1
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.
THE EXAMPLES AND/OR CALCULATIONS INCLUDED IN THIS PRESENTATION ARE
SOLELY FOR ILLUSTRATION PURPOSES AND MAY NOT BE REPRESENTATIVE OF ALL PRACTICES.
ACTUAL RESULTS COULD VARY FROM THESE EXAMPLES.
OrthAlliance Doctor
Financial Incentives
2
Merger Options & Key Terms
o Existing Contract: (no change)
o Amendment to Existing Contract:
3 year min. commitment
Convert to OCA business systems
o OCA Standard Contract:
3 year min. commitment
Replacement doctor required prior to departure
Doctor retains proceeds from sale
Convert to OCA business systems
Fee based on Profit
Share allocable corporate expenses
Share operating losses and fixed asset costs
3
Merger Options & Key Incentives
o Existing Contract: (no change)
Exchange of OrthAlliance stock for OCA stock.
o Amendment to Existing Contract:
Stock Pool
Target Program
o OCA Standard Contract:
Stock Pool
Target Program
Contract Conversion
Doctors Trust
4
Exchange of ORAL Stock for OCA Stock
o OCA stock - $30.70 as of 5/31/2001
- NYSE-traded
- Institutional ownership: 80%
- Liquid, valuable currency
o Exchange ratio: 0.09214 to 0.16585
o Example: 100,000 shares times .12899 equals 12,899 shares. At $30/share
equals $386,970.
5
Investment Comparison
July 1998 to May 2001
[CHART OF THE PERFORMANCE OF OCA'S COMMON STOCK AND
THAT OF OTHER DENTAL OR PHYSICIAN PRACTICE MANAGEMENT COMPANIES
FROM JULY 1998 TO MAY 2001]
6
Merger Options & Key Incentives
o Existing Contract: (no change)
Exchange of OrthAlliance Stock for OCA stock.
o Amendment to Existing Contract:
Stock Pool
Target Program
o OCA Standard Contract:
Stock Pool
Target Program
Contract Conversion
Doctors Trust
7
OCA Stock Pool
o Potential $13,500,000 of stock at $30.
o Commitment by July 27, 2001
o Stock issuance based on:
- Timing of commitment (amendment or OCA contract)
- Size of Practice (management fee based)
- Tenure with PPM
8
Stock Pool Rules
o Tenure: 10 shares/ month for each month contracted w/PPM.
o Size: 30 shares/ $10,000 of annual fees as of 3/31/01.
o Timing: sign amendment or OCA Contract
Group 1 - by June 15, 2001 - receive 900 OCA shares
Group 2 - by June 22, 2001 - receive 800 OCA shares
Group 3 - by June 29, 2001 - receive 700 OCA shares
Group 4 - by July 6, 2001 - receive 600 OCA shares
Group 5 - by July 13, 2001 - receive 500 OCA shares
Group 6 - by July 20, 2001 - receive 400 OCA shares
Group 7 - by July 27, 2001 - receive 300 OCA shares
plus 200 additional shares for every 20 doctors signed
before July 27, 2001 and after your commitment group.
9
OCA Stock Pool Example
o $195,000 annual fees = 585 OCA shares
o 40 months = 400 OCA shares
o Commitment by June 15, 2001 = 900 OCA shares
o 127 doctor total commitment = 600 OCA shares
(assumes 60 doctors in group 1)
o Therefore total issuance = 2,485 OCA shares for this example with a value
of $74,550 @ $30/share.
o Stock vesting: 1/3 at end of each year for three years.
10
Merger Options & Key Incentives
o Existing Contract: (no change)
Exchange of OrthAlliance stock for OCA stock.
o Amendment to Existing Contract:
Stock Pool
Target Program
o OCA Standard Contract:
Stock Pool
Target Program
Contract Conversion
Doctors Trust
11
Target Program
OrthAlliance Contract
Existing Contract Existing Contract
----------------- -----------------
Gross $1,000,000 $1,500,000
Margins 50.00% 60.00%
---------- ----------
Doctor income $ 330,000 $ 645,000
Service Fee 17% $ 170,000 $ 255,000
---------- ----------
Service fee increase $ 85,000
Multiple 3.00
----------
Value issued to doctor
for growth $ 255,000
==========
Stock vesting: 25% after 2 years; 25% per year thereafter.
