1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 2001
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------
ORTHODONTIC CENTERS OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 72-1278948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3850 N. Causeway Boulevard, Suite 1040
Metairie, Louisiana 70002
(504) 834-4392
(Address, Including Zip Code, and Telephone Number, including Area Code,
of Registrant's principal executive offices)
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President and Chief Executive Officer
Orthodontic Centers of America, Inc.
3850 N. Causeway Boulevard, Suite 1040
Metairie, Louisiana 70002
(504) 834-4392
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
Donald R. Moody, Esq.
Waller Lansden Dortch & Davis, PLLC
511 Union Street, Suite 2100
Nashville, Tennessee 37219
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE FEE
------------------------------ -------------- ------------------ ------------------ ------------
Common Stock, $0.01 par value 4,186,538 $29.42 (1) $123,167,950 (1) $30,800
------------------------------ -------------- ------------------ ------------------ ------------
(1) Estimated in accordance with Rule 457(c) under the Securities Act of
1933 based on the average of the high and low sales prices of the
Registrant's common stock as reported on the New York Stock Exchange on
August 2, 2001 solely for the purpose of calculating the registration
fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to completion
PRELIMINARY PROSPECTUS ________, 2001
[OCA LOGO]
SHARES OF COMMON STOCK
----------
We are the leading provider of integrated business services to
orthodontists. Our common stock is listed on the New York Stock Exchange under
the ticker symbol "OCA."
In connection with a proposed transaction in which one of our
wholly-owned subsidiaries would merge with and into OrthAlliance, Inc., with
OrthAlliance becoming our wholly-owned subsidiary, we may offer shares of our
common stock to orthodontists and pediatric dentists who are owners and
employees of professional entities that are parties to service, management
service or consulting agreements with OrthAlliance and its subsidiaries. These
shares would be offered and sold directly by us in privately negotiated
transactions.
BEFORE INVESTING IN SHARES OF OUR COMMON STOCK, YOU SHOULD CAREFULLY
CONSIDER THE RISK FACTORS DESCRIBED IN THE SECTION OF THIS PROSPECTUS CAPTIONED
"RISK FACTORS," WHICH BEGINS ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS
PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ________, 2001.
3
TABLE OF CONTENTS
Page
----
Prospectus Summary.........................................................................................3
Risk Factors...............................................................................................6
Orthodontic Centers of America............................................................................12
Overview.............................................................................................12
Our Business.........................................................................................12
Our Operating Strategy...............................................................................12
Our Growth Strategy..................................................................................12
Our Affiliated Orthodontic Practices.................................................................13
Proposed Merger with OrthAlliance.........................................................................15
Incentive Programs for OrthAlliance Allied Practitioners..................................................16
Overview.............................................................................................16
Incentives for Amending Existing Employment Agreement and OrthAlliance Agreement, or Entering
into New OCA Agreement..........................................................................17
Stock Pool Program...................................................................................17
Target Stock Program.................................................................................19
OrthAlliance Stockholder Bonus Program...............................................................22
High Participation Bonus Program.....................................................................25
Additional Incentives for Entering into New OCA Agreement............................................26
Conversion Incentive Program.........................................................................26
Doctors Trust Program................................................................................28
Federal Income Tax Consequences...........................................................................30
Stock Pool Program, Target Stock Program, OrthAlliance Stockholder Bonus Program, High
Participation Bonus Program and Conversion Incentive Program....................................30
Doctors Trust Program................................................................................30
Forward-Looking Information...............................................................................32
Use of Proceeds...........................................................................................32
Plan of Distribution......................................................................................32
Where You Can Find More Information.......................................................................32
Incorporation of Information We File with the SEC.........................................................33
Legal Matters.............................................................................................34
Experts...................................................................................................34
Annex A - Stock Pool Program......................................................................... A-1
Annex B - Target Stock Program....................................................................... B-1
Annex C - OrthAlliance Stockholder Bonus Program..................................................... C-1
Annex D - High Participation Bonus Program........................................................... D-1
Annex E - Conversion Incentive Program............................................................... E-1
Annex F - Doctors Trust Program...................................................................... F-1
Annex G - Form of Participation Agreement............................................................ G-1
----------
THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO PURCHASE ANY SECURITIES OTHER THAN SHARES OF OUR COMMON STOCK TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER.
2
4
PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this
prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in our common stock. You should
carefully read the entire prospectus, including "Risk Factors," and the
documents incorporated by reference in this prospectus before making an
investment decision.
ORTHODONTIC CENTERS OF AMERICA, INC.
We are the leading provider of integrated business services to
orthodontists. Since 1985, we have executed a retail-oriented approach to
developing orthodontic practices, which we believe has resulted in significant
increases in productivity and profitability for our affiliated orthodontists. As
of March 31, 2001, we were affiliated with over 400 orthodontists practicing in
over 600 orthodontic centers located throughout the United States and parts of
Japan, Mexico, Spain and Puerto Rico. During 2000, our affiliated orthodontists
initiated treatment of about 161,000 patients, representing initial new patient
contract balances of $494.1 million for 2000. As of March 31, 2001, our
affiliated orthodontists were treating a total of more than 350,000 patients.
Our corporate headquarters are located at 3850 N. Causeway Boulevard,
Suite 1040, Metairie, Louisiana 70002, telephone number (504) 834-4392, and at
5000 Sawgrass Village, Suite 25, Ponte Vedra Beach, Florida 32082, telephone
number (904) 280-4500. We were incorporated in Delaware in 1994.
PROPOSED MERGER WITH ORTHALLIANCE
We are a party with OrthAlliance, Inc. to an agreement and plan of
merger, dated May 16, 2001, which provides for the merger of one of our
wholly-owned subsidiaries with and into OrthAlliance, with OrthAlliance becoming
our wholly-owned subsidiary. 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 we have filed with the Securities and Exchange Commission in
connection with the proposed merger.
INCENTIVE PROGRAMS FOR ORTHALLIANCE ALLIED PRACTITIONERS
In connection with the proposed merger with OrthAlliance, we have
implemented six programs under which we may offer shares of our common stock to
orthodontists and pediatric dentists who are owners and employees of
professional entities that are parties to service, management service or
consulting agreements with OrthAlliance and its subsidiaries. Participation in
each of these programs would be conditioned upon execution of a participation
agreement and completion of the proposed merger with OrthAlliance, among other
things. These six programs are described in further detail in the section of
this document captioned "INCENTIVE PROGRAMS FOR ORTHALLIANCE ALLIED
PRACTITIONERS." In addition, the terms of these programs are attached as annexes
to this document. We encourage you to read these carefully.
INCENTIVES IN CONNECTION WITH AMENDMENTS TO EMPLOYMENT AGREEMENTS AND
ORTHALLIANCE SERVICE, MANAGEMENT SERVICE OR CONSULTING AGREEMENTS, OR CONVERSION
TO OCA BUSINESS SERVICES AGREEMENT.
If these OrthAlliance affiliated practitioners and their respective
professional entities either amend their employment agreements and their
service, management service or consulting agreements with OrthAlliance and its
subsidiaries, as contemplated in the merger agreement, or enter into a new
business services agreement with us or OrthAlliance, based on our form of that
agreement, in replacement of the professional entities' existing service,
management service or consulting agreements with OrthAlliance or its
subsidiaries effective as of the proposed merger, they would be eligible,
subject to some conditions, to participate in our Stock Pool Program, Target
Stock Program, OrthAlliance Stockholder Bonus Program and High Participation
Bonus Program.
