Initially, the August 2000 Notes were convertible into shares
of the Company's Common Stock at a per share conversion price of $6.18, which
was 120% of the average of the closing bid price of the Common Stock during the
ten-day trading period immediately prior to June 27, 2000, the date the
transaction documents were signed. The Company also issued to the Investors, pro
rata, warrants (the "Warrants") to purchase a total of 1,618,121 shares of
Common Stock, which have a term of five years and initially had an exercise
price of $7.21 per share.
Pursuant to Registration Rights Agreements between the
Investors and the Company, the Company has registered with the Securities and
Exchange Commission, effective August 25, 2000, the shares of Common Stock
underlying the August 2000 Notes and Warrants for resale under the Securities
Act.
Seven of the Investors, who purchased an aggregate amount of
$15,700 of the August 2000 Notes, are affiliates of the Company. The affiliated
Investors include LCO Investments Limited ("LCO," the principal shareholder of
the Company and affiliated with director Anthony Pilaro), John Reed
(shareholder, CEO and director), Dr. Gasper Lazzara, Jr. (director), Andrew
McKelvey (shareholder and affiliated with director Bradford Peters), and Pequot
Private Equity Fund II, L.P., Pequot International Fund, Inc., and Pequot
Partners Fund, L.P. (shareholders and affiliated with director Gerald Poch).
Four of the Investors, who purchased a total of $4,300
principal amount of the August 2000 Notes, are unaffiliated with the Company.
These unaffiliated investors are CapEx, L.P., Pacific Mezzanine Fund, VenCap
Opportunities Fund, L.P., and Wendell Starke.
On December 5, 2000, the Company sold to LCO Investments Ltd
in a private placement a Convertible Promissory Note (the "December 2000 Note")
in the aggregate principal amount of $5,000. This December 2000 Note is
convertible into shares of Common Stock of the Company at a conversion price of
$5.00 per share and, as of the date of this Report, has not been converted. In
conjunction with the placement of the December 2000 Note, LCO was granted
warrants for 250,000 shares at $5.00 per share.
As a result of the issuance of the December 2000 Note, the
conversion price of the August 2000 Notes, and the exercise price of the
Warrants, was automatically adjusted to $5.00 per share.
In December 2000, LCO, the Company's principal shareholder,
and John Reed, the Company's Chief Executive Officer, converted their original
August 2000 Notes, together with accrued interest, into an aggregate of
1,122,323 shares of Common Stock. This conversion was effected at the $5.00
conversion price.
Subsequently, effective December 14, 2000, certain of the
original Investors other than LCO and Mr. Reed, agreed with the Company to
convert an aggregate of $13,642 in principal amount of their August 2000 Notes
into 3,568,560 Common Stock at an amended conversion price of $3.8625 per share.
20
Of the original principal amount of $20,000 of August 2000
Notes, as of the date of this Report, $800 in principal amount have not been
converted and remain outstanding. This amount is due to non-affiliated parties.
The current conversion price of such outstanding August 2000 Notes is $5.00 per
share.
Of the original Warrants issued in the August 2000 Note
offering, all 1,618,121 Warrants remain outstanding and unexercised, at an
exercise price of $5.00 per share.
The conversion price of the remaining August 2000 Notes, and
the exercise price of the Warrants, continues to be subject to additional
adjustments from time to time upon the occurrence of certain other events
described in the August 2000 Notes and Warrants, including future issuances of
Common Stock for consideration less than the conversion price then in effect,
stock splits or reverse stock splits, and the occurrence of certain major
corporate events such as mergers, sale of assets, tender offers or exchange
offers.
At any time after the third anniversary of the issuance date
of the August 2000 Notes, the Note holder has the right, but not the obligation,
to elect to cause the Company to redeem all or a portion of its August 2000
Notes.
EVL Lease Agreement
On December 29, 2000, as amended in February 2001, the Company
secured a lease line of credit of up to $15 million from Excimer Vision Leasing
L.P. ("EVL"). EVL is a limited partnership which leases laser vision correction
equipment to ophthalmologists. Anthony Pilaro, the Company's Chairman, serves as
Chairman of EVL. However, he does not directly or indirectly own any interest in
EVL or any of its partners. EVL is owned 78.21 percent by CAP America Trust, the
beneficiary of which is one of Anthony Pilaro's sons.
