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Filed by Orthodontic Centers of
America, Inc. pursuant to Rule 425
under the Securities Act of 1933
and deemed filed pursuant to Rule
14a-12 under the Securities
Exchange Act of 1934.
Subject Company: Orthodontic
Centers of America, Inc.
Commission File No.: 1-13457
THE FOLLOWING ARE MATERIALS USED IN A PRESENTATION TO PRACTITIONERS
AFFILIATED WITH ORTHALLIANCE.
ORTHODONTIC CENTERS OF AMERICA, INC.
INCENTIVE PROGRAMS FOR ORTHALLIANCE ALLIED PRACTITIONERS
Orthodontic Centers of America, Inc. ("OCA") is a party with
OrthAlliance, Inc. ("OrthAlliance") to an Agreement and Plan of Merger, dated
May 16, 2001 (the "Merger Agreement"), which provides for the merger of one of
OCA's wholly-owned subsidiaries with and into OrthAlliance, with OrthAlliance
becoming a wholly-owned subsidiary of OCA (the "Merger"). Completion of this
proposed Merger is subject to a number of conditions, including approval of the
Merger Agreement by OrthAlliance stockholders. Additional information about this
proposed Merger may be obtained from a Registration Statement on Form S-4, and a
related prospectus/proxy statement, that OCA will file with the Securities and
Exchange Commission in connection with the proposed Merger.
In connection with the proposed Merger, OCA has implemented four
programs under which it may offer shares of its common stock to orthodontists
and pediatric dentists who are owners and employees ("OrthAlliance Affiliated
Practitioners") of professional entities that are parties to service, management
services, consulting or similar long-term agreements ("OrthAlliance Service or
Consulting Agreements") with OrthAlliance and its subsidiaries. Two of these
programs provide incentives to OrthAlliance Affiliated Practitioners who, along
with their respective professional entities, either (a) amend their respective
employment agreement and OrthAlliance Service or Consulting Agreement as
contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement, or (b) enter
into OCA's customary form of business services agreement with OCA or its
subsidiaries ("OCA Business Services Agreement"), in replacement of their
existing OrthAlliance Service or Consulting Agreement, effective as of the
proposed Merger with OrthAlliance. The other two programs provide incentives
only to those OrthAlliance Affiliated Practitioners who, along with their
respective professional entities, enter into an OCA Business Services Agreement
effective as of the proposed Merger. Each of these programs would be conditioned
upon, and subject to, completion of the proposed Merger and compliance with
federal and state securities laws.
The amendments to employment agreements and OrthAlliance Service or
Consulting Agreement contemplated by Sections 2.4 and 7.2(e) of the Merger
Agreement would generally involve the following:
o AMENDMENT TO EMPLOYMENT AGREEMENT. In the amendment to their
respective employment agreement, the OrthAlliance Affiliated Practitioner and
his or her professional entity would agree to include OrthAlliance as a third
party beneficiary and continue the OrthAlliance Affiliated Practitioner's
employment as an orthodontist or pediatric dentist, as applicable, for a period
of at least three years following the proposed Merger.
o AMENDMENT TO SERVICE OR CONSULTING AGREEMENT In the amendment to
their respective OrthAlliance Service or Consulting Agreement, the OrthAlliance
Affiliated Practitioner and his or her professional entity would agree to use
OCA's proprietary computer software and business systems in connection with the
business functions of their practice, maintain the current status of the
advertisement or non-advertisement, as the case may be, of their practice to the
general public, unless OCA otherwise agrees, and continue the OrthAlliance
Affiliated Practitioner's employment as an orthodontist or pediatric dentist, as
applicable, for a period of at least three years following the proposed Merger.
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PLEASE NOTE THAT THIS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
FOR SALE, NOR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. OCA
ANTICIPATES THAT IT WILL FILE A REGISTRATION STATEMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION RELATING TO THE SHARES OF OCA COMMON STOCK THAT WOULD BE
ISSUED UNDER THESE PROGRAMS. THAT REGISTRATION STATEMENT HAS NOT YET BEEN FILED
OR BECOME EFFECTIVE. THOSE SHARES OF OCA COMMON STOCK MAY NOT BE SOLD, AND ANY
OFFERS TO BUY THE SHARES MAY NOT BE ACCEPTED, UNTIL THE REGISTRATION STATEMENT
BECOMES EFFECTIVE, AND ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT
OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TO NOTICE OF ACCEPTANCE
GIVEN AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. ANY INDICATION OF
INTEREST IN RESPONSE TO THIS COMMUNICATION WILL INVOLVE NO OBLIGATION OR
COMMITMENT. NO SECURITIES WILL BE SOLD OR GRANTED IN ANY JURISDICTION IN WHICH
THE OFFER, SOLICITATION OR SALE OF SUCH SECURITIES WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.
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INCENTIVES FOR AMENDING EXISTING EMPLOYMENT AGREEMENT AND ORTHALLIANCE
AGREEMENT, OR ENTERING INTO NEW OCA AGREEMENT
OCA may offer shares of its common stock to OrthAlliance Affiliated
Practitioners as an incentive for these individuals and their professional
entities to, prior to the Merger, either (a) amend their existing employment
agreement and OrthAlliance Service or Consulting Agreement, as contemplated by
Sections 2.4 and 7.2(e) of the Merger Agreement, or (b) enter into an OCA
Business Services Agreement in replacement of their existing OrthAlliance
Service or Consulting Agreement, effective as of the proposed Merger with
OrthAlliance. These shares may be issued to eligible OrthAlliance Affiliated
Practitioners generally on the following terms under OCA's:
o Stock Pool Program; and
o Target Stock Program.