3
5
o STOCK POOL PROGRAM. To be eligible to participate in our Stock
Pool Program, the OrthAlliance affiliated practitioners must
enter into the amendments or new business services agreement
by the earlier to occur of September 30, 2001 or the effective
time of the merger. Under the Stock Pool Program, we would
grant participants shares of our common stock based on the
amount of service fees paid to OrthAlliance or its
subsidiaries, the number of months that they have been a party
to a service, management service or consulting agreement with
OrthAlliance or its subsidiaries and the date on which they
enter into the amendments or new business services agreements.
o TARGET STOCK PROGRAM. To be eligible to participate in our
Target Stock Program, the OrthAlliance affiliated
practitioners must enter into the amendments or new business
services agreement prior to the proposed merger. Under the
Target Stock Program, we would grant participants shares of
our common stock, or a promissory note, with a value equal to
three times 70% of the amount of service fees that their
respective professional entities paid OrthAlliance or its
subsidiaries during the 12 months prior to completion of the
proposed merger with OrthAlliance, provided that the amount of
service fees they paid in the third year following completion
of the proposed merger is at least 70% greater than that
amount. If the service fees increase by less than 70%, then
the participant would receive a pro rata amount of shares of
our common stock, or a promissory note.
o ORTHALLIANCE STOCKHOLDER BONUS PROGRAM. To be eligible to
participate in our OrthAlliance Stockholder Bonus Program, the
OrthAlliance affiliated practitioners must enter into the
amendments or new business services agreement by the earlier
to occur of September 30, 2001 or the effective time of the
merger, along with a minimum amount of other OrthAlliance
affiliated practitioners, and have received shares of
OrthAlliance common stock as 50% or more of the consideration
paid to them in connection with their initial affiliation with
OrthAlliance or one of its subsidiaries. Under the
OrthAlliance Stockholder Bonus Program, we would grant
participants a number of shares of our common stock which
varies depending on, among other things, the number of
participants in the program.
o HIGH PARTICIPATION BONUS PROGRAM. To be eligible to
participate in our High Participation Bonus Program, the
OrthAlliance affiliated practitioners must enter into the
amendments or new business services agreement by the earlier
to occur of September 30, 2001 or the completion of the
merger, along with a minimum amount of other OrthAlliance
affiliated practitioners. Under the High Participation Bonus
Program, we would grant participants a number of shares of our
common stock which varies depending on the number of
participants in the program.
ADDITIONAL INCENTIVES IN CONNECTION WITH CONVERSION TO OCA BUSINESS
SERVICES AGREEMENT.
In addition to the four programs listed above, if these OrthAlliance
affiliated practitioners and their respective professional entities enter into a
new business services agreement with us or OrthAlliance, based on our customary
form of that agreement, in replacement of the professional entities' existing
service, management service or consulting agreements with OrthAlliance or its
subsidiaries effective as of the completion of the proposed merger, they would
be eligible, subject to some conditions to participate in our Conversion
Incentive Program and Doctors Trust Program.
o CONVERSION INCENTIVE PROGRAM. To be eligible to participate in
our Conversion Incentive Program, the OrthAlliance affiliated
practitioners must enter into the new business services
agreement by the earlier to occur of September 30, 2001 or the
effective time of the merger. Under the Conversion Incentive
Program, we would grant participants shares of our common
stock with a value equal to four times the amount by which
service fees that would have been payable to us during the
year prior to completion of the proposed merger with
OrthAlliance if the participant and their respective
professional entity had been a party to our customary form of
business services agreement exceed the service fees actually
paid during that period under their
4
6
existing service, management service or consulting agreement
with OrthAlliance or one of its subsidiaries.
o DOCTORS TRUST PROGRAM. To be eligible to participate in our
Doctors Trust Program, the OrthAlliance affiliated
practitioners must enter into the new business services
agreement prior to the merger. Under the Doctors Trust
Program, participants could purchase a specified number of
shares of our common stock and pay for the shares in
installments over a period of 10 years.
5
7
RISK FACTORS
An investment in shares of our common stock involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information set forth in or incorporated by
reference into this prospectus, in connection with an investment in shares of
our common stock. If any of the following risks actually occurs, our business,
financial condition or operating results could be harmed, the trading price of
our common stock could decline and you could lose all or part of your
investment.
OUR GROWTH STRATEGY MAY NOT SUCCEED, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR
FINANCIAL PERFORMANCE.
Since we began operating in 1985, we have expanded to being affiliated with over
400 orthodontists practicing in over 600 orthodontic centers as of March 31,
2001. We expect to continue to add additional orthodontic centers and affiliated
orthodontists. Our growth, however, will depend on a number of factors,
including:
o Our ability to identify and affiliate with a sufficient number
of orthodontists to open new orthodontic centers or operate
within our existing network of affiliated orthodontic centers;
o Our ability to obtain quality locations for orthodontic
centers in suitable markets;
o Our ability to identify and affiliate with a sufficient number
of existing orthodontic practices;
o The ability of our affiliated orthodontists to add new
patients;
o Our ability to implement initiatives designed to increase the
productivity of our affiliated orthodontic centers;
o Our ability to obtain adequate financing to fund our expansion
strategy;
o Our ability to successfully operate under applicable
government regulations;
o Our ability to establish brand identity; and
o Our ability to affiliate with orthodontists in other countries
and successfully operate in those markets.
Our growth strategy may not succeed, and we may have to modify it. We may be
unable to identify and recruit suitable orthodontists. A shortage of available
orthodontists with the skills we require would have a material adverse effect on
our ability to grow. In addition, many of our service agreements include
covenants not to compete, in which we agreed that we would not affiliate with
other orthodontists within a specified area and that we would limit the total
number of orthodontic practices with which we affiliate within a particular
market area. This could limit our ability to add orthodontists and orthodontic
centers within the markets in which we have existing affiliated orthodontic
centers.
Our ability to attract additional orthodontists, and our prospects for success
and growth, depend on our ability to integrate an increasing number of
affiliated orthodontists, orthodontic centers and employees. If we fail to
manage our growth, our business may suffer.
6
8
OUR AFFILIATED ORTHODONTISTS ARE EXTENSIVELY REGULATED, WHICH MAY ADVERSELY
AFFECT OUR BUSINESS AND LIMIT HOW WE CAN OPERATE.
Governmental authorities regulate the orthodontic industry and orthodontic
practices extensively. We do not control the practice of orthodontics by our
affiliated orthodontists or their compliance with legal requirements that apply
to orthodontists and their practices. Many states prohibit us, as a
non-professional corporation, from:
o Practicing orthodontics, which, in some states, includes
managing or operating an orthodontic office;
o Splitting professional fees with orthodontists;
o Owning or controlling equipment used in orthodontic practice;
o Employing orthodontists;
o Setting fees charged for orthodontic services;
o Maintaining an orthodontist's patient records; or
o Controlling the content of an orthodontist's advertisements.
Many states also prohibit orthodontists from paying any portion of fees received
for orthodontic services in exchange for a patient referral. In addition, many
states impose limits on the tasks an orthodontist may delegate to other staff
members. These laws and their interpretation vary from state to state, and
regulatory authorities enforce them with broad discretion.
If a court or regulatory authority reviewed our business arrangements with an
affiliated orthodontist and concluded that our arrangements did not comply with
applicable law, we might have to change those arrangements in a way that
adversely affects us. An affiliated orthodontist may successfully challenge the
legality of our long-term service and consulting agreements, and we may be
unable to enforce non-competition and other provisions of those agreements. The
laws and regulations of states and countries in which we operate or seek to
expand may restrict or adversely affect our relationships with orthodontists in
those states and countries. The laws and regulations of states and countries in
which we currently operate could change or be interpreted in a way that
adversely affects our operations and relationships with affiliated
orthodontists. We may have to change our contractual relationships, alter our
financial arrangements or restrict our operations in those states and countries.
These laws and regulations could also prevent us from affiliating with, or
providing business services to, orthodontists practicing in those states and
countries.
OUR FINANCIAL SUCCESS DEPENDS ON THE EFFORTS AND SUCCESS OF OUR AFFILIATED
ORTHODONTISTS, AND OUR BUSINESS COULD SUFFER IF THEY DO NOT SUCCEED OR IF OUR
SERVICE OR CONSULTING AGREEMENTS WITH THEM ARE TERMINATED.
We receive fees for services we provide for orthodontic practices under service
and consulting agreements. These fees under the service or consulting agreements
are generally tied to the financial performance of our affiliated orthodontists,
so our success depends on the success of our affiliated orthodontists. Changes
in the healthcare industry, such as the growth of managed care organizations and
provider networks, may result in lower compensation for the services of our
affiliated orthodontists. Our service agreements and some of our consulting
agreements with affiliated orthodontists have terms ranging from 20 to 40 years,
with most ranging from 20 to 25 years. Affiliated orthodontists may terminate
those agreements for "cause," which generally includes our
7
9
material breach of the agreement. In some cases, an affiliated orthodontist may
terminate his or her agreement without cause after a specified period of time,
subject to substitution of another affiliated orthodontist and an obligation not
to compete within a specified area. The loss of a substantial number of our
agreements with affiliated orthodontists or a material loss of revenue by our
affiliated orthodontists, for whatever reason, could materially and adversely
affect our financial condition and results of operations.