In addition to providing working capital to the Company, the
lease line of credit will enable the Company to place up to 1,755 new BriteSmile
teeth whitening devices in Associated Centers in the US, enhancing the Company's
ability to meet its strategic objective of establishing approximately 3,700
Associated Centers by year end 2001. Pursuant to the lease line agreement, EVL
purchased from the Company 1,245 BriteSmile 3000 teeth-whitening devices
currently used in various BriteSmile Associated Centers in the United States for
$5,000. The agreement also provides that EVL will subsequently spend up to an
additional $10,000 towards the purchase of 1,755 BriteSmile 3000 devices. If the
purchase price of the additional 1,755 devices exceeds $10,000 the Company will
pay the difference. EVL will lease all devices to the Company for a term of five
years. The Company will pay EVL a monthly rental for each device consisting of a
fixed amount (ranging from twenty dollars to thirty dollars) plus one hundred
twenty-five dollars for each key card which enables Associated Center Dentists
to perform 5 teeth whitening procedures.
EVL Loan Agreement
Effective March 1, 2001, the Company borrowed $2,500 from EVL
for general working capital. The loan matures on May 10, 2006, and is not
prepayable. Payments under the loan consist of "fixed payments" of interest,
"variable payments" of principal, and a "final payment" of principal. An initial
fixed payment of $10 is due on April 1, 2001, followed by monthly fixed payments
of $13 during the term of the loan. Variable payments are twenty-five dollars
for each BriteSmile teeth whitening procedure performed at the Company's 14
current whitening Centers. The final payment, due at maturity, will be the
amount by which the aggregate of variable payments paid during the term of the
loan is less than the original $2,500 principal amount of the loan.
21
Guarantees of Working Capital Shortfall
Management believes that the Company can continue its current
operating strategy with additional funding through current private placements of
its equity securities, new borrowings, and/or cash receipts in excess of current
projections (collectively, "Additional Cash") of approximately $5,000 in 2001.
In that connection, in March 2001 the Company received written commitments
("Commitment Letters") from certain existing shareholders and directors of the
Company (the "Guarantors") to severally purchase on or before December 31, 2001,
shares of Common Stock of the Company (or to otherwise make available funds to
the Company) in an aggregate amount representing the difference between the
Additional Cash realized in 2001, and $5,000. The Guarantors include LCO; P de P
Tech Limited, a subsidiary of LCO managed by Andrew Pilaro, the son of Company
Chairman Anthony Pilaro; John Reed, the Company's Chief Executive Officer; the
Pequot Investors, affiliated with director Gerald Poch; and Andrew McKelvey,
affiliated with director Bradford Peters. In consideration for the Guarantors'
commitment to purchase Common Stock in the amount of the shortfall, the Company
has agreed to issue to the Guarantors five-year warrants to purchase an
aggregate of 100,000 shares of Common Stock of the Company at an exercise price
of $5.00 per share. If the Guarantors are required to purchase shares or
otherwise fund pursuant to their Commitment Letters, the Company will issue the
Guarantors additional five-year warrants to purchase shares of Common Stock of
the Company at $5.00 per share. The number of additional warrants issued would
equal 50% of the aggregate purchase price paid by the Guarantors for the Common
Stock, divided by five (5).
LCO Properties Sublease
On December 1, 1999 the Company, as lessee, entered into an
Agreement of Sublease with LCO Properties, Inc., a Delaware corporation, as
lessor. LCO Properties, Inc. is affiliated with the Company's principal
shareholder, LCO Investments Limited. The Sublease covers approximately 4,821
square feet of space located in the building known as 16-18 West 57th Street in
the Borough of Manhattan, New York City. The sublease term is for ten years and
calls for initial lease payments of $401,500 per year, subject to increase in
the event of increases in the rent payable under the parent lease for the
property between LCOProperties, Inc. and its lessor.
Public Relations Services Agreement
On April 7, 1999, the Company entered into a Letter Agreement
with Chlopak, Leonard, Schechter and Associates ("CLS") Washington, D.C.