1. STOCK POOL PROGRAM
Under OCA's Stock Pool Program, OCA may grant shares of its common
stock to eligible OrthAlliance Affiliated Practitioners who, along with their
professional entity, no later than July 27, 2001, either (1) amend their
existing employment agreement and OrthAlliance Service or Consulting Agreement,
as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement, or (2) enter
into an OCA Business Services Agreement effective as of the Merger, as follows:
ANNUAL SERVICE FEE/TENURE BASED AMOUNT. Shares in an amount equal to
the greater of 500 or:
(a) ANNUAL SERVICE FEE BASED AMOUNT. 30 shares for each $10,000 of
service, consulting or management fees (excluding any center
or other expense reimbursement) paid by the OrthAlliance
Affiliated Practitioner or his or her professional entity to
OrthAlliance or its subsidiaries during the period from April
1, 2000 through March 31, 2001 (with certain adjustments and
annualization as described in Section 2.4 of the Merger
Agreement), rounded to the nearest whole number,
PLUS
(b) TENURE BASED AMOUNT. 10 shares for each whole calendar month
elapsed during the term of their OrthAlliance Service or
Consulting Agreement as of March 31, 2001.
TIMING BASED AMOUNT. An additional number of shares for the first 180
OrthAlliance Affiliated Practitioners who either (1) amend their
existing employment agreement and OrthAlliance Service or Consulting
Agreement, as contemplated by Sections 2.4 and 7.2(e) of the Merger
Agreement, or (2) enter into an OCA Business Services Agreement
effective as of the Merger, within specified time limits as described
below. For those OrthAlliance Affiliated Practitioners who do so:
o By June 15, 2001:
(i) 900 shares,
PLUS
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(ii) 200 shares for each additional 20 of those
OrthAlliance Affiliated Practitioners who do so from
June 16 - July 27, 2001.
o June 16 - 22, 2001:
(i) 800 shares,
PLUS
(ii) 200 shares for each additional 20 of those
OrthAlliance Affiliated Practitioners who do so from
June 23 - July 27, 2001.
o June 23 - 29, 2001:
(i) 700 shares,
PLUS
(ii) 200 shares for each additional 20 of those
OrthAlliance Affiliated Practitioners who do so from
June 30 - July 27, 2001.
o June 30 - July 6, 2001:
(i) 600 shares,
PLUS
(ii) 200 shares for each additional 20 of those
OrthAlliance Affiliated Practitioners who do so from
July 7 - 27, 2001.
o July 7 - 13, 2001:
(i) 500 shares,
PLUS
(ii) 200 shares for each additional 20 of those
OrthAlliance Affiliated Practitioners who do so from
July 14 - 27, 2001.
o July 14 - 20, 2001:
(i) 400 shares,
PLUS
(ii) 200 shares for each additional 20 of those
OrthAlliance Affiliated Practitioners who do so from
July 21 - 27, 2001.
o July 21 - 27, 2001:
(i) 300 shares.
CLINICAL ADVISORY COMMITTEE MEMBERS. In addition, each of the 12
OrthAlliance Affiliated Practitioners who are selected by OCA and OrthAlliance,
and agree, to serve on OCA's Clinical Advisory Committee upon the Merger may be
granted 2,500 shares of OCA common stock if, by June 8, 2001, that individual
and his or her professional entity (1) amend their existing employment agreement
and OrthAlliance Service or Consulting Agreement, as contemplated by Sections
2.4 and 7.2(e) of the Merger Agreement, or (2) enter into an OCA Business
Services Agreement effective as of the Merger.
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DATES OF GRANTS; CONDITION TO VESTING. Shares granted under this
program would be issuable in three annual installments, with one-third of the
shares to be issued following each of the first, second and third anniversaries
of the Merger if, during the 12 calendar months immediately preceding that
anniversary, the amount of service or consulting fees paid by the OrthAlliance
Affiliated Practitioner and his or her professional entity to OCA or its
subsidiary is at least 90% of the amount of service or consulting fees they paid
to OrthAlliance or its subsidiary during the 12 calendar months immediately
preceding the Merger.
PRACTICES WITH MULTI-OWNERS. If an OrthAlliance Affiliated
Practitioner's professional entity is partially owned by one or more other
OrthAlliance Affiliated Practitioners, the number of shares to be granted based
on the amount of service or consulting fees paid would be computed on a pro rata
basis. In addition, the co-owner OrthAlliance Affiliated Practitioners would
have to execute and deliver the applicable amendments to their employment
agreement and OrthAlliance Service or Consulting Agreement, or new OCA Business
Services Agreement, as applicable, by July 27, 2001.
ELIGIBILITY TO PARTICIPATE. To be eligible to participate in this
program, an OrthAlliance Affiliated Practitioner, along with his or her
professional entity, would have to, by the specified dates, either (1) amend
their existing employment agreement and OrthAlliance Service or Consulting
Agreement, as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement,
or (2) enter into an OCA Business Services Agreement in replacement of their
existing OrthAlliance Service or Consulting Agreement (effective as of the
Merger). Participation would also require the execution of a written
participation agreement between OCA and the OrthAlliance Affiliated Practitioner
that sets forth, or incorporates by reference, the terms of the program.
Participation in and the grant of any shares under this program would also be
conditioned upon, and subject to, completion of the Merger.
In addition, to be eligible to participate in this program, an
OrthAlliance Affiliated Practitioner, along with his or her professional entity,
may not be a party to any pending or threatened litigation against OrthAlliance,
OCA or their subsidiaries, nor have given notice of termination or intention to
terminate their respective OrthAlliance Service or Consulting Agreement, and
must be in compliance with their obligation to pay service or consulting fees
under their OrthAlliance Service or Consulting Agreement. If such litigation or
notice has been commenced, threatened or given, it would need to have been
dismissed with prejudice or fully withdrawn in a manner acceptable to OCA.