OTHER ORTHODONTISTS AND DENTISTS COMPETE WITH OUR AFFILIATED ORTHODONTISTS, AND
OTHER COMPANIES COMPETE WITH US.
Orthodontics is a highly competitive business in each market in which our
affiliated orthodontists operate. Our affiliated orthodontists face competition
from other orthodontists and general dentists in the communities they serve.
Many of these competing orthodontists and general dentists have more established
practices. Providing business services to orthodontic practices is also a
competitive business. We compete with other companies with strategies similar to
ours in providing business services to orthodontic practices. Competitors with
greater access to financial resources may enter our markets and compete with us.
We may not be able to compete successfully with existing or new competitors.
Also, additional competition may make it more difficult for us to affiliate with
additional orthodontists on terms that are favorable to us. Any of these factors
could cause us to become less profitable.
OUR FINANCIAL RESULTS MAY SUFFER IF WE HAVE TO WRITE OFF INTANGIBLE ASSETS.
In connection with our affiliations with existing orthodontic practices, we
recorded intangible assets, net of accumulated amortization, of about $198.6
million on our balance sheet as of March 31, 2001. We may not realize the value
of these intangible assets. We expect to engage in additional transactions that
will result in our recognition of additional intangible assets and amortization
expense. Part of the amortization generated by these intangible assets is not
deductible for tax purposes. We evaluate on a regular basis whether events and
circumstances have occurred that indicate that all or a portion of the carrying
amount of these intangible assets may no longer be recoverable, and is therefore
impaired. Under current accounting rules, any future determination that
impairment has occurred would require us to write off the impaired portion of
unamortized intangible assets, resulting in a charge to our earnings. Such a
write-off could have a material adverse effect on our financial condition and
results of operations.
CHANGES IN ACCOUNTING PRINCIPLES MAY AFFECT OUR REPORTED OPERATING RESULTS AND
STOCK PRICE.
As a public company with securities registered under the Securities Exchange Act
of 1934, we prepare our financial statements in accordance with generally
accepted accounting principles. SEC Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," which summarizes the SEC staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements, became effective in the fourth quarter of 2000 for
companies, such as us, with fiscal years ending on December 31. We have modified
our revenue recognition policies to conform with the guidance in Staff
Accounting Bulletin No. 101, which resulted in a cumulative charge to our
earnings in 2000 to reflect the change in accounting principle effective January
1, 2000. This change may make it more difficult for investors to compare our
historical operating results against our future operating results. In addition,
any further changes to generally accepted accounting principles or additional
SEC statements or guidance on accounting policies may require us to further
change our accounting practices and policies. These uncertainties may cause our
stock price to decline or result in additional adjustments to our financial
results.
8
10
OUR INFORMATION SYSTEMS ARE CRITICAL TO OUR BUSINESS, AND A FAILURE OF THOSE
SYSTEMS COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our business and success depends, in part, upon our ability to store, retrieve,
process and manage a significant amount of information, and to provide our
affiliated orthodontists with efficient and effective inventory, accounting and
scheduling systems. If our information systems fail to perform as expected, of
if we suffer an interruption, malfunction or loss of information processing
capabilities, it could have a material adverse effect on our business, results
of operations, relationships with our affiliated orthodontists and ability to
affiliate with additional orthodontists.
OUR INTERNATIONAL ACTIVITIES EXPOSE US TO OPERATIONAL CHALLENGES THAT WE MIGHT
NOT OTHERWISE FACE.
We currently operate in Japan, Mexico and Spain, and may expand into additional
countries. As we increase our international activities, we will have to confront
and manage a number of risks and expenses that we would not otherwise face if we
conducted our operations solely in the United States, which could have a
material negative effect on our operating results. These risks and expenses
include:
o Difficulties in staffing and managing foreign offices as a
result of, among other things, language and cultural
differences;
o Foreign currency exchange rate fluctuations;
o Protectionist laws and business practices that favor local
companies;
o Political and economic instability in some international
markets;
o Multiple, conflicting and changing government laws and
regulations;
o Trade barriers;
o Reduced protection for intellectual property rights in some
countries; and
o Potentially adverse tax consequences.
WE DEPEND ON A FEW KEY EMPLOYEES, AND IF WE LOSE THEM OUR BUSINESS COULD SUFFER.
Our success depends upon the continued active participation of our senior
management. The loss of the services of any of these officers could have a
material adverse effect on our business. Our success also depends on our ability
to attract and retain other highly qualified managerial personnel.
OUR FINANCIAL RESULTS MAY BE DAMAGED BY SUCCESSFUL CLAIMS AGAINST OUR AFFILIATED
ORTHODONTISTS.
We provide business services to orthodontists who provide orthodontic treatment
to the public and are exposed to the risk of professional liability and other
claims. Those claims, if successful, could result in substantial damage awards.
Those awards might exceed the limits of any applicable insurance coverage.
Insurance against losses of this type can be expensive. Insurance rates vary
from state to state. We do not control the practice of orthodontics by our
affiliated orthodontists or their compliance with the legal and other
requirements applicable to orthodontists and their practices. A successful
malpractice claim against us or an affiliated orthodontist could have a material
adverse effect on our financial position and results of operations.
9
11
ANTITRUST LAWS COULD LIMIT OUR ABILITY TO OPERATE OR EXPAND.
We are subject to a range of antitrust laws that prohibit anticompetitive
conduct, including price fixing, concerted refusals to deal and divisions of
markets. These laws may limit our ability to enter into service or consulting
agreements with separate orthodontists who compete with one another in the same
geographic market.
OUR ANTI-TAKEOVER PROVISIONS MAY DISCOURAGE CHANGE IN OUR CONTROL, EVEN IF IT
WOULD BENEFIT OUR STOCKHOLDERS.
Some of the provisions of Delaware law and our certificate of incorporation and
bylaws may discourage a change in our control or make it more difficult to
achieve, even if a change in control is in our stockholders' best interests. For
example, some actions by our Board of Directors require a supermajority vote
rather than a simple majority vote. In addition, our certificate of
incorporation allows our Board of Directors to determine the preferences and
rights of preferred stock which we may issue without any vote or approval of the
holders of our common stock. The rights of common stockholders will be subject
to and may be adversely affected by the rights of the holders of any preferred
stock that we may issue in the future. Through the issuance of preferred stock
with certain powers, the Board of Directors may prevent changes in our
management and control. Our Board of Directors is divided into three classes of
directors. Directors from each class serve staggered three-year terms, which may
limit our stockholders' ability to replace a majority of our directors.
OUR STOCK PRICE MAY FLUCTUATE, AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES OF
OUR COMMON STOCK AT OR ABOVE THE PRICE YOU PAID FOR THEM.
From time to time, the market price of our common stock may fluctuate
significantly in response to a variety of factors, including:
o Variations in our financial results;
o Changes in securities analysts' recommendations about our
stock or estimates about our earnings, or our failure to
achieve estimated results;
o Announcements of material events by us or our competitors;
o Regulatory changes;
o Developments in the healthcare or business services industry;
o Changes in general conditions in the economy or financial
markets; and
o Other reasons unrelated to our financial results or condition.
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK, OR THE AVAILABILITY OF THOSE
SHARES FOR FUTURE SALE, COULD ADVERSELY AFFECT OUR STOCK PRICE AND LIMIT OUR
ABILITY TO RAISE CAPITAL.
As of March 31, 2001, we had outstanding about 49.2 million shares of
our common stock. In addition, up to 6,000,000 shares of our common stock may be
issued under our three stock option plans. As of March 31, 2001, 4,009,329
shares of our common stock were issuable upon the exercise of stock options
which were outstanding but not exercisable, and 1,043,609 shares of our common
stock were issuable upon the exercise of stock options which were outstanding
and exercisable. We have registration statements on file with the SEC
registering shares of our common stock issuable under our stock option plans. We
also intend to issue shares of our common stock from time to time in connection
with the development and affiliation of new orthodontic centers. These shares
may be issued under a shelf registration statement on file with the SEC or in
transactions exempt from registration. The market price of our common stock
could decline as a result of sales of substantial
10
12
amounts of our common stock in the public market after this offering or the
perception that substantial sales could occur. These sales also may make it more
difficult for us to sell common stock in the future.