Pursuant to the agreement, CLS provides public relations advice and serves as
communications counselors to the Company for consideration of $22,500 per month,
plus expenses. The agreement was entered into for a minimum of six months, and
remains in force. Peter Schechter, a director of the Company, is one of three
managing partners of CLS.
Oral Health Clinical Services Agreement
On March 24, 1999, the Company entered into a Consulting
Agreement with Oral Health Clinical Services, LLC ("Oral Health"), Salim A.
Nathoo and R. Eric Montgomery. Mr. Montgomery is a director of the Company.
Pursuant to the agreement, Oral Health and Dr. Nathoo will devote their services
to obtaining American Dental Association ("ADA") Certification for the BS2000
procedure. The term of the contract is for two years or until ADA Certification,
whichever is earlier. In consideration for the services, the Company granted
75,000 stock options to Dr. Nathoo which are vested. The Company will grant up
to 225,000 additional stock options, of which the number and exercise price is
dependent upon obtaining ADA Certification, at the date the certification is
obtained. To date, certification has not been obtained.
22
Oraceutical Agreement
On May 17, 1998, the Company entered into a Consulting
Agreement with Oraceutical, LLC. R. Eric Montgomery, a director of the Company,
is the founding Manager and President of Oraceutical. Pursuant to the agreement,
Oraceutical provides technology development services to the Company for various
light-activated teeth whitening products and procedures. The Company and
Oraceutical are currently negotiating an extension of their agreement beyond its
original term. In consideration for its services, Oraceutical has been paid $35
a month, plus options to purchase 200,000 shares of Common Stock, subject to
vesting provisions, exercisable at $1.75 per share.
23
PROPOSAL 2 -- AMENDMENT TO STOCK OPTION PLAN
Effective May 2001, the Company's Board of Directors adopted
an amendment to the Company's Revised 1997 Stock Option and Incentive Plan (the
"Plan"). Pursuant to the amendment, the aggregate number of shares of Common
Stock of the Company available for issuance under the Plan was increased from
5,000,000 shares to 7,000,000 shares.
At the Annual Meeting, the Company's shareholders will be
asked to ratify and approve the amendment to the Plan, and the Board of
Directors is soliciting the enclosed proxy as to that decision. A brief
description of the material provisions of the Plan, as amended, and a table
summarizing the benefits to be conferred under the Plan, follows.
The Plan provides for the award of incentive stock options to
key employees, and the award of non-qualified stock options, stock appreciation
rights, cash and stock bonuses, and other incentive grants to key employees,
directors, officers, agents and consultants who have important relationships
with the Company or its subsidiaries. Presently there are over 120 employees who
are eligible to participate in the Plan. The Plan was initially adopted by the
Board of Directors effective as of January 31, 1997. It was amended by the Board
of Directors on May 12, 1998, which amendments were ratified and adopted by the
shareholders of the Company at the Company's Annual Meeting of Shareholders held
in August 1998. The Plan was further amended by the Board of Directors on
January 22, 1999 to increase the number of shares issuable under the Plan to
4,000,000, which amendment was ratified and adopted by the shareholders of the
Company at the Company's Annual Meeting of Shareholders held in August 1999. The
Board's decision to increase the number of shares available under the Plan from
4,000,000 to 5,000,000 was ratified and adopted by the shareholders of the
Company at the Company's Annual Meeting of Shareholders held in September 2000.
The only amendment to the Plan since the Plan was ratified and
approved by the shareholders at last year's meeting has been the increase by the
Board of Directors, in May 2001, of the number of shares issuable under the Plan
from 5,000,000 to 7,000,000. That most recent increase is now being submitted to
shareholders of the Company for their approval.
The principal provisions of the Plan are summarized below.
Administration
The Plan is administered by the Board of Directors of the
Company, or a Committee appointed by the Board consisting solely of two or more
non-employee directors. To date, the full Board has not appointed a separate
Plan Committee. As used herein, "Plan Committee" refers to the full Board of
Directors. The Plan Committee will determine and designate the individuals and
classes of individuals to whom awards under the Plan should be made and the
amount, terms and conditions of the awards. The Plan Committee may adopt and
amend rules relating to the administration of the Plan. Upon election of the
director nominees identified in Proposal 1 herein, the Plan Committee will be
comprised of all directors of the Company. The Plan is intended to comply with,
and will be administered in accordance with, Rule 16b-3 adopted under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereto.