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2. TARGET STOCK PROGRAM
Under OCA's Target Stock Program, OCA may grant eligible OrthAlliance
Affiliated Practitioners shares of OCA common stock (except as described below)
as follows:
NEW OCA AGREEMENT. For OrthAlliance Affiliated Practitioners who, along
with their respective professional entities, enter into an OCA Business Services
Agreement prior to the Merger (which would become effective upon the Merger),
OCA may issue them a number of shares of its common stock equal to:
(a) 3,
TIMES
(b) 70% OF ASSUMED SERVICE FEES IN PRIOR 12 MONTHS. 70% of the
amount of service or consulting fees (excluding any center or
other expense reimbursement) that would have been payable to
OCA or its subsidiary by the OrthAlliance Affiliated
Practitioner or his or her professional entity under the OCA
Business Services Agreement during the 12 calendar months
immediately preceding the Merger (assuming that the OCA
Business Services Agreement had been in effect during that
period and also assuming that the operating margin of the
practice during that period was 5% higher than the actual
operating margin for that period),
DIVIDED BY
(c) AVERAGE CLOSING PRICE AT THIRD ANNIVERSARY. The average
closing price of OCA common stock during the 10 trading days
immediately preceding the third anniversary of the Merger,
IF, during the 12 calendar months immediately preceding the third
anniversary of the Merger:
70% INCREASE IN SERVICE FEES IN YEAR 3. The amount of (A)
service or consulting fees (excluding any center or other
expense reimbursement) paid to OCA or its subsidiary by the
OrthAlliance Affiliated Practitioner or his or her
professional entity under the OCA Business Services Agreement,
is at least 70% greater than (B) service or consulting fees
(excluding any center or other expense reimbursement) that
would have been payable to OCA or its subsidiary by the
OrthAlliance Affiliated Practitioner or his or her
professional entity under the OCA Business Services Agreement
during the 12 calendar months immediately preceding the Merger
(assuming that the OCA Business Services Agreement had been in
effect during that period and also assuming that the operating
margin of the practice during that period was 5% higher than
the actual operating margin for that period).
PRO RATA AMOUNT. However, if this 70% target increase in service or
consulting fees is not achieved during the 12 calendar months
immediately preceding the third anniversary of the Merger, but the
amount of service or consulting fees paid during that period is at
least equal to the amount that would have been paid under the OCA
Business Services Agreement during the 12 calendar months immediately
preceding
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the Merger (based on the assumptions described above), then OCA may
grant the OrthAlliance Affiliated Practitioner a pro rata amount of the
shares of OCA common stock that OCA may have granted if the target
amount had been achieved. For example, if the amount of service or
consulting fees increased 35% (i.e., one-half of the targeted increase)
during that period, then the OrthAlliance Affiliated Practitioner may
be granted one-half of the number of shares issuable if the target had
been achieved.
AMENDMENTS. For OrthAlliance Affiliated Practitioners who, along with
their respective professional entities, amend their respective employment
agreement and OrthAlliance Service or Consulting Agreement prior to the Merger
as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement, OCA may
issue them a number of shares of OCA common stock equal to:
(a) 3,
TIMES
(b) 70% OF SERVICE FEES IN PRIOR 12 MONTHS. 70% of the amount of
service, consulting or management fees (excluding any center
or other expense reimbursement) paid by the OrthAlliance
Affiliated Practitioner or his or her professional entity to
OrthAlliance or its subsidiaries during the 12 calendar months
prior to the Merger,
DIVIDED BY
(c) AVERAGE CLOSING PRICE AT THIRD ANNIVERSARY. The average
closing price of OCA common stock during the 10 trading days
immediately preceding the third anniversary of the Merger,
IF, during the 12 calendar months immediately preceding the third
anniversary of the Merger:
70% INCREASE IN SERVICE FEES IN YEAR 3. The amount of (A)
service or consulting fees (excluding any center or other
expense reimbursement) paid to OCA or its subsidiary by the
OrthAlliance Affiliated Practitioner or his or her
professional entity under their OrthAlliance Service or
Consulting Agreement is at least 70% greater than (B) service
or consulting fees (excluding any center or other expense
reimbursement) paid to OrthAlliance or its subsidiary by the
OrthAlliance Affiliated Practitioner or his or her
professional entity under their OrthAlliance Service or
Consulting Agreement during the 12 calendar months immediately
preceding the Merger.
PRO RATA AMOUNT. However, if this 70% target amount of increased
service or consulting fees is not achieved during the 12 calendar
months immediately preceding the third anniversary of the Merger, but
the amount of service or consulting fees paid during that period is at
least equal to the amount paid during the 12 calendar months
immediately preceding the Merger, then OCA may grant the OrthAlliance
Affiliated Practitioner a pro rata amount of the shares of OCA common
stock that OCA may have granted if the target amount had been achieved.
For example, if the amount of service or consulting fees increased 35%
(i.e., one-half of the targeted increase) during that period, then the
OrthAlliance Affiliated Practitioner may be granted one-half of the
number of shares issuable if the target had been achieved.
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OCA MAY CHOOSE TO SUBSTITUTE INTEREST BEARING NOTE. OCA could elect, in
its sole discretion, to issue the OrthAlliance Affiliated Practitioner a
promissory note in an amount equal to that computed as described above, which
would be payable over 7 years and bear interest at the prime rate plus 1.5% per
year, in lieu of shares of OCA common stock.
DATES OF GRANTS; CONDITION TO VESTING. Shares granted under this
program would be issuable in four annual installments, with one-fourth of the
shares to be issued following each of the fifth, sixth, seventh and eighth
anniversaries of the Merger if, during the 12 calendar months prior to that
anniversary, the amount of service or consulting fees paid by the OrthAlliance
Affiliated Practitioner and his or her professional entity to OCA or its
subsidiary is at least 90% of the amount of service or consulting fees they paid
to OrthAlliance or its subsidiary during the 12 calendar months prior to the
Merger.