11
13
ORTHODONTIC CENTERS OF AMERICA
OVERVIEW
We are the leading provider of integrated business services to
orthodontists. Since 1985, we have executed a retail-oriented approach to
developing orthodontic practices, which we believe has resulted in significant
increases in productivity and profitability for its affiliated orthodontists. As
of March 31, 2001, we were affiliated with over 400 orthodontists practicing in
over 600 orthodontic centers located throughout the United States and parts of
Japan, Mexico, Spain and Puerto Rico. During 2000, our affiliated orthodontists
initiated treatment of about 161,000 patients, representing initial new patient
contract balances of $494.1 million for 2000. As of March 31, 2001, our
affiliated orthodontists were treating a total of over 350,000 patients.
OUR BUSINESS
We provide our affiliated orthodontists with business, operational and
marketing expertise that enables them to realize significantly greater
productivity, practice revenue and patient volume, while maintaining high
quality orthodontic care. Our services include:
o Developing and implementing aggressive marketing plans for our
affiliated orthodontists, using television, radio and print
advertising and internal marketing programs to increase
patient volume;
o Implementing our proprietary operating systems and innovative
office designs to increase productivity;
o Integrating our proprietary, user-friendly management
information systems to provide timely information and to
enhance operational and accounting controls; and
o Combining our proprietary online ordering system and its bulk
purchasing power to reduce supply costs.
OUR OPERATING STRATEGY
We believe that we add value to our affiliated orthodontists' practices
by providing superior and innovative services that are designed to enhance
productivity and increase profitability. Key elements of our operating strategy
include:
o Emphasizing high quality patient care;
o Stimulating demand for orthodontic services through marketing
and advertising;
o Increasing market penetration with competitive patient fees
and convenient payment plans;
o Achieving operating efficiencies through proprietary operating
systems and innovative office designs; and
o Providing superior service through management information
systems.
OUR GROWTH STRATEGY
Our growth strategy focuses on enabling our affiliated orthodontists to
grow their practices and enhance their productivity, and on affiliating with
additional orthodontists in the United States and abroad. Key elements of our
growth strategy include:
12
14
o Enhancing the productivity and increasing the profitability of
existing centers through increased patient treatment
intervals, the use of general dentists as assistants, internal
marketing and other programs;
o Affiliating with additional orthodontists and orthodontic
centers;
o Establishing brand identity for the "Orthodontic Centers of
America" network of affiliated orthodontists, 1-800-4BRACES
toll-free telephone number and www.4braces.com Internet
website;
o Continuing to expand in Japan, Mexico, Spain and other
international markets; and
o Capitalizing on complementary products and services, such as
teeth whitening and non-braces treatment for adults.
OUR AFFILIATED ORTHODONTIC PRACTICES
We believe that our retail-oriented approach to developing orthodontic
practices has resulted in significant increases in productivity and
profitability for our affiliated orthodontists. Our affiliated orthodontists
have experienced significantly greater operating results than traditional
orthodontists, including significantly greater patient volume, productivity and
patient revenue, as reflected in the following table:
OCA AFFILIATED TRADITIONAL
ORTHODONTISTS (1) ORTHODONTISTS (2)
----------------- -----------------
(AVERAGE AMOUNTS PER ORTHODONTIST)
Annual advertising expenditures ............. $ 66,439 $ 4,400
Treatment fees per patient:
Down payment per patient (3) ............. $ 0 $ 976
Total fees per patient (3)(4) ............ $ 3,270 $ 3,904
New case starts per year (5) ................ 538 200
Patients treated per operating day (5) ...... 78 45
Patient fees per operating day (5) .......... $ 6,000 $ 3,000
----------
(1) Information for OCA affiliated orthodontists is for 2000.
(2) Information for traditional orthodontists is for 1998, and is derived from
the 1999 Journal of Clinical Orthodontists Orthodontic Practice Study, a
biennial study of the U.S. orthodontic industry. Information for 1999 and
2000 has not been published.
(3) For traditional orthodontists, this amount represents a weighted average.
(4) For OCA affiliated orthodontists, this amount represents the standard fee
for a term of treatment that averages 26 months.
(5) For OCA affiliated orthodontists, this amount is based upon orthodontists
who had been affiliated with us for at least 12 months as of January 1,
2000.
We develop and implement marketing and advertising plans for our
affiliated orthodontists, using television, radio and print advertising and
internal marketing promotions. During 2000, we spent an average of $66,439 per
affiliated orthodontist on direct marketing costs and advertising. In contrast,
traditional orthodontists, who rely primarily on referrals from dentists and
patients, spent an average of $4,400 on marketing and advertising in 1998.
We believe that our marketing and advertising strategy has allowed our
affiliated orthodontists to generate significantly greater patient volume than
traditional orthodontists. Each of our affiliated orthodontists who had been
affiliated with us and our subsidiaries for at least one year generated an
average of 538 new case starts during 2000, as compared to the 1998 national
average of 200 new case starts per orthodontist. During 2000, our affiliated
orthodontists generated a total of about 160,639 new case starts, representing
initial new patient contract balances of $494.1 million for 2000, an increase of
33.9% from $369.1 million for 1999.
13
15
Our operating systems and office designs, along with the efficient use
of an average of five orthodontic assistants per orthodontic center, have
enabled our affiliated orthodontists to treat more patients per day as compared
to traditional orthodontists. Our innovative office designs permit an affiliated
orthodontist to treat patients without moving from room to room. Our proprietary
patient scheduling system groups appointments by the type of procedure and
dedicates certain days exclusively to new patients. During 2000, our affiliated
orthodontists who practiced in orthodontic centers open throughout 1999 and 2000
treated an average of 78 patients per operating day, as compared to an average
of 45 patients per operating day treated during 1998 by orthodontists in the
United States generally.
Orthodontists who had been affiliated with us for at least three years
earned pre-tax practice income of about $420,000 during 2000, which was 40.0%
higher than the average pre-tax practice income of $300,000 reported in the 1999
Journal of Clinical Orthodontists Orthodontic Practice Study as earned by
orthodontists in the United States during 1998.
The following table provides information about the growth in the number
of our affiliated orthodontic centers during the periods shown:
THREE
YEAR ENDED DECEMBER 31, MONTHS ENDED
-------------------------------------------------------- MARCH 31,
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Number of centers at beginning of period ........ 145 247 360 469 537 592
Number of centers developed during period ....... 53 58 54 36 18 9
Number of centers acquired during period ........ 68 78 66 32 45 3
Number of centers consolidated during period .... (19) (23) (11) -- (8) (1)
--- --- --- --- --- ---
Number of centers at end of period .............. 247 360 469 537 592 603
=== === === === === ===
Of our 603 affiliated orthodontic centers at March 31, 2001, 315 were
developed by us, 364 were existing orthodontic practices the assets of which we
acquired and 76 were consolidated into another affiliated orthodontic center. We
expect that future growth in the number of our affiliated orthodontic centers
will come from both developing orthodontic centers with existing and newly
recruited orthodontists affiliated with us and acquiring the assets of, and
entering into service and consulting agreements with, existing orthodontic
practices.
14
16
PROPOSED MERGER WITH ORTHALLIANCE
We are a party with OrthAlliance, Inc. to an Agreement and Plan of
Merger, dated May 16, 2001 (the "Merger Agreement"), which provides for the
merger of one of our wholly-owned subsidiaries with and into OrthAlliance, with
OrthAlliance becoming our wholly-owned subsidiary (the "Merger"). Completion of
this proposed Merger is subject to a number of conditions, including approval of
the Merger Agreement by OrthAlliance stockholders.
If the Merger is completed, OrthAlliance stockholders will receive a
fixed number of shares of our common stock for each share of OrthAlliance Class
A and Class B common stock they own, except for holders of OrthAlliance Class B
common stock who properly exercise their appraisal rights under Delaware law,
with cash to be paid instead of any fractional shares of our common stock. The
amount of the exchange ratio will depend upon how many of 184 designated
orthodontists and pediatric dentists who are owners/employees of professional
entities that are parties to OrthAlliance service, management service or
consulting agreements, enter into, along with their professional entity,
amendments to their respective employment agreements and OrthAlliance service,
management service or consulting agreements prior to the Merger, as provided in
Section 2.4 of the Merger Agreement.
Our obligation to complete the Merger is also conditioned upon, among
other things, at least 56 of those 184 designated orthodontists and pediatric
dentists who are owners/employees of professional entities that are parties to
service or consulting agreements with OrthAlliance, and a number of those
orthodontists and pediatric dentists representing at least 30% of OrthAlliance's
service fees during the 12 months ended March 31, 2001, executing, along with
their professional entity, those amendments to their respective employment
agreements and OrthAlliance service, management service or consulting agreements
prior to the Merger.