Max value: 3 times 70% of service fee (12 months before merger).
12
Merger Options & Key Incentives
o Existing Contract: (no change)
Exchange of OrthAlliance stock for OCA stock.
o Amendment to Existing Contract:
Stock Pool
Target Program
o OCA Standard Contract:
Stock Pool
Target Program
Contract Conversion
Doctors Trust
13
Conversion to OCA Contract
OrthAlliance OCA
Contract Contract
------------ ------------
Gross $ 1,000,000 $ 1,000,000
Margins 50.00% 55.00%
Percent to Orthalliance 17.00%
Percentage of profit, standard OCA 40.00%
Doctor income $ 330,000 $ 330,000
Annual fee to management $ 170,000 $ 220,000
Difference in fee to OCA $ 50,000
Multiple 4.00
------------
Share value issued to doctor $ 200,000
============
4X multiple available until July 27, 2001.
Vesting: 25% after 2 years; 25% per year thereafter.
14
Target Program
OCA Contract
After
Conversion 3rd year
to After
OCA Contract OCA Contract
------------ ------------
Gross $1,000,000 $1,500,000
Margins 55.00% 60.00%
Doctor income 60% $ 330,000 $ 540,000
OCA fee 40% $ 220,000 $ 360,000
Service fee increase $ 140,000
Multiple 3.00
----------
Value issued to doctor for growth $ 420,000
==========
Stock vesting: 25% after 2 years; 25% per year thereafter.
Max value: 3 times 70% of service fee (12 months before merger).
15
Merger Options & Key Incentives
o Existing Contract: (no change)
Exchange of OrthAlliance stock for OCA stock.
o Amendment to Existing Contract:
Stock Pool
Target Program
o OCA Standard Contract:
Stock Pool
Target Program
Contract Conversion
Doctors Trust
16
OCA Doctors Trust Program
Annual purchase price $ 4,000
Period of years 10
Multiple given 15.0
Current stock value $ 60,000
Requirements:
10 year commitment by doctor.
Sale of practice to OCA qualified Orthodontist during vesting period.
Doctor has two year option to purchse stock under Trust Program.
Restrictions:
No sale until year 11, stock issuance over 7 years from year 11.
17
Example of OCA Total Value
Existing Contract OCA Contract
----------------- -------------
Stock from OCA Stock Pool $ 75,000 $ 75,000
Stock from Target $ 255,000 $ 420,000
Stock for Signing OCA Contract $ -- $ 200,000
Stock from Trust $ -- $ 60,000
----------------- -------------
Stock Total $ 330,000 $ 755,000
Annual After-tax cash flow $ 387,000 $ 324,000
18
Summary of Benefits
o Exchange of OrthAlliance Stock
o OCA Stock Pool
o Achieving Growth Targets
o Conversion to OCA contract
o OCA Doctor Trust Program
19
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 pedodontists 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 pedodontist, 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 pedodontist, as
applicable, for a period of at least three years following the proposed Merger.
20
INCENTIVES FOR AMENDING EXISTING EMPLOYMENT AGREEMENT AND ORTHALLIANCE
AGREEMENT, OR ENTERING INTO NEW OCA AGREEMENT
OCA intends to offer shares of its common stock to OrthAlliance
Affiliated Practitioners as an incentive for these individuals and their
professional entities to 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 would be issued to eligible OrthAlliance Affiliated Practitioners
generally on the following terms, which would be documented in a written
agreement between OCA and the OrthAlliance Affiliated Practitioner.