PRACTICES WITH MULTI-OWNERS. If an OrthAlliance Affiliated
Practitioner's professional entity is partially owned by one or more other
OrthAlliance Affiliated Practitioners, these amounts would be computed on a pro
rata basis. In addition, the co-owner OrthAlliance Affiliated Practitioners
would have to execute and deliver the applicable amendments to their employment
agreement and OrthAlliance Service or Consulting Agreement, or new OCA Business
Services Agreement, as applicable, prior to the Merger.
ELIGIBILITY TO PARTICIPATE. To be eligible to participate in this
program, an OrthAlliance Affiliated Practitioner, along with his or her
professional entity, prior to the Merger would have to either (1) amend their
existing employment agreement and OrthAlliance Service or Consulting Agreement,
as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement, or (2) enter
into an OCA Business Services Agreement in replacement of their existing
OrthAlliance Service or Consulting Agreement (effective as of the Merger).
Participation would also require the execution of a written participation
agreement between OCA and the OrthAlliance Affiliated Practitioner that sets
forth, or incorporates by reference, the terms of the program. Participation in
and the grant of any shares under this program would also be conditioned upon,
and subject to, completion of the Merger.
In addition, to be eligible to participate in this program, an
OrthAlliance Affiliated Practitioner, along with his or her professional entity,
may not be a party to any pending or threatened litigation against OrthAlliance,
OCA or their subsidiaries, nor have given notice of termination or intention to
terminate their respective OrthAlliance Service or Consulting Agreement, and
must be in compliance with their obligation to pay service or consulting fees
under their OrthAlliance Service or Consulting Agreement. If such litigation or
notice has been commenced, threatened or given, it would need to have been
dismissed with prejudice or fully withdrawn in a manner acceptable to OCA.
DUE DILIGENCE TO DETERMINE OPERATING MARGIN. To permit OCA to determine
the appropriate operating margin for computing the number of shares to be
granted under this program with respect to a new OCA Business Services
Agreement, the OrthAlliance Affiliated Practitioner would provide OCA with
financial information OCA reasonably requests about his or her practice.
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3. ORTHALLIANCE STOCKHOLDER BONUS PROGRAM
Several OrthAlliance Affiliated Practitioners have indicated that they
received as consideration a large number of shares of OrthAlliance common stock
in connection with originally entering into their OrthAlliance Service or
Consulting Agreement or selling assets or capital stock to OrthAlliance, which
have declined in value since the date of issuance. OCA has received from
OrthAlliance a listing of those OrthAlliance Affiliated Practitioners who did
receive shares of OrthAlliance common stock shares as 50% or more of the
consideration paid in connection with originally entering into their
OrthAlliance Service or Consulting Agreement or selling assets or capital stock
to OrthAlliance ("OrthAlliance Stock Recipients").
Under OCA's OrthAlliance Stockholder Bonus Program, OCA may grant
shares of OCA common stock to certain eligible OrthAlliance Stock Recipients
who, along with their professional entity, by July 27, 2001, either (1) amend
their existing employment agreement and OrthAlliance Service or Consulting
Agreement, as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement,
or (2) enter into an OCA Business Services Agreement effective as of the Merger,
as follows:
MINIMUM NUMBER OF ORTHALLIANCE AFFILIATED PRACTITIONERS SIGNING
AMENDMENTS OR NEW OCA AGREEMENT
No shares will be issued to anyone under this program unless, by July
27, 2001, the following minimum amount of OrthAlliance Affiliated Practitioners,
along with their professional entity, either amend their existing employment
agreement and OrthAlliance Service or Consulting Agreement, as contemplated by
Sections 2.4 and 7.2(e) of the Merger Agreement, or enter into an OCA Business
Services Agreement effective as of the Merger:
Minimum Number of OrthAlliance Affiliated Practitioners:
(1) At least 120 OrthAlliance Affiliated Practitioners,
AND
(2) OrthAlliance Affiliated Practitioners representing at
least 65.0% of OrthAlliance's service fees during the
12 months ended March 31, 2001.
TOTAL NUMBER OF SHARES AVAILABLE FOR GRANT UNDER PROGRAM
The total number of shares of OCA common stock available for grant
under this program varies depending on (1) the number of OrthAlliance Affiliated
Practitioners who, along with their professional entity, either amend their
existing employment agreement and OrthAlliance Service or Consulting Agreement,
as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement, or enter
into an OCA Business Services Agreement effective as of the Merger, and (2) the
percentage of OrthAlliance's service fees during the 12 months ended March 31,
2001 represented by those OrthAlliance Affiliated Practitioners, as described in
the following chart:
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ORTHALLIANCE AFFILIATED PRACTITIONERS EXECUTING
AMENDMENTS OR NEW OCA AGREEMENT
-------------------------------------------------------------------
TOTAL NUMBER OF SHARES PERCENTAGE OF ORTHALLIANCE ANNUAL
AVAILABLE UNDER PROGRAM NUMBER SERVICE FEES REPRESENTED
----------------------- ------------- ---------------------------------
400,000............... 138 or more and 75.00% or more
300,000............... 129 to 137 and 70.00% - 74.99%
200,000............... 120 to 128 and 65.00% - 69.99%
0............... Less than 120 or Less than 65.00%
ALLOCATION OF AVAILABLE SHARES AMONG PARTICIPATING ORTHALLIANCE STOCK
RECIPIENTS
An eligible OrthAlliance Stock Recipient participating in this program
would receive a number of shares of OCA common stock that varies depending on:
(1) (A) the number of OrthAlliance Affiliated Practitioners who,
along with their professional entity, either amend their
existing employment agreement and OrthAlliance Service or
Consulting Agreement, as contemplated by Sections 2.4 and
7.2(e) of the Merger Agreement, or enter into an OCA Business
Services Agreement effective as of the Merger, and (B) the
percentage of OrthAlliance's service fees during the 12 months
ended March 31, 2001 represented by those OrthAlliance
Affiliated Practitioners, as described in the following chart:
ORTHALLIANCE AFFILIATED PRACTITIONERS EXECUTING
AMENDMENTS OR NEW OCA AGREEMENT
--------------------------------------------------------------------
BASE NUMBER OF SHARES PER PERCENTAGE OF ORTHALLIANCE ANNUAL
PARTICIPANT IN PROGRAM NUMBER SERVICE FEES REPRESENTED
------------------------- ------------- ---------------------------------
2,000................. 138 or more and 75.00% or more
1,500................. 129 to 137 and 70.00% - 74.99%
1,000................. 120 to 128 and 65.00% - 69.99%
0.............. Less than 120 or Less than 65.00%
PLUS
(2) A pro rata amount of any remaining shares available for grant
under the program based on the Potential Loss of Stock
Consideration (as defined below) in comparison to the total
Potential Loss of Stock Consideration for all of the
participants in the program.