Additional information about this proposed Merger may be obtained from
a registration statement on Form S-4, and a related prospectus/proxy statement,
that we have filed with the Securities and Exchange Commission in connection
with the proposed Merger.
15
17
INCENTIVE PROGRAMS FOR ORTHALLIANCE ALLIED PRACTITIONERS
OVERVIEW
In connection with the proposed Merger, we have implemented the
following six programs under which we may offer shares of our common stock to
certain orthodontists and pediatric dentists who are owners and employees
("OrthAlliance Affiliated Practitioners") of professional entities that are
parties to service, management service, consulting or similar long-term
agreements ("OrthAlliance Service or Consulting Agreements") with OrthAlliance
and its subsidiaries:
o Stock Pool Program;
o Target Stock Program;
o OrthAlliance Stockholder Bonus Program;
o High Participation Bonus Program;
o Conversion Incentive Program; and
o Doctors Trust Program.
The Stock Pool Program, Target Stock Program, OrthAlliance Stockholder
Bonus Program and High Participation Bonus Program provide incentives to
OrthAlliance Affiliated Practitioners who, along with their respective
professional entities, either:
o 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 (the "Amendments"), or
o Enter into our form of business services agreement (the "OCA
Business Services Agreement") with us or OrthAlliance in
replacement of their existing OrthAlliance Service or
Consulting Agreement effective as of the proposed Merger with
OrthAlliance.
The Conversion Incentive Program and Doctors Trust Program 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 completion of the proposed Merger.
Each of these programs would be conditioned upon, and subject to,
completion of the proposed Merger, execution of a participation agreement and
compliance with federal and state securities laws.
These programs will be administered by a committee consisting of
officers of OCA. The committee is authorized to interpret provisions of the
programs and make determinations it deems advisable for the administration of
the programs. Any decision made, or action taken, by the committee to administer
the programs will be final and conclusive.
We may amend or terminate each of these programs at any time; however,
an amendment that would have a material adverse effect on a participant's rights
under an outstanding award under a program would require the participant's
consent.
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 his or
her employment as an orthodontist or pediatric dentist, as applicable, for a
period of at least three years following the Merger. 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
our 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 we otherwise agree, and continue the orthodontist's or
pediatric dentist's employment as an
16
18
orthodontist or pediatric dentist, as applicable, for a period of at least three
years following the Merger. These Amendments would be conditioned upon
completion of the Merger. If the Merger Agreement is terminated, other than due
to completion of the Merger, the Amendments would also terminate.
The OCA Business Services Agreements would be based on our form of
business services agreement, including provisions regarding services to be
provided, service fees, termination and restrictive covenants. These OCA
Business Services Agreements would become effective upon completion of the
Merger. If the Merger Agreement is terminated, other than due to completion of
the Merger, these OCA Business Services Agreements would also terminate.
INCENTIVES FOR AMENDING EXISTING EMPLOYMENT AGREEMENT AND ORTHALLIANCE
AGREEMENT, OR ENTERING INTO NEW OCA AGREEMENT
We may offer shares of our common stock to OrthAlliance Affiliated
Practitioners as an incentive for these individuals and their professional
entities to enter into the Amendments or an OCA Business Services Agreement
prior to the Merger. These shares may be issued to eligible OrthAlliance
Affiliated Practitioners generally on the following terms under our:
o Stock Pool Program;
o Target Stock Program;
o OrthAlliance Stockholder Bonus Program; and
o High Participation Bonus Program.
STOCK POOL PROGRAM
Under our Stock Pool Program, we may grant shares of our common stock
to eligible OrthAlliance Affiliated Practitioners who, along with their
professional entity, enter into the Amendments or an OCA Business Services
Agreement by the earlier to occur of September 30, 2001 or the effective time 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 and with respect to 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
the closing date of the Merger but no later than
December 31, 2001.
TIMING BASED AMOUNT. An additional number of shares for the first 180
OrthAlliance Affiliated Practitioners who enter into the Amendments or an OCA
Business Services Agreement, within specified time limits as described below.
For those OrthAlliance Affiliated Practitioners who do so:
>> By June 22, 2001:
(i) 900 shares,
PLUS
17
19
(ii) 200 shares for each additional 20 of those
OrthAlliance Affiliated Practitioners who do
so from June 23 - July 27, 2001;
>> 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;
EXCEPT, FOR
OrthAlliance Affiliated Practitioners who were issued
shares of OrthAlliance common stock in connection
with entering into their OrthAlliance Service or
Consulting Agreement or their sale of assets or
capital stock to OrthAlliance, who would instead be
granted:
(i) 900 shares,
PLUS
(ii) 200 shares for each additional 20 of those
OrthAlliance Affiliated Practitioners who do
so from June 30 - July 27, 2001;
>> 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;
>> 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;
>> 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; and
>> July 21 - 27, 2001:
(i) 300 shares.
CLINICAL ADVISORY COMMITTEE MEMBERS. In addition, each of the 12
OrthAlliance Affiliated Practitioners who are selected by us and OrthAlliance to
serve on our Clinical Advisory Committee upon completion of the Merger, and who
do serve on that committee, may be granted 2,500 shares of our common stock if,
by June 22, 2001, that individual and his or her professional entity enters into
the Amendments or an OCA Business Services Agreement.
DATES SHARES ISSUED; 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 completion of the Merger if the amount of service or consulting fees paid
by the OrthAlliance Affiliated Practitioner and his or her professional entity
to
18
20
us or our subsidiary during and for the 12 calendar months prior to that
anniversary is at least 90% of the amount of service or consulting fees they
paid to OrthAlliance or its subsidiary during and for the 12 calendar months
immediately preceding the completion of the Merger. However, if that 90% minimum
target is not achieved in a particular 12 calendar month period, but is achieved
during one of the subsequent 12 calendar month periods prior to the third
anniversary of the Merger, then the installment of shares would be issuable at
that time.
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 Amendments or OCA Business Services Agreement,
as applicable, by the earlier to occur of September 30, 2001 or the effective
time of 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 enter into the Amendments or an OCA Business
Services Agreement by the earlier to occur of September 30, 2001 or the
effective time of the Merger. Participation would also require the execution of
a written participation agreement between us 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 respective 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 us.
TARGET STOCK PROGRAM
Under our Target Stock Program, we may grant eligible OrthAlliance
Affiliated Practitioners shares of our common stock, except as described below,
as follows:
FOR NEW OCA AGREEMENTS. 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, we may issue them a number of shares of our common stock equal to:
(x) 3,
TIMES
(y) 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 us or our 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 completion of 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
19
21
(z) AVERAGE CLOSING PRICE AT THIRD ANNIVERSARY. The
average closing price of our common stock during the
10 trading days immediately preceding the third
anniversary of the completion of the Merger,
IF, during the 12 calendar months immediately preceding the third
anniversary of the completion of the Merger, the amount of:
(A) Service or consulting fees, excluding any center or
other expense reimbursement, paid to us or our
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 us or our 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 completion of 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 completion 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 completion of the Merger, based on the
assumptions described above, then we would grant the OrthAlliance
Affiliated Practitioner a pro rata amount of the shares of our common
stock that we would 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 would be granted
one-half of the number of shares issuable if the target had been
achieved.
FOR AMENDMENTS. For OrthAlliance Affiliated Practitioners who, along
with their respective professional entities, enter into the Amendments prior to
completion of the Merger, we may issue them a number of shares of our common
stock equal to:
(x) 3,
TIMES
(y) 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
completion of the Merger,
DIVIDED BY
(z) AVERAGE CLOSING PRICE AT THIRD ANNIVERSARY. The
average closing price of our common stock during the
10 trading days immediately preceding the third
anniversary of the completion of the Merger,
IF, during and for the 12 calendar months immediately preceding the
third anniversary of the completion of the Merger, the amount of:
20
22
(A) Service or consulting fees, excluding any center or
other expense reimbursement, paid to us or our
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 completion of 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 completion 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 completion of the Merger, then we
would grant the OrthAlliance Affiliated Practitioner a pro rata amount
of the shares of our common stock that we would 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.