1. TARGET STOCK PROGRAM
Under OCA's Target Stock Program, OCA would grant an eligible
OrthAlliance Affiliated Practitioner shares of OCA common stock (except as
described below) following the third anniversary of the Merger if certain
targets are achieved, as described below.
o NEW OCA AGREEMENT. For OrthAlliance Affiliated Practitioners who,
along with their respective professional entities, enter into an
OCA Business Services Agreement effective as of the proposed
Merger, OCA would issue them a number of shares of OCA common
stock following the third anniversary of the Merger 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 5.0% 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 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 the amount of service or
consulting fees (excluding any center or other expense
2
21
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
5.0% higher than the actual operating margin for that period).
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 that would have been paid
under the OCA Business Services Agreement during the 12 calendar
months immediately preceding the Merger (based on the assumptions
described above), then OCA would grant the OrthAlliance Affiliated
Practitioner a pro rata amount of the shares of OCA common stock
that OCA would have granted if the target amount had been
achieved.
o AMENDMENTS. For OrthAlliance Affiliated Practitioners who, along
with their respective professional entities, 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, OCA would issue them a number of shares
of OCA common stock following the third anniversary of the Merger
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 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 the amount
of 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.
3
22
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 would grant the
OrthAlliance Affiliated Practitioner a pro rata amount of the
shares of OCA common stock that OCA would have granted if the
target amount had been achieved.
o 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 the amount 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.
o RESTRICTIONS ON TRANSFER. The shares would be subject to
contractual restrictions on transfer. No shares could be sold or
transferred prior to the second anniversary of the date on which
they were issued. 25% of the shares would become eligible for
sale or transfer on each of the second, third, fourth and fifth
anniversaries of the date on which the shares were issued.
o DAMAGES UPON TERMINATION. If the OrthAlliance Affiliated
Practitioner's employment as a full-time orthodontist or
pedodontist, as applicable, in his or her respective practice,
ownership of his or her professional entity, employment agreement
or OrthAlliance Service or Consulting Agreement (or OCA Business
Services Agreement, as applicable) terminates prior to the fifth
anniversary of the date on which shares of OCA common stock are
issued to that individual under this program, the OrthAlliance
Affiliated Practitioner would pay OCA or its subsidiaries
$250,000 in cash for each year that the termination precedes such
sixth anniversary (pro rated for partial years), in addition to
any other remedies to which OCA or its subsidiaries may be
entitled.
o 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.
o NEW OCA AGREEMENT OR AMENDMENTS REQUIRED TO PARTICIPATE. To be
eligible to participate in this program, an OrthAlliance
Affiliated Practitioner, along with his or her professional
entity, must 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.
o CONDITIONED ON MERGER CLOSING. Participation in this program and
the grant of any shares under this program would be conditioned
upon, and subject to, completion of the Merger.
4
23
2. STOCK POOL PROGRAM FOR EARLY AMENDMENTS OR NEW AGREEMENTS
Under OCA's Stock Pool Program, eligible OrthAlliance Affiliated
Practitioners would be granted shares of OCA common stock if, within certain
stated deadlines, they 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. OrthAlliance Affiliated Practitioners who
do so, along with their professional entity, no later than July 27, 2001 would
be granted shares of OCA common stock as follows:
o 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.
o 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
(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
5
24
(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.
o 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 will 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.
o RESTRICTIONS ON TRANSFER. The shares would be subject to
contractual restrictions on transfer. No shares could be sold or
transferred prior to the first anniversary of the Merger.
One-third of the shares would become eligible for sale or
transfer on each of the first, second and third anniversaries of
the Merger.
o DAMAGES UPON TERMINATION. If the OrthAlliance Affiliated
Practitioner's employment as a full-time orthodontist or
pedodontist, as applicable, in his or her respective practice,
ownership of his or her professional entity, employment agreement
or OrthAlliance Service or Consulting Agreement (or OCA Business
Services Agreement, as applicable) terminates prior to the third
anniversary of the Merger, the OrthAlliance Affiliated
Practitioner would pay OCA or its subsidiaries $50,000 in cash
for each year that the termination precedes such third
anniversary
6
25
(pro rated for partial years), in addition to any other remedies
to which OCA or it subsidiaries may be entitled.
o 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.
o NEW OCA AGREEMENT OR AMENDMENTS REQUIRED TO PARTICIPATE. To be
eligible to participate in this program, an OrthAlliance
Affiliated Practitioner, along with his or her professional
entity, must, 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.
o CONDITIONED ON MERGER CLOSING. Participation in this program and
the grant of any shares under this program would be conditioned
upon, and subject to, completion of the Merger.