Eligibility
Awards under the Plan may be made to directors, officers, or
key employees of the Company and its subsidiaries, and to nonemployee agents,
consultants, advisors, and other persons whom the Plan Committee believes have
24
made or will make an important contribution to the Company or any subsidiary
thereof, subject to Section 422 of the Code, which limits the grant of
"Incentive Stock Options" to executive officers and other senior managerial and
professional employees.
Shares Available
Subject to adjustment as provided in the Plan, and as amended
to date, a maximum of 7,000,000 shares of the Company's common stock is reserved
for issuance thereunder. If an option or stock appreciation right granted under
the Plan expires or is terminated or canceled, the unissued shares subject to
such option or stock appreciation right are again available under the Plan. In
addition, if shares sold or awarded as a bonus under the Plan are forfeited to
the Company or repurchased by the Company, the number of shares forfeited or
repurchased are again available under the Plan. In the absence of an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
all shares granted under the Plan will be restricted as to subsequent resales or
transfer, pursuant to Rule 144 under the Act.
Term
Unless earlier terminated by the Plan Committee, the Plan will
continue in effect until the earlier of: (i) January 31, 2007, and (ii) the date
on which all shares available for issuance under the Plan have been issued and
all restrictions on such shares have lapsed. The Plan Committee may suspend or
terminate the Plan at any time except with respect to options, and shares
subject to restrictions, then outstanding under the Plan.
Stock Option Grants
The Plan Committee may grant Incentive Stock Options ("ISOs")
and Non-Statutory Stock Options ("NSOs") under the Plan. With respect to each
option grant, the Plan Committee will determine the number of shares subject to
the option, the option price, the period of the option, the time or times at
which the option may be exercised (including whether the option will be subject
to any vesting requirements and whether there will be any conditions precedent
to exercise of the option), and the other terms and conditions of the option.
The Plan specifies, however, that 6 months must elapse from the date of grant of
the options to the date of disposition by the option holder of the shares of
common stock underlying the option. Options granted under the plan expire six
months after the termination of the option holder's employment for reasons other
than permanent disability, retirement, death, or termination for cause. To date,
options to purchase 4,509,600 shares of Common Stock have been granted and are
currently outstanding pursuant to the Plan.
ISOs are subject to special terms and conditions. The
aggregate fair market value, on the date of the grant, of the common stock for
which an ISO is exercisable for the first time by the optionee during any
calendar year may not exceed $100,000. An ISO may not be granted to an employee
who possesses more than 10% of the total voting power of the Company's stock
unless the option price is at least 110% of the fair market value of the common
stock subject to the option on the date it is granted, and the option is not
exercisable for 5 years after the date of grant. No ISO may be exercisable after
10 years from the date of grant. The option price may not be less than 100% of
the fair market value of the common stock covered by the option at the date of
grant.
In connection with the grant of NSOs or ISOs, the Plan
Committee may issue "Reload Options", which allow employees to receive options
to purchase that number of shares that shall equal (i) the number of shares of
common stock used to exercise underlying NSOs or ISOs, and (ii) the number of
shares of common stock used to satisfy any tax withholding requirement incident
to the exercise of the underlying NSOs or ISOs.
25
Unless provided otherwise by the Plan Committee in connection
with a particular option grant, no vested option may be exercised unless at the
time of such exercise the holder of such option is employed by or in the service
of the Company or any subsidiary thereof, within three (3) years following
termination of employment by reason of death, retirement, or disability, and
within six (6) months following termination for any other reason, except for
cause, in which case all unexercised options shall terminate forthwith. No
shares may be issued pursuant to the exercise of an option until full payment
therefor has been made. Upon the exercise of an option, the number of shares
reserved for issuance under the Plan will be reduced by the number of shares
issued upon exercise of the option.