WE MAY CHOOSE TO SUBSTITUTE INTEREST BEARING NOTE. We may elect under
the Target Stock Program, in our sole discretion, to issue the OrthAlliance
Affiliated Practitioner a non-transferable promissory note in lieu of shares of
our common stock. The original principal amount of the promissory note would be
the amount calculated in determining the amount of shares that would otherwise
be issued, but without dividing by the price per share of our common stock. We
would pay principal and accrued interest under the promissory note in annual
installments over a period of five years. The note would bear interest at the
prime rate plus 1.5% per year. Payment of each annual installment of principal
and interest under the promissory note would be subject to satisfaction of the
same condition described in the following paragraph with respect to issuance of
shares of our 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 completion of the Merger if the amount of service or
consulting fees paid by the OrthAlliance Affiliated Practitioner and his or her
professional entity to us or our subsidiary during and for the 12 calendar
months prior to that anniversary is at least 90% of the amount of service or
consulting fees they paid to OrthAlliance or its subsidiary during and for the
12 calendar months prior to completion of the Merger. However, if that 90%
minimum target is not achieved in a particular 12 calendar month period, but is
achieved during one of the subsequent 12 calendar month periods prior to the
eighth anniversary of the completion of the Merger, then the installment of
shares would be issuable at that time.
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 Amendments or OCA Business Services
Agreement, as applicable, prior to completion of 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 enter into the Amendments or an OCA Business
Services Agreement prior to completion of the Merger.
21
23
Participation would also require the execution of a written participation
agreement between us 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 us.
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.
DUE DILIGENCE TO DETERMINE OPERATING MARGIN. To permit us 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 us with
financial information we reasonably request about his or her practice.
ORTHALLIANCE STOCKHOLDER BONUS PROGRAM
We have received from OrthAlliance a listing of those OrthAlliance
Affiliated Practitioners who received shares of OrthAlliance common stock as 50%
or more of the consideration paid in connection with originally entering into
their OrthAlliance Service or Consulting Agreement and selling assets or capital
stock to OrthAlliance (the "OrthAlliance Stock Recipients").
Under our OrthAlliance Stockholder Bonus Program, we may grant shares
of our common stock to certain eligible OrthAlliance Stock Recipients who, along
with their professional entities enter into the Amendments or OCA Business
Services Agreements by the earlier to occur of September 30, 2001 or the
effective time 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 the following minimum amount of OrthAlliance Affiliated
Practitioners, along with their professional entity, enter into the Amendments
or an OCA Business Services Agreement by the earlier to occur of September 30,
2001 or the effective time of the Merger:
Minimum Number of OrthAlliance Affiliated Practitioners:
(a) At least 120 OrthAlliance Affiliated
Practitioners,
AND
(b) 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 our common stock available for grant under this program
varies depending on (a) the number of OrthAlliance Affiliated Practitioners who,
along with their professional entities, enter into the Amendments or OCA
Business Services Agreements, by the earlier to occur of September 30, 2001 or
the effective time of the Merger and (b) the percentage of OrthAlliance's
service fees during
22
24
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 AGREEMENTS BY THE EARLIER TO OCCUR OF
SEPTEMBER 30, 2001 OR THE EFFECTIVE TIME OF THE MERGER
TOTAL NUMBER OF -------------------------------------------------------------------------------
SHARES AVAILABLE PERCENTAGE OF ORTHALLIANCE
UNDER PROGRAM NUMBER ANNUAL SERVICE FEES REPRESENTED
-------------------- ------------------------- --------------------------------
400,000............. At least 138 or more and At least 75.00% or more
300,000............. At least 129 to 137 and At least 70.00% - 74.99%
200,000............. At least 120 to 128 and At least 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 base number of shares of OCA common stock and a pro rata
amount of any remaining shares available for grant under the program.
BASE NUMBER OF SHARES. The base number of shares to be awarded varies
depending on (A) the number of OrthAlliance Affiliated Practitioners
who, along with their professional entity, enter into the Amendments or
OCA Business Services Agreements by the earlier to occur of September
30, 2001 or the effective time of the Merger and (B) the percentage of
OrthAlliance's service fees during the 12 months ended March 31, 2001
(with certain adjustments and annualization as described in Section 2.4
of the Merger Agreement) represented by those OrthAlliance Affiliated
Practitioners, as described in the following chart:
ORTHALLIANCE AFFILIATED PRACTITIONERS EXECUTING AMENDMENTS
OR NEW AGREEMENTS BY THE EARLIER TO OCCUR OF
BASE NUMBER OF SEPTEMBER 30, 2001 OR THE EFFECTIVE TIME OF THE MERGER
SHARES PER --------------------------------------------------------------------------
PARTICIPANT IN PERCENTAGE OF ORTHALLIANCE ANNUAL
PROGRAM NUMBER SERVICE FEES REPRESENTED
-------------- -------------------- -----------------------------------
2,000.......... At least 138 or more and At least 75.00% or more
1,500.......... At least 129 to 137 and At least 70.00% - 74.99%
1,000.......... At least 120 to 128 and At least 65.00% - 69.99%
0.......... Less than 120 or Less than 65.00%
PRO RATA AMOUNT OF REMAINING SHARES. A pro rata amount of any remaining
shares of our common stock available for grant under the program based
on the participant's 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
OrthAlliance Stock Recipient 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 in
that transaction,
MINUS
23
25
(ii) The product of (A) a multiple, determined according
to the amount of OrthAlliance Affiliated
Practitioners entering into the Amendments or OCA
Business Services Agreements by the earlier to occur
of September 30, 2001 or the completion of the
Merger, as described in the following table, and (B)
the amount of service fees paid by the participant to
OrthAlliance or its subsidiary during the 12 months
ended March 31, 2001 (with certain adjustments and
annualization as described in Section 2.4 of the
Merger Agreement), 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 AGREEMENTS BY THE EARLIER TO OCCUR OF
MULTIPLE FOR SEPTEMBER 30, 2001 OR THE EFFECTIVE TIME OF THE MERGER
POTENTIAL LOSS IN -----------------------------------------------------------------------------
STOCK PERCENTAGE OF ORTHALLIANCE ANNUAL
CONSIDERATION NUMBER SERVICE FEES REPRESENTED
----------------- -------------------- ---------------------------------
4.50 x......... At least 138 or more and At least 75.00% or more
3.35 x......... At least 129 to 137 and At least 70.00% - 74.99%
2.75 x......... At least 120 to 128 and At least 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 completion of the Merger if the amount of service or
consulting fees paid by the OrthAlliance Affiliated Practitioner and his or her
professional entity to us or our subsidiary during and for the 12 calendar
months prior to that anniversary is at least 90% of the amount of service or
consulting fees they paid to OrthAlliance or its subsidiary during and for the
12 calendar months prior to the completion of the Merger. However, if that 90%
minimum target is not achieved in a particular 12 calendar month period, but is
achieved during one of the subsequent 12 calendar month periods prior to the
fifth anniversary of the completion of the Merger, then the installment of
shares would be issuable at that time.
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 enter into the Amendments or an OCA Business
Services Agreement by the earlier to occur of September 30, 2001 or the
completion of the Merger. Participation would also require the execution of a
written participation agreement between us 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 us.
24
26
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, the co-owner OrthAlliance Affiliated
Practitioners would have to execute and deliver the Amendments or OCA Business
Services Agreement, as applicable, by the earlier to occur of September 30, 2001
or the effective time of the Merger, as applicable.
HIGH PARTICIPATION BONUS PROGRAM
Under our High Participation Bonus Program, we may grant shares of our
common stock to certain eligible OrthAlliance Affiliated Practitioners who,
along with their professional entity enter into the Amendments or, as applicable
OCA Business Services Agreements by the earlier to occur of September 30, 2001
or the effective time 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 the following minimum amount of OrthAlliance Affiliated
Practitioners, along with their professional entities, enter into the Amendments
or OCA Business Services Agreements by the earlier to occur of September 30,
2001 or the completion 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% of OrthAlliance's
service fees during the 12 months ended March 31,
2001.