"Potential Loss of Stock Consideration" means the result of
the following:
(i) The number of shares originally issued to
the participant in connection with his or
her original affiliation with OrthAlliance
or its subsidiary, times an assumed stock
price per share of $5.30, plus the dollar
amount of cash and promissory notes received
from OrthAlliance or its subsidiary by the
participant in that transaction,
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MINUS
(ii) A multiple (based on the amount of
OrthAlliance Affiliated Practitioners
entering into the amendments or new OCA
Business Services Agreements, as described
in the following table) of the amount of
service fees paid by the participant to
OrthAlliance or its subsidiary during the 12
months ended March 31, 2001, excluding any
fees paid with respect to any practice
acquired under OrthAlliance's "buy a
practice" program or otherwise without
payment of significant consideration.
ORTHALLIANCE AFFILIATED PRACTITIONERS EXECUTING
AMENDMENTS OR NEW OCA AGREEMENT
MULTIPLE FOR POTENTIAL
LOSS IN STOCK PERCENTAGE OF ORTHALLIANCE ANNUAL
CONSIDERATION NUMBER SERVICE FEES REPRESENTED
4.50 x .............. 138 or more and 75.00% or more
3.35 x .............. 129 to 137 and 70.00% - 74.99%
2.75 x .............. 120 to 128 and 65.00% - 69.99%
0 x .............. Less than 120 or Less than 65.00%
AT LEAST 50% OF ORIGINAL CONSIDERATION FROM ORTHALLIANCE IN STOCK. To
be eligible to participate in this program, at least 50% of the OrthAlliance
Stock Recipient's consideration from OrthAlliance or its subsidiary when
originally affiliating with OrthAlliance or its subsidiary must have been in the
form of shares of OrthAlliance common stock, based on an assumed price per share
of $5.30.
DATES OF GRANTS; CONDITION TO VESTING. Shares granted under this
program would be issuable in four annual installments, with one-fourth of the
shares to be issued following each of the second, third, fourth and fifth
anniversaries of the Merger if, during the 12 calendar months prior to that
anniversary, the amount of service or consulting fees paid by the OrthAlliance
Affiliated Practitioner and his or her professional entity to OCA or its
subsidiary is at least 90% of the amount of service or consulting fees they paid
to OrthAlliance or its subsidiary during the 12 calendar months prior to the
Merger.
ELIGIBILITY TO PARTICIPATE. To be eligible to participate in this
program, an OrthAlliance Affiliated Practitioner, along with his or her
professional entity, would have to by July 27, 2001 either (1) amend their
existing employment agreement and OrthAlliance Service or Consulting Agreement,
as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement, or (2) enter
into an OCA Business Services Agreement in replacement of their existing
OrthAlliance Service or Consulting Agreement (effective as of the Merger).
Participation would also require the execution of a written participation
agreement between OCA and the OrthAlliance Affiliated Practitioner that sets
forth, or incorporates by reference, the terms of the program. Participation
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in and the grant of any shares under this program would also be conditioned
upon, and subject to, completion of the Merger.
In addition, to be eligible to participate in this program, an
OrthAlliance Affiliated Practitioner, along with his or her professional entity,
may not be a party to any pending or threatened litigation against OrthAlliance,
OCA or their subsidiaries, nor have given notice of termination or intention to
terminate their respective OrthAlliance Service or Consulting Agreement, and
must be in compliance with their obligation to pay service or consulting fees
under their OrthAlliance Service or Consulting Agreement. If such litigation or
notice has been commenced, threatened or given, it would need to have been
dismissed with prejudice or fully withdrawn in a manner acceptable to OCA.
In addition, to be eligible to participate in this program, an
OrthAlliance Affiliated Practitioner, along with his or her professional entity,
may not be a party to any practice improvement performance guarantee agreement
with OrthAlliance or its subsidiary.
PRACTICES WITH MULTI-OWNERS. If an OrthAlliance Affiliated
Practitioner's professional entity is partially owned by one or more other
OrthAlliance Affiliated Practitioners, these amounts would be computed on a pro
rata basis. In addition, the co-owner OrthAlliance Affiliated Practitioners
would have to execute and deliver the applicable amendments to their employment
agreement and OrthAlliance Service or Consulting Agreement, or new OCA Business
Services Agreement, as applicable, prior to the Merger.