7
26
ADDITIONAL INCENTIVES FOR ENTERING INTO NEW OCA AGREEMENT
In addition to the two programs described above, OCA intends to 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 in replacement of their existing
OrthAlliance Service or Consulting Agreement, effective as of the Merger. These
shares would be issued to eligible OrthAlliance Affiliated Practitioners
generally on the following terms, which would be documented in a written
agreement between OCA and the OrthAlliance Affiliated Practitioner:
1. INCENTIVE STOCK FOR CONVERSION TO OCA AGREEMENT
Under OCA's Conversion Incentive Program, for eligible OrthAlliance
Affiliated Practitioners who, along with their professional entity, enter into
an OCA Business Services Agreement in replacement of their existing OrthAlliance
Service or Consulting Agreement effective as of the Merger, on or before July
27, 2001:
o NUMBER OF SHARES. Following the Merger with OrthAlliance, OCA
would grant shares of OCA common stock to an eligible
OrthAlliance Affiliated Practitioner 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 5.0% 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,
8
27
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.
o RESTRICTIONS ON TRANSFER. These shares would be subject to
contractual restrictions on transfer. No shares could be sold or
transferred prior to the second anniversary of the Merger. 25% of
the shares would become eligible for sale or transfer on each of
the second, third, fourth and fifth anniversaries of the Merger.
o DAMAGES UPON TERMINATION. If the OrthAlliance Affiliated
Practitioner's OCA Business Services Agreement, employment as a
full-time orthodontist or pedodontist, as applicable, in his or
her respective practice, or ownership of his or her professional
entity terminates prior to the fifth anniversary of the Merger,
the OrthAlliance Affiliated Practitioner would pay OCA or its
subsidiaries $150,000 in cash for each year that the termination
precedes such third anniversary (pro rated for partial years), in
addition to any other remedies to which OCA or its subsidiaries
may be entitled.
o NEW OCA AGREEMENT REQUIRED TO PARTICIPATE. To be eligible to
participate in this program, an OrthAlliance Affiliated
Practitioner, along with his or her professional entity, must
enter into an OCA Business Services Agreement in replacement of
their existing OrthAlliance Service or Consulting Agreement
effective as of the Merger, on or before July 27, 2001.
o 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.
o CONDITIONED ON MERGER CLOSING. Participation and the grant of any
shares would be conditioned upon, and subject to, completion of
the Merger with OrthAlliance.
9
28
2. DOCTORS TRUST PROGRAM
Under OCA's Doctors Trust Program, for eligible OrthAlliance Affiliated
Practitioners:
o 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.
o 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.
o 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.
o 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
pedodontist, 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.
o 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.
o DEATH OR DISABILITY. If the OrthAlliance Affiliated Practitioner
dies or becomes permanently disabled (and ceases to practice
orthodontic or pedodontics, 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
10
29
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.
o TRANSFER OF PRACTICE AFTER 10 YEARS. If the OrthAlliance
Affiliated Practitioner remains employed full-time as an
orthodontist or pedodontist, 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 pedodontist, 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.
o NEW OCA AGREEMENT REQUIRED TO PARTICIPATE. To be eligible to
participate in this program, an OrthAlliance Affiliated
Practitioner, along with his or her professional entity, must
enter into an OCA Business Services Agreement in replacement of
their existing OrthAlliance Service or Consulting Agreement,
effective as of the Merger.
o 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.
o CONDITIONED ON MERGER CLOSING. Participation and purchase of
shares under OCA's Doctors Trust Program would be conditioned
upon, and subject to, completion of the Merger.
11
30
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.
12