Stock Appreciation Rights
Two types of Stock Appreciation Rights ("SARs") may be granted
under the Plan: "Alternate SARs" and "Limited Rights." Alternate SARs are
granted concurrently with or subsequent to stock options, and permit the option
holder to be paid, in common stock, the excess of the fair market value of each
share of common stock underlying the stock option at the date of exercise of the
Alternate SARs over the fair market value of each share of common stock
underlying the option at the grant date. The exercise of Alternate SARs shall be
in lieu of the exercise of the stock option underlying the SARs, and upon such
exercise a corresponding number of stock options shall be canceled. Alternate
SARs are exercisable upon the same terms and conditions as are applicable to the
options underlying them. Upon the exercise of an Alternate SAR, the number of
shares reserved for issuance under the Plan will be reduced by the number of
shares issued.
Limited Rights may be issued concurrently with or subsequent
to the award of any stock option or Alternate SAR under the Plan. Limited Rights
allow the holder thereof to be paid appreciation on the stock option or the
amount of appreciation receivable upon exercise of an Alternate SAR in cash and
in lieu of exercising such options or rights. Limited Rights are exercisable
only to the same extent and subject to the same conditions and within the same
time periods as the stock options or Alternate SARs underlying such Limited
Rights; provided, however, that Limited Rights may not be exercised under any
circumstances until the expiration of 6 months following the date of grant.
Limited Rights are exercisable in full for a period of seven months following a
change in control of the Company. Upon the exercise of Limited Rights, the stock
options or Alternate SARs underlying such Limited Rights shall terminate. Cash
payments upon the exercise of Limited Rights will not reduce the number of
shares of common stock reserved for issuance under the Plan. No SARs have been
granted under the Plan.
Stock Bonus Awards
The Plan Committee may award shares of common stock as a stock
bonus under the Plan. The Plan Committee may determine the recipients of the
awards, the number of shares to be awarded, and the time of the award. Stock
received as a stock bonus is subject to the terms, conditions, and restrictions
determined by the Plan Committee at the time the stock is awarded. No stock
bonus awards have been granted under the Plan.
Cash Bonus Rights
The Plan Committee may grant cash bonus rights under the Plan
either outright or in connection with (i) options granted or previously granted,
(ii) SARs granted or previously granted, (iii) stock bonuses awarded or
previously awarded, and (iv) shares issued under the Plan. Bonus rights granted
in connection with options entitle the optionee to a cash bonus if and when the
related option is exercised. The amount of the bonus is determined by
multiplying the excess of the total fair market value of the shares acquired
upon the exercise over the total option price for the shares by the applicable
26
bonus percentage. Bonus rights granted in connection with an SAR entitle the
holder to a cash bonus when the SAR is exercised, that is determined by
multiplying the amount received upon exercise of the SAR by the applicable bonus
percentage. Bonus rights granted in connection with stock bonuses entitle the
recipient to a cash bonus, in an amount determined by the Plan Committee, either
at the time the stock bonus is awarded or upon the lapse of any restrictions to
which the stock is subject. No bonus rights have been granted under the Plan.
Non-Assignability of Plan Awards
No award under the Plan shall be assignable or transferable by
the recipient thereof, except by will or the laws of descent or pursuant to a
qualified domestic relations order as defined in the Code.
Changes in Capital Structure
The Plan provides that if the outstanding common stock of the
Company is increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company or of another
corporation by reason of any recapitalization, stock split or certain other
transactions, appropriate adjustment will be made by the Plan Committee in the
number and kind of shares available for grants under the Plan. In addition, the
Plan Committee will make appropriate adjustments in the number and kind of
shares as to which outstanding options will be exercisable. In the event of a
merger, consolidation or other fundamental corporate transformation, the Board
may, in its sole discretion, permit outstanding options to remain in effect in
accordance with their terms; to be converted into options to purchase stock in
the surviving or acquiring corporation in the transaction; or to be exercised,
to the extent then exercisable, during a period prior to the consummation of the
transaction established by the Plan Committee or as may otherwise be provided in
the Plan.
Tax Consequences
The following description addresses the federal income tax
consequences of the Plan. Although the Company believes the following statements
are correct based on existing provisions of the Code and legislative history and
administrative and judicial interpretations thereof, no assurance can be given
that changes will not occur which would modify such statements. Also, such
statements are intended only to provide basic information. Each Plan participant
should consult his or her own tax advisor concerning the tax consequences of
participation in the Plan because individual financial and federal tax
situations may vary, and state and local tax considerations may be significant.