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4. HIGH PARTICIPATION BONUS PROGRAM
Under OCA's High Participation Bonus Program, OCA may grant shares of
OCA common stock to certain eligible OrthAlliance Affiliated Practitioners who,
along with their professional entity, by July 27, 2001, either (1) amend their
existing employment agreement and OrthAlliance Service or Consulting Agreement,
as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement, or (2) enter
into an OCA Business Services Agreement effective as of the Merger, as follows:
MINIMUM NUMBER OF ORTHALLIANCE AFFILIATED PRACTITIONERS SIGNING
AMENDMENTS OR NEW OCA AGREEMENT
No shares will be issued to anyone under this program unless, by July
27, 2001, the following minimum amount of OrthAlliance Affiliated Practitioners,
along with their professional entity, either amend their existing employment
agreement and OrthAlliance Service or Consulting Agreement, as contemplated by
Sections 2.4 and 7.2(e) of the Merger Agreement, or enter into an OCA Business
Services Agreement effective as of the Merger:
Minimum Number of OrthAlliance Affiliated Practitioners:
(1) At least 148 OrthAlliance Affiliated
Practitioners,
AND
(2) OrthAlliance Affiliated Practitioners
representing at least 80.0% of
OrthAlliance's service fees during the 12
months ended March 31, 2001.
TOTAL NUMBER OF SHARES AVAILABLE FOR GRANT UNDER PROGRAM
The total number of shares of OCA common stock available for grant
under this program varies depending on (1) the number of OrthAlliance Affiliated
Practitioners who, along with their professional entity, either amend their
existing employment agreement and OrthAlliance Service or Consulting Agreement,
as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement, or enter
into an OCA Business Services Agreement effective as of the Merger, and (2) the
percentage of OrthAlliance's service fees during the 12 months ended March 31,
2001 represented by those OrthAlliance Affiliated Practitioners, as described in
the following chart:
ORTHALLIANCE AFFILIATED PRACTITIONERS EXECUTING
AMENDMENTS OR NEW OCA AGREEMENT
-----------------------------------------------
TOTAL NUMBER OF
SHARES AVAILABLE PERCENTAGE OF ORTHALLIANCE ANNUAL
UNDER PROGRAM NUMBER SERVICE FEES REPRESENTED
---------------- ------ ---------------------------------
200,000 ............. 157 or more and 85.00% or more
100,000 ............. 148 to 156 and 80.00% - 84.99%
0 ............. Less than 148 or Less than 80.00%
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ALLOCATION OF AVAILABLE SHARES AMONG PARTICIPATING ORTHALLIANCE STOCK RECIPIENTS
An eligible OrthAlliance Stock Recipient participating in this program
would receive a number of shares of OCA common stock that varies depending on
(A) the number of OrthAlliance Affiliated Practitioners who, along with their
professional entity, either amend their existing employment agreement and
OrthAlliance Service or Consulting Agreement, as contemplated by Sections 2.4
and 7.2(e) of the Merger Agreement, or enter into an OCA Business Services
Agreement effective as of the Merger, and (B) the percentage of OrthAlliance's
service fees during the 12 months ended March 31, 2001 represented by those
OrthAlliance Affiliated Practitioners, as described in the following chart:
ORTHALLIANCE AFFILIATED PRACTITIONERS EXECUTING
AMENDMENTS OR NEW OCA AGREEMENT
-----------------------------------------------
NUMBER OF SHARES PER
PARTICIPANT IN PERCENTAGE OF ORTHALLIANCE ANNUAL
PROGRAM NUMBER SERVICE FEES REPRESENTED
-------------------- ------ ---------------------------------
1,000 ............... 157 or more and 85.00% or more
500 ............... 148 to 156 and 80.00% - 84.99%
0 ............... Less than 148 or Less than 80.00%
DATES OF GRANTS; CONDITION TO VESTING. Shares granted under this
program would be issuable in four annual installments, with one-fourth of the
shares to be issued following each of the second, third, fourth and fifth
anniversaries of the Merger if, during the 12 calendar months prior to that
anniversary, the amount of service or consulting fees paid by the OrthAlliance
Affiliated Practitioner and his or her professional entity to OCA or its
subsidiary is at least 90% of the amount of service or consulting fees they paid
to OrthAlliance or its subsidiary during the 12 calendar months prior to the
Merger.
ELIGIBILITY TO PARTICIPATE. To be eligible to participate in this
program, an OrthAlliance Affiliated Practitioner, along with his or her
professional entity, would have to by July 27, 2001 either (1) amend their
existing employment agreement and OrthAlliance Service or Consulting Agreement,
as contemplated by Sections 2.4 and 7.2(e) of the Merger Agreement, or (2) enter
into an OCA Business Services Agreement in replacement of their existing
OrthAlliance Service or Consulting Agreement (effective as of the Merger).
Participation would also require the execution of a written participation
agreement between OCA and the OrthAlliance Affiliated Practitioner that sets
forth, or incorporates by reference, the terms of the program. Participation in
and the grant of any shares under this program would also be conditioned upon,
and subject to, completion of the Merger.
In addition, to be eligible to participate in this program, an
OrthAlliance Affiliated Practitioner, along with his or her professional entity,
may not be a party to any pending or threatened litigation against OrthAlliance,
OCA or their subsidiaries, nor have given notice of termination or intention to
terminate their respective OrthAlliance Service or Consulting Agreement, and
must be in compliance with their obligation to pay service or consulting fees
under their OrthAlliance Service or Consulting Agreement. If such litigation or
notice has been commenced, threatened or given, it would need to have been
dismissed with prejudice or fully withdrawn in a manner acceptable to OCA.
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In addition, to be eligible to participate in this program, an
OrthAlliance Affiliated Practitioner, along with his or her professional entity,
may not be a party to any practice improvement performance guarantee agreement
with OrthAlliance or its subsidiary.
PRACTICES WITH MULTI-OWNERS. If an OrthAlliance Affiliated
Practitioner's professional entity is partially owned by one or more other
OrthAlliance Affiliated Practitioners, these amounts would be computed on a pro
rata basis. In addition, the co-owner OrthAlliance Affiliated Practitioners
would have to execute and deliver the applicable amendments to their employment
agreement and OrthAlliance Service or Consulting Agreement, or new OCA Business
Services Agreement, as applicable, prior to the Merger.