AWARD OF SHARES TO 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, enter into the Amendments or an OCA Business Services
Agreement by the earlier to occur of September 30, 2001 or the effective time 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 (with certain adjustments and annualization as described in
Section 2.4 of the Merger Agreement), as described in the following chart:
ORTHALLIANCE AFFILIATED PRACTITIONERS EXECUTING AMENDMENTS
BY THE EARLIER TO OCCUR OF SEPTEMBER 30, 2001 OR
THE EFFECTIVE TIME OF THE MERGER
NUMBER OF SHARES ------------------------------------------------------------------------
PER PARTICIPANT IN PERCENTAGE OF ORTHALLIANCE ANNUAL
PROGRAM NUMBER SERVICE FEES REPRESENTED
------------------ -------------------- ---------------------------------
1,000........... At least 157 or more and At least 85.00% or more
500........... At least 148 to 156 and At least 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 completion of the Merger if the amount of service or
consulting fees paid by the OrthAlliance Affiliated Practitioner and his or her
professional entity
25
27
to us or our subsidiary during and for the 12 calendar months prior to that
anniversary is at least 90% of the amount of service or consulting fees they
paid to OrthAlliance or its subsidiary during and for the 12 calendar months
prior to the completion of the Merger. However, if that 90% minimum target is
not achieved in a particular 12 calendar month period, but is achieved during
one of the subsequent 12 calendar month periods prior to the fifth anniversary
of the completion of the Merger, then the installment of shares would be
issuable at that time.
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 enter into the Amendments or an OCA Business
Services Agreement by the earlier to occur of September 30, 2001 or the
effective time 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 us.
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, the co-owner OrthAlliance Affiliated
Practitioners would have to execute and deliver the Amendments or OCA Business
Services Agreement, as applicable, by the earlier to occur of September 30, 2001
or the effective time of the Merger.
ADDITIONAL INCENTIVES FOR ENTERING INTO NEW OCA AGREEMENT
In addition to the four programs described above, we may offer
additional shares of our 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 completion of 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 our:
o Conversion Incentive Program; and
o Doctors Trust Program.
CONVERSION INCENTIVE PROGRAM
Under our Conversion Incentive Program, we may grant shares of our
common stock to eligible OrthAlliance Affiliated Practitioners who, along with
their professional entities, enter into OCA Business Services Agreements by the
earlier to occur of September 30, 2001 or the effective time of the Merger, in
an amount equal to:
(a) 4,
TIMES
26
28
(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 us or our 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
completion of 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
completion of the Merger under their
existing OrthAlliance Service or Consulting
Agreement,
DIVIDED BY
(c) AVERAGE CLOSING PRICE AT MERGER. The average closing
price of our common stock during the 10 trading days
prior to completion of the Merger.
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 completion of the Merger if the amount of service or
consulting fees paid by the OrthAlliance Affiliated Practitioner and his or her
professional entity to us or our subsidiary during and for the 12 calendar
months prior to that anniversary is at least 90% of the amount of service or
consulting fees they paid to OrthAlliance or its subsidiary during and for the
12 calendar months prior to the completion of the Merger. However, if that 90%
minimum target is not achieved in a particular 12 calendar month period, but is
achieved during one of the subsequent 12 calendar month periods prior to the
fifth anniversary of the completion of the Merger, then the installment of
shares would be issuable at that time.
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 earlier to occur of September 30,
2001 or the effective time of the Merger, enter into an OCA Business Services
Agreement in replacement of their existing OrthAlliance Service or Consulting
Agreement effective as of the completion of the Merger. Participation would also
require the execution of a written participation agreement between us 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 us.
27
29
DUE DILIGENCE TO DETERMINE OPERATING MARGIN. To permit us to determine
the appropriate operating margin for computing the number of shares to be
granted under this program, the OrthAlliance Affiliated Practitioner would
provide us with financial information we reasonably request 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 the
earlier to occur of September 30, 2001 or the effective time of the Merger.
DOCTORS TRUST PROGRAM
Under our Doctors Trust Program, for eligible OrthAlliance Affiliated
Practitioners who enter into an OCA Business Services Agreement prior to
effective time of the Merger:
TWO YEAR OPTION TO PURCHASE SHARES. At anytime during the two years
immediately following the completion of the Merger, the OrthAlliance Affiliated
Practitioner could elect, by giving us written notice, to purchase a number of
shares of our common stock equal to (1) $60,000, divided by (2) the average
closing sales price per share of our common stock reported for the 10 trading
days immediately prior to completion of 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 completion 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 completion 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:
o OrthAlliance Affiliated Practitioner 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 completion of the Merger, or
o OrthAlliance Affiliated Practitioner ceases to own an equity
interest in the professional entity that is a party to his or
her OCA Business Services Agreement prior to the tenth
anniversary of the completion of the Merger, or
o OrthAlliance Affiliated Practitioner and his or her
professional entity's OCA Business Services Agreement
terminates, or
o OrthAlliance Affiliated Practitioner or his or her
professional entity fails to utilize our proprietary computer
software and business systems in connection with the business
functions of their practice, or
o OrthAlliance Affiliated Practitioner or his or her
professional entity fails to comply with our policies,
procedures and systems, including a productive working
relationship with our corporate office staff and other
orthodontists and dental professionals who are affiliated with
us, fails to fulfill his or her financial obligations to us or
our 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
28
30
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.
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 completion of the Merger, then the OrthAlliance Affiliated Practitioner
could thereafter transfer his or her practice to another orthodontist or
pediatric dentist, as applicable, acceptable to us 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 the 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 completion of the Merger.
Participation would also require the execution of a written participation
agreement between us 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 us.
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.
ISSUANCE TO PROFESSIONAL CORPORATION. Shares of our common stock issued
under this program may be issued to the participant's professional corporation
or other entity, rather than to the individual participant. If the professional
corporation is conveyed to a successor practitioner in accordance with the
applicable OCA Business Services Agreement, the shares of our common stock would
not be forfeited due to that event, but rather would continue as an asset of the
professional corporation under the ownership of the successor practitioner. For
purposes of the minimum number of years of full-time employment and ownership of
the professional corporation required under this program, the successor would be
credited with those of the original owner of the professional corporation.
29
31
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal
income tax consequences of the issuance of shares of our common stock under our
Stock Pool Program, Target Stock Program, OrthAlliance Stockholder Bonus
Program, High Participation Bonus Program, Conversion Incentive Program and
Doctors Trust Program to OrthAlliance Affiliated Practitioners who participate
in these programs. The summary is based on the Internal Revenue Code, applicable
Treasury regulations, and administrative rulings and court decisions in effect
as of the date of this prospectus, all of which are subject to change at any
time, possibly with retroactive effect.
This discussion of material U.S. federal income tax consequences is
intended to provide only a general summary, and is not a complete analysis or
description of all potential federal income tax consequences of these programs.
This discussion does not address tax consequences that may vary with, or are
contingent on, individual circumstances. In addition, it does not address any
non-income tax or any foreign, state or local tax consequences of these
programs. ACCORDINGLY, WE URGE YOU TO CONSULT WITH YOUR TAX ADVISOR REGARDING
THE TAX CONSEQUENCES OF THESE PROGRAMS TO YOU, INCLUDING THE EFFECTS OF U.S.
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND OF POTENTIAL CHANGES TO
APPLICABLE TAX LAW.
STOCK POOL PROGRAM, TARGET STOCK PROGRAM, ORTHALLIANCE STOCKHOLDER BONUS
PROGRAM, HIGH PARTICIPATION BONUS PROGRAM AND CONVERSION INCENTIVE PROGRAM
Shares of our common stock offered under the Stock Pool Program, the
Target Stock Program, the OrthAlliance Stockholder Bonus Program, the High
Participation Bonus Program and the Conversion Incentive Program will not be
subject to any contractual restrictions on transfer after they are issued to the
applicable OrthAlliance Affiliated Practitioner. Accordingly, an OrthAlliance
Affiliated Practitioner who receives shares of our common stock under these
programs would recognize ordinary income at the time that we issue these shares
of our common stock to him or her. The amount of income to be recognized would
equal the fair market value of the shares of our common stock received on the
date of issuance.
If we exercise our right under the Target Stock Program to issue an
interest-bearing promissory note to the OrthAlliance Affiliated Practitioner in
lieu of shares of our common stock, the OrthAlliance Affiliated Practitioner
would recognize ordinary income at the time the payments are received under the
promissory note.
We are generally entitled to take a tax deduction at the same time and
in the same amount that the OrthAlliance Affiliated Practitioner recognizes as
income under these programs. Because we do not employ OrthAlliance Affiliated
Practitioners, we are not required to withhold amounts for federal income taxes.
Any subsequent gains on the shares of common stock received under these
programs would be subject to capital gains treatment at the time the shares are
sold. For this purpose, the OrthAlliance Affiliated Practitioner's tax basis in
these shares of common stock is the amount of income recognized by the
OrthAlliance Affiliated Practitioner at the time the shares are issued. Reduced
capital gains rates apply to the shares of common stock that the OrthAlliance
Affiliated Practitioner holds for at least 12 months before they are sold. A
further rate reduction applies if the shares are held for at least five years
from the date of issuance.