Certain options authorized to be granted under the Plan are
intended to qualify as ISOs for federal income tax purposes. Under federal
income tax law currently in effect, the optionee will recognize no income upon
grant or exercise of the ISO. If an employee exercises an ISO and does not
dispose of any of the option shares within two years following the date of grant
and within one year following the date of exercise, then any gain realized upon
subsequent disposition of the shares will be treated as income from the sale or
exchange of a capital asset held for more than one year. If an employee disposes
of shares acquired upon exercise of an ISO before the expiration of either the
one-year holding period or the two-year waiting period, any amount realized will
be taxable as ordinary compensation income in the year of such disqualifying
disposition to the extent that the lesser of the fair market value of the shares
on the exercise date or the fair market value on the date of disposition exceeds
the exercise price. The Company will not be allowed any deduction for federal
income tax purposes at either the time of the grant or the exercise of an ISO.
Upon any disqualifying disposition by an employee, the Company will generally be
entitled to a deduction to the extent the employee realized ordinary income.
27
Certain options authorized to be granted under the Plan will
be treated as NSOs for federal income tax purposes. Under federal income tax law
presently in effect, no income is realized by the grantee of an NSO until the
option is exercised. When the NSO is exercised, the optionee will realize
ordinary compensation income, and the Company will generally be entitled to a
deduction, in the amount by which the market value of the shares subject to the
option at the time of exercise exceeds the exercise price. Upon the sale of
shares acquired upon exercise of an NSO, the excess of the amount realized from
the sale over the market value of the shares on the date of exercise will be
taxable.
An employee who receives stock in connection with the
performance of services will generally realize income at the time of receipt
unless the shares are not substantially vested for purposes of Section 83 of the
Code and no election under Section 83(b) of the Code is filed within 30 days
after the original transfer. The Company generally will be entitled to a tax
deduction in the amount includable as income by the employee at the same time or
times as the employee recognizes income with respect to the shares. The Company
is required to withhold employment taxes on the amount of the income the
employee recognizes. A participant who receives a cash bonus right under the
Plan generally will recognize income equal to the amount of any cash bonus paid
at the time of receipt of the bonus, and the Company generally will be entitled
to a deduction equal to the income recognized by the participant.
Section 162(m) of the Code limits to $1 million per person the
amount the Company may deduct for compensation paid to any of its most highly
compensated officers in any year after 1993. Under proposed regulations,
compensation received through the exercise of an option or SAR will not be
subject to the $1 million limit if the option or SAR and the plan pursuant to
which it is granted meet certain requirements. The currently applicable
requirements are that the option or SAR be granted by a committee of at least
two disinterested directors and that the exercise price of the option or the SAR
be not less than fair market value of the Common Stock on the date of grant.
Accordingly, the Company believes compensation received on exercise of options
and SARs granted under the Plan in compliance with the above requirements will
not be subject to the $1 million deduction limit.
Amendments to Plan
The Plan Committee may at any time and from time to time
terminate or modify or amend the Plan in any respect, including in response to
changes in securities, tax or other laws or rules, regulations or regulatory
interpretations thereof applicable to the Plan or to comply with stock exchange
rules or requirements.
Subject to the Plan, the following options have been awarded
and are currently outstanding:
PLAN BENEFITS
Revised 1997 Stock Option
and Incentive Plan
NO. OF OPTIONS
TO PURCHASE
NAME AND POSITION DOLLAR VALUE ($) COMMON STOCK2
----------------- ---------------- -------------
John L. Reed $ 4,792,500 1,000,000(3)
CEO and director
Paul Dawson
CEO, BriteSmile International Ltd. $ 927,300 320,000(4)
Linda S. Oubre $ 1,636,875 255,000(5)
President, Chief Operating Officer
and director
Michael Whan $ 522,300 250,000(6)
President Worldwide Marketing
Peter P. Hausback $ 808,500 150,000(7)
Executive Vice President, Chief Financial
Officer and Secretary
Stephen Miller $ 1,436,875 255,000(8)
Executive Vice President, Real Estate
And Construction
Current Executive Officers $ 9,315,850 2,230,000
As a Group (7 persons)
Current Directors Who are Not $ 92,800 100,000
Executive Officers, as a Group
All Current or Former Employees $ 13,331,618 3,071,600
Who are Not Executive Officers, as a Group
(1) As of May 11, 2001, the market value of the shares of Common Stock
underlying the options was $8.89, as quoted on Nasdaq.