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ADDITIONAL INCENTIVES FOR ENTERING INTO NEW OCA AGREEMENT
In addition to the two programs described above, OCA may offer
additional shares of its common stock to OrthAlliance Affiliated Practitioners
as an incentive for these individuals and their professional entities to enter
into an OCA Business Services Agreement prior to the Merger, in replacement of
their existing OrthAlliance Service or Consulting Agreement effective as of the
Merger. These shares may be issued to eligible OrthAlliance Affiliated
Practitioners generally on the following terms under OCA's:
o Conversion Incentive Program; and
o Doctors Trust Program.
1. CONVERSION INCENTIVE PROGRAM
Under OCA's Conversion Incentive Program, OCA may grant shares of its
common stock to eligible OrthAlliance Affiliated Practitioners who, along with
their professional entity, enter into an OCA Business Services Agreement (which
would be effective upon the Merger) on or before July 27, 2001, in an amount
equal to:
(a) 4,
TIMES
(b) The amount by which:
(i) FEES UNDER OCA AGREEMENT. Service or consulting fees
(excluding any center or other expense reimbursement)
that would have been payable to OCA or its subsidiary
by the OrthAlliance Affiliated Practitioner or his or
her professional entity under the OCA Business
Services Agreement during the 12 calendar months
immediately preceding the Merger (assuming that the
OCA Business Services Agreement had been in effect
during that period and also assuming that the
operating margin of the practice during that period
was 5% higher than the actual operating margin for
that period),
EXCEEDS
(ii) FEES UNDER EXISTING AGREEMENT. Service, consulting or
management fees (excluding any center or other
expense reimbursement) paid to OrthAlliance or its
subsidiaries by the OrthAlliance Affiliated
Practitioner or his or her professional entity during
the 12 calendar months immediately preceding the
Merger under their existing OrthAlliance Service or
Consulting Agreement,
DIVIDED BY
(c) AVERAGE CLOSING PRICE AT MERGER. The average closing price of
OCA common stock during the 10 trading days prior to the
Merger.
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DATES OF GRANTS; CONDITION TO VESTING. Shares granted under this
program would be issuable in four annual installments, with one-fourth of the
shares to be issued following each of the second, third, fourth and fifth
anniversaries of the Merger if, during the 12 calendar months prior to that
anniversary, the amount of service or consulting fees paid by the OrthAlliance
Affiliated Practitioner and his or her professional entity to OCA or its
subsidiary is at least 90% of the amount of service or consulting fees they paid
to OrthAlliance or its subsidiary during the 12 calendar months prior to the
Merger.
ELIGIBILITY TO PARTICIPATE. To be eligible to participate in this
program, an OrthAlliance Affiliated Practitioner, along with his or her
professional entity, would have to, on or before July 27, 2001 enter into an OCA
Business Services Agreement in replacement of their existing OrthAlliance
Service or Consulting Agreement (effective as of the Merger). Participation
would also require the execution of a written participation agreement between
OCA and the OrthAlliance Affiliated Practitioner that sets forth, or
incorporates by reference, the terms of the program. Participation in and the
grant of any shares under this program would also be conditioned upon, and
subject to, completion of the Merger.
In addition, to be eligible to participate in this program, an
OrthAlliance Affiliated Practitioner, along with his or her professional entity,
may not be a party to any pending or threatened litigation against OrthAlliance,
OCA or their subsidiaries, nor have given notice of termination or intention to
terminate their respective OrthAlliance Service or Consulting Agreement, and
must be in compliance with their obligation to pay service or consulting fees
under their OrthAlliance Service or Consulting Agreement. If such litigation or
notice has been commenced, threatened or given, it would need to have been
dismissed with prejudice or fully withdrawn in a manner acceptable to OCA.
DUE DILIGENCE TO DETERMINE OPERATING MARGIN. To permit OCA to determine
the appropriate operating margin for computing the number of shares to be
granted under this program, the OrthAlliance Affiliated Practitioner would
provide OCA with financial information OCA reasonably requests about the
practice.
PRACTICES WITH MULTI-OWNERS. If an OrthAlliance Affiliated
Practitioner's professional entity is partially owned by one or more other
OrthAlliance Affiliated Practitioners, these amounts would be computed on a pro
rata basis. In addition, the co-owner OrthAlliance Affiliated Practitioners
would have to execute and deliver the new OCA Business Services Agreement by
July 27, 2001.
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2. DOCTORS TRUST PROGRAM
Under OCA's Doctors Trust Program, for eligible OrthAlliance Affiliated
Practitioners:
TWO YEAR OPTION TO PURCHASE SHARES. At anytime during the two years
immediately following the Merger, the OrthAlliance Affiliated Practitioner could
elect, by giving OCA written notice, to purchase a number of shares of OCA
common stock equal to (A) $60,000, divided by (B) the average closing sales
price per share of OCA common stock reported for the 10 trading days immediately
prior to the Merger.
INSTALLMENT PAYMENTS OF PURCHASE PRICE. The purchase price of the
shares would equal $40,000 and would be payable by the OrthAlliance Affiliated
Practitioner in 40 equal quarterly installments of $1,000 each over a period of
10 years, beginning on the second anniversary of the Merger.
RESTRICTIONS ON TRANSFER. These shares would be subject to contractual
restrictions on transfer. No shares could be sold or transferred prior to the
eleventh anniversary of the Merger. Beginning on that eleventh anniversary,
one-seventh of the shares would become eligible for sale or transfer during each
of the following seven years.
FORFEITURE OF SHARES. Shares that are not then granted or eligible for
sale or transfer would be forfeited if the OrthAlliance Affiliated Practitioner:
(a) Ceases to be employed full-time as an orthodontist or
pediatric dentist, as applicable, in his or her respective
practice prior to the tenth anniversary of the Merger, or
(b) Ceases to own an equity interest in the professional entity
that is a party to the OCA Business Services Agreement prior
to the tenth anniversary of the Merger, or
(c) And his or her professional entity's OCA Business Services
Agreement terminates, or
(d) Or his or her professional entity fails to utilize OCA's
proprietary computer software and business systems in
connection with the business functions of their practice, or
(e) Or his or her professional entity fails to comply with OCA's
policies, procedures and systems, including a productive
working relationship with OCA's corporate office staff and
other orthodontists and dental professionals who are
affiliated with OCA, fulfil his or her financial obligations
to OCA or its subsidiaries, or breaches his or her OCA
Business Services Agreement.