DOCTORS TRUST PROGRAM
The federal tax consequences under the Doctors Trust Program is
different in some respects from tax consequences under the Stock Pool Program,
the Target Stock Program, the OrthAlliance Stockholder Bonus Program, the High
Participation Bonus Program and the Conversion Incentive Program. The right to
purchase shares of our common stock under the Doctors Trust Program during
30
32
the two years following completion of the Merger would be treated as a stock
option for tax purposes. Generally, an OrthAlliance Affiliated Practitioner will
not recognize income, and we are not entitled to take a deduction, upon the
issuance of this option to purchase shares. Moreover, because the shares of our
common stock are subject to substantial restrictions and risk of forfeiture, the
OrthAlliance Affiliated Practitioner would not recognize income, and we would
not be entitled to take a deduction, upon the exercise of the option to purchase
shares of our common stock under the Doctors Trust Program. OrthAlliance
Affiliated Practitioners will recognize ordinary income on shares of our common
stock on the date that the shares become transferable under the Doctors Trust
Program. The amount of income to be recognized would be based on the fair market
value of common stock on that date, less the amount paid by the OrthAlliance
Affiliated Practitioner to purchase those shares. An OrthAlliance Affiliated
Practitioner may instead elect to recognize income at the time that shares are
"transferred" under the Doctors Trust Program to the OrthAlliance Affiliated
Practitioner. For this purpose, a transfer generally occurs at the time the
OrthAlliance Affiliated Practitioner exercises the option to purchase the shares
of our common stock. This election is described in Section 83(b) of the Internal
Revenue Code and must be made in writing to the Internal Revenue Service no
later than 30 days after the shares are transferred. If an OrthAlliance
Affiliated Practitioner makes this election under Section 83(b), he will be
taxed on the fair market value of the common stock on the date of transfer.
The OrthAlliance Affiliated Practitioner would be subject to capital
gains treatment on the subsequent sale of common stock after the stock becomes
vested or transferable. For this purpose, the OrthAlliance Affiliated
Practitioner's tax basis in the shares of common stock would be the amount of
income recognized by the OrthAlliance Affiliated Practitioner due to the vesting
of the shares or, as applicable, due to the OrthAlliance Affiliated
Practitioner's election under Section 83(b). Reduced capital gains rates would
apply to the shares of common stock that the OrthAlliance Affiliated
Practitioner holds for at least 12 months before they are sold. A further
reduction in the capital gains rate would apply if the shares are held for at
least five years. A loss resulting from a forfeiture of shares of common stock
under the terms of the Doctors Trust Program or a decrease in value after a
Section 83(b) election is made would be treated as a capital loss.
We are generally entitled to take a tax deduction at the same time and
in the same amount that the OrthAlliance Affiliated Practitioner recognizes as
income due to the stock award. Because we do not employ the OrthAlliance
Affiliated Practitioners, we are not required to withhold amounts for federal
income taxes.
31
33
FORWARD-LOOKING INFORMATION
This prospectus contains some forward-looking statements about our
financial condition, results of operations and business. These statements appear
in several sections of this prospectus and generally include any of the words
"believe," "expect," "anticipate," "intend," "estimate," "would," "could,"
"should," "will," "plan" or similar expressions. These forward-looking
statements include, without limitation, statements regarding our operating and
growth strategies.
Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions, many of which are
unpredictable and not within our control. Our future results and shareholder
values may differ materially from those expressed in these forward-looking
statements because of a variety of risks and uncertainties, including:
o General economic and business conditions;
o Our expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
o Anticipated trends in our business;
o Existing and future regulations affecting our business; and
o Other risk factors described under "Risk Factors" in this
prospectus.
We do not intend to update these forward-looking statements after this
prospectus is distributed, even if new information, future events or other
circumstances have made them incorrect or misleading as of any future date. For
all of these statements, we claim the protection of the safe harbor for
forward-looking statements provided in Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
USE OF PROCEEDS
We intend to use our net proceeds from this offering for working
capital and other general corporate purposes.
PLAN OF DISTRIBUTION
From time to time, we intend to issue shares of our common stock to
orthodontists and pediatric dentists who are owners and employees of
professional entities that are parties to, service, management service or
consulting agreements with OrthAlliance or its subsidiaries. These shares would
be offered directly by us in privately negotiated transactions. We will bear the
expenses of this offering. We will not pay any commissions, discounts,
concessions or other compensation to any underwriter or broker-dealer in
connection with this offering.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Our SEC filings
are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file with the SEC
at the SEC's following public reference facilities:
Public Reference Room New York Regional Office Chicago Regional Office
Room 1024 Suite 1300 Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center Suite 1400
Washington, D.C. 20549 New York, New York 10048 500 West Madison Street
Chicago, Illinois 60661-2511
32
34
You may also obtain copies of the documents at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. Please call 1-800-SEC-0330 for further
information on the operations of the public reference facilities. Our SEC
filings are also available at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
This prospectus is part of a registration statement on Form S-3 that we
filed under the Securities Act of 1933. As allowed by SEC rules, this prospectus
does not contain all the information you can find in the registration statement
or the exhibits to the registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" in this prospectus the
information we file with the SEC, which means:
o Incorporated documents are considered part of this prospectus;
o We can disclose important information to you by referring you
to those documents; and
o Information that we file with the SEC will automatically
update and supersede the information in this prospectus and
any information that was previously incorporated, and any
statement that is so updated or superseded will not be deemed
a part of this prospectus.
We incorporate by reference the documents listed below which we filed
with the SEC under the Securities Exchange Act of 1934:
o Annual report on Form 10-K for the year ended December 31,
2000, and an amendment on Form 10-K/A-1 to our Annual Report
on Form 10-K for the year ended December 31, 2000, filed on
April 27, 2001;
o Quarterly report on Form 10-Q for the quarter ended March 31,
2001;
o Current Report on Form 8-K filed March 16, 2001;
o Current Report on Form 8-K filed May 18, 2001;
o Annual Report for the Orthodontic Centers of America, Inc.
401(k) Profit Sharing Plan on Form 11-K for the year ended
December 31, 2001; and
o The section entitled "Description of Common Stock" in our
registration statement on Form 8-A, filed on October 7, 1997.
We also incorporate by reference each of the following documents that
we will file with the SEC after the date of the initial filing of the
registration statement and prior to the time we sell all of the shares of our
common stock offered by this prospectus:
o Reports filed under Section 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section
14 of the Exchange Act in connection with any subsequent
stockholders' meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You can obtain any of the filings incorporated by reference in this
document through us, or from the SEC through the SEC's web site or at the
addresses listed above. Documents incorporated
33
35
by reference are available from us without charge, excluding any exhibits to
those documents unless the exhibit is specifically incorporated by reference as
an exhibit in this prospectus. You can obtain documents incorporated by
reference in this prospectus by requesting them in writing or by telephone from
us at the following address:
Orthodontic Centers of America, Inc.
5000 Sawgrass Village Circle, Suite 25
Ponte Vedra Beach, Florida 32082
Attention: Investor Relations
Telephone: (904) 280-6285
You should rely only on the information contained in or incorporated by
reference in this prospectus in considering whether or not to purchase shares of
our common stock in this offering. We have not authorized anyone to provide you
with information that is different from the information in this prospectus. You
should not assume that the information contained in this document is accurate as
of any date other than the date of this prospectus.
LEGAL MATTERS
Waller Lansden Dortch & Davis, A Professional Limited Liability
Company, Nashville, Tennessee, special counsel to OCA, has passed on certain
legal matters with respect to the validity of the shares of our common stock
offered under this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements appearing in Orthodontic Centers of America, Inc.'s Annual
Report (Form 10-K), as amended by Form 10-K/A, for the year ended December 31,
2000, as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. Our financial statements
are incorporated by reference in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
34
36
ANNEX A
ORTHODONTIC CENTERS OF AMERICA, INC.
STOCK POOL PROGRAM
37
ORTHODONTIC CENTERS OF AMERICA, INC.
STOCK POOL PROGRAM
PREAMBLE
WHEREAS, Orthodontic Centers of America, Inc., a Delaware corporation
("OCA"), OCA Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of OCA ("OCA Merger Sub"), and OrthAlliance, Inc., a Delaware
corporation ("OrthAlliance"