(2) Exercise prices of options granted pursuant to the Plan range from $1.00 per
share to $13.375 per share.
(3) 750,000 exercisable at $2.50 per share, 450,000 of which are vested, the
remainder of which vest 100,000 per year beginning January 22, 2002, and
250,000 exercisable at $9.25 per share, 50,000 of which are vested, the
remainder of which vest 50,000 per year beginning March 24, 2002.
(4) 300,000 exercisable at $6.00 per share, 180,000 of which are vested, the
remainder of which vest 40,000 per year beginning April 19, 2002, and
20,000 exercisable at $5.875 per share, all of which are vested.
(5) 200,000 exercisable at $1.75 per share, 110,000 of which are vested, the
remainder of which vest 30,000 per year beginning July 1, 2001, and 25,000
exercisable at $5.875 per share, all of which are vested, and 30,000
exercisable at $4.44 per share, 0 of which are vested, the remainder of
which vest on March 20, 2002.
(6) 200,000 exercisable at $7.391 per share, 120,000 of which are vested, the
remainder of which vest 20,000 per year beginning March 23, 2002, and
50,000 exercisable at $4.44 per share, 50,000 of which vest on March 20,
2002.
(7) Exercisable at $3.50 per share, 50,000 of which are vested, the remainder of
which vest 20,000 per year beginning January 4, 2002.
29
(8) 200,000 exercisable at $2.75 per share, 110,000 of which are vested, the
remainder of which vest 30,000 per year beginning March 2, 2002, and 25,000
exercisable at $5.875 per share, all of which are vested, and 30,000
exercisable at $4.44 per share, 0 of which are vested, the remainder of
which vest on March 20, 2002.
30
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL 2.
31
PROPOSAL 3 -- APPROVAL OF INDEPENDENT AUDITORS
The Board of Directors of the Company has selected Ernst &
Young LLP as the independent auditors for the Company for the fiscal year ending
December 29, 2001. Ernst & Young LLP served as the Company's independent
auditors for the nine-month transition period ended December 30, 2000.
At the Annual Meeting, shareholders will be asked to ratify
the selection by the Board of Directors of Ernst & Young LLP as the Company's
independent auditors.
Representatives of Ernst & Young LLP may attend the 2001
Annual Meeting. If they attend, they will have an opportunity to make a
statement if they desire to do so, and they will be available to answer
appropriate questions from shareholders.
THE BOARD RECOMMENDS SHAREHOLDER APPROVAL OF THE SELECTION OF AUDITORS.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors
of the Company does not intend to present, and has not been informed that any
other person intends to present, a matter for action at the 2001 Annual Meeting
other than as set forth herein and in the Notice of Annual Meeting. If any other
matter properly comes before the meeting, it is intended that the holders of
proxies will act in accordance with their best judgment.
The accompanying proxy is being solicited on behalf of the
Board of Directors of the Company. In addition to the solicitation of proxies by
mail, certain of the officers and employees of the Company, without extra
compensation, may solicit proxies personally or by telephone, and, if deemed
necessary, third party solicitation agents may be engaged by the Company to
solicit proxies by means of telephone, facsimile or telegram, although no such
third party has been engaged by the Company as of the date hereof. The Company
will also request brokerage houses, nominees, custodians and fiduciaries to
forward soliciting materials to the beneficial owners of common stock held of
record and will reimburse such persons for forwarding such material. The cost of
this solicitation of proxies will be borne by the Company.
ANNUAL REPORT
COPIES OF THE COMPANY'S REPORT ON FORM 10-K FOR THE NINE-MONTH
TRANSITION PERIOD ENDED DECEMBER 30, 2000 (INCLUDING FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES) FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO THE COMPANY - ATTENTION: PETER P.
HAUSBACK, SECRETARY, 490 North Wiget Lane, Walnut Creek, California 94598. A
request for a copy of the Company's Report on Form 10-K must set forth a
good-faith representation that the requesting party was either a holder of
record or a beneficial owner of Common Stock of the Company on May 10, 2001.
Exhibits to the Form 10-K, if any, will be mailed upon similar request and
payment of specified fees to cover the costs of copying and mailing such
materials.