NO RETURN OF PURCHASE PRICE. If shares acquired under this program are
forfeited, any purchase price previously paid would not be returned, but further
obligations to pay the quarterly installments would be canceled.
DEATH OR DISABILITY. If the OrthAlliance Affiliated Practitioner dies
or becomes permanently disabled (and ceases to practice orthodontics or
pediatric dentistry, as applicable), a proportionate number of shares for which
quarterly installments of purchase price had then been paid (that is,
one-fortieth of the number of shares for each quarterly installment of purchase
price that had been paid) would not be forfeited due to those events, and
one-seventh of that proportionate amount would become eligible for sale or
transfer during each of the following seven years.
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TRANSFER OF PRACTICE AFTER 10 YEARS. If the OrthAlliance Affiliated
Practitioner remains employed full-time as an orthodontist or pediatric dentist,
as applicable, in his or her respective practice, owns an equity interest in the
professional entity that is a party to the OCA Business Services Agreement,
remains a party to an OCA Business Services Agreement and otherwise complies
with the terms and conditions of this program through the tenth anniversary of
the Merger, then the OrthAlliance Affiliated Practitioner could thereafter
transfer his practice to another orthodontist or pediatric dentist, as
applicable, acceptable to OCA who assumes all of the OrthAlliance Affiliated
Practitioner's obligations under the OCA Business Services Agreement and,
subject to continued compliance with his or her covenant not to compete, a
proportionate number of shares for which quarterly installments of purchase
price had then been paid would not be forfeited due to those events, and
one-seventh of that proportionate amount would become eligible for sale or
transfer during each of the following seven years.
ELIGIBILITY TO PARTICIPATE. To be eligible to participate in this
program, an OrthAlliance Affiliated Practitioner, along with his or her
professional entity, would have to, prior to the Merger, enter into an OCA
Business Services Agreement in replacement of their existing OrthAlliance
Service or Consulting Agreement (effective as of the Merger). Participation
would also require the execution of a written participation agreement between
OCA and the OrthAlliance Affiliated Practitioner that sets forth, or
incorporates by reference, the terms of the program. Participation in and
purchase of shares under this program would also be conditioned upon, and
subject to, completion of the Merger.
In addition, to be eligible to participate in this program, an
OrthAlliance Affiliated Practitioner, along with his or her professional entity,
may not be a party to any pending or threatened litigation against or involving
OrthAlliance, OCA or their subsidiaries, nor have given notice of termination or
intention to terminate their respective OrthAlliance Service or Consulting
Agreement, and must be in compliance with their obligation to pay service or
consulting fees under their OrthAlliance Service or Consulting Agreement. If
such litigation or notice has been commenced, threatened or given, it would need
to have been dismissed with prejudice or fully withdrawn in a manner acceptable
to OCA.
PRACTICES WITH MULTI-OWNERS. If an OrthAlliance Affiliated
Practitioner's professional entity is partially owned by one or more other
OrthAlliance Affiliated Practitioners, the co-owner OrthAlliance Affiliated
Practitioners would have to execute and deliver the new OCA Business Services
Agreement prior to the Merger.
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IN CONNECTION WITH THE PROPOSED MERGER, OCA WILL FILE A REGISTRATION STATEMENT
ON FORM S-4 WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). INVESTORS ARE
URGED TO READ THE PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE
REGISTRATION STATEMENT, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
MERGER, OCA AND ORTHALLIANCE. AFTER THE REGISTRATION STATEMENT IS FILED WITH THE
SEC, THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS WILL BE
AVAILABLE FREE OF CHARGE, BOTH ON THE SEC'S WEB SITE (www.sec.gov) AND FROM OCA
AND ORTHALLIANCE BY DIRECTING A REQUEST TO ORTHODONTIC CENTERS OF AMERICA, INC.,
5000 SAWGRASS VILLAGE CIRCLE, SUITE 30, PONTE VEDRA BEACH, FL 32082, ATTENTION:
INVESTOR RELATIONS, OR TO ORTHALLIANCE, INC., 21535 HAWTHORNE BOULEVARD, SUITE
200, TORRANCE, CA 90503, ATTENTION: INVESTOR RELATIONS. ORTHALLIANCE AND ITS
DIRECTORS AND OFFICERS MAY BE DEEMED TO BE PARTICIPANTS IN THE SOLICITATION OF
PROXIES WITH RESPECT TO A SHAREHOLDER MEETING TO BE HELD IN CONNECTION WITH SUCH
MERGER. INFORMATION ABOUT THE PARTICIPANTS IN THE SOLICITATION, INCLUDING THEIR
INTERESTS IN SHARES OF ORTHALLIANCE'S COMMON STOCK, IS SET FORTH IN
ORTHALLIANCE'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000
FILED WITH THE SEC. INVESTORS MAY OBTAIN ADDITIONAL INFORMATION REGARDING THE
INTERESTS OF ORTHALLIANCE AND ITS DIRECTORS AND OFFICERS BY READING THE PROXY
STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE.
THIS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES FOR SALE, NOR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY INDICATION OF INTEREST IN
RESPONSE TO THIS COMMUNICATION WILL INVOLVE NO OBLIGATION OR COMMITMENT. NO
SECURITIES WILL BE SOLD OR GRANTED IN ANY JURISDICTION IN WHICH THE OFFER,
SOLICITATION OR SALE OF SUCH SECURITIES WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.