A copy of the Company's 2001 Annual Report to Shareholders is
being mailed with this Proxy Statement, but is not deemed a part of the proxy
soliciting material.
32
SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be considered for
inclusion in the proxy statement for presentation in connection with the 2002
Annual Meeting of Shareholders must be received by the Company by December 15,
2001. The proposal must be in accordance with the provisions of Rule 14a-8
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934. The Company suggests that any such request be submitted by
certified mail, return receipt requested. The Board of Directors will review any
proposal which is timely received, and determine whether it is a proper proposal
to present to the 2002 Annual Meeting.
MATERIAL INCORPORATED BY REFERENCE
The following financial and other information is incorporated
by reference to the following sections of the Annual Report on Form 10-K of the
Company for the transition period ended December 30, 2000, as filed with the
Securities and Exchange Commission: Item 8, the Company's Consolidated Financial
Statements and associated notes; and Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations.
The enclosed Proxy is furnished for you to specify your
choices with respect to the matters referred to in the accompanying notice and
described in this Proxy Statement. If you wish to vote in accordance with the
Board's recommendations, merely sign, date and return the Proxy in the enclosed
envelope which requires no postage if mailed in the United States. A prompt
return of your Proxy will be appreciated.
By Order of the Board of Directors
Peter P. Hausback, Executive Vice President,
CFO, and Secretary
Walnut Creek, California
May 21, 2001
APPENDIX A
AUDIT COMMITTEE CHARTER
of
BRITESMILE, INC.
Organization
There shall be a committee of the board of directors to be known as the audit
committee. The audit committee shall be composed of directors who are
independent of the management of the corporation and are free of any
relationship that, in the opinion of the board of directors, would interfere
with their exercise of independent judgment as a committee member.
Statement of Policy
The audit committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting, reporting practices of
the corporation, and the quality and integrity of the financial reports of the
corporation. In so doing, it is the responsibility of the audit committee to
maintain free and open means of communication between the directors, the
independent auditors, and the financial management of the corporation.
Responsibilities
In carrying out its responsibilities, the audit committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices of the corporation are in accordance with all
requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
o Review and recommend to the directors the independent auditors
to be selected to audit the financial statements of the
corporation and its divisions and subsidiaries.
o Meet with the independent auditors and financial management of
the corporation to review the scope of the proposed audit for
the current year and the audit procedures to be utilized, and
at the conclusion thereof review such audit, including any
comments or recommendations of the independent auditors.
o Review with the independent auditors and the company's
financial and accounting personnel, the adequacy and
effectiveness of the accounting and financial controls of
the corporation, and elicit any recommendations for the
improvement of such internal control procedures or
particular areas where new or more detailed controls or
procedures are desirable. Particular emphasis should be
given to the adequacy of such internal controls to expose
any payments, transactions or procedures that might be
deemed illegal or otherwise improper. Further, the committee
periodically should review company policy statements to
determine their adherence to the code of conduct.
o Review the internal audit function of the corporation
including the independence and
1
authority of its reporting obligations, the proposed audit
plans for the coming year, and the coordination of such plans
with the independent auditors.
o Receive prior to each meeting, a summary of findings from
completed internal audits and a progress report on the
proposed internal audit plan, with explanations for any
deviations from the original plan.
o Review the financial statements contained in the annual and
quarterly reports to shareholders with management and the
independent auditors to determine that the independent
auditors are satisfied with the disclosure and content of the
financial statements to be presented to the shareholder and
filed with the Securities and Exchange Commissions. Any
changes in accounting principles should be reviewed.
o Provide sufficient opportunity for the independent auditors to
meet with the members of the audit committee without members
of management present. Among the items to be discussed in
these meetings are the independent auditors' evaluation of the
corporations' financial and accounting personnel, and the
cooperation that the independent auditors received during the
course of the audit.
o Review accounting and financial human resources and succession
planning within the corporation.
o Submit the minutes of all meetings of the audit committee to,
or discuss the matters discussed at each committee meeting
with, the board of directors.
o Investigate any matter brought to its attention within the
scope of its duties, with the power to retain outside counsel
for this purpose if, in its judgment, that is appropriate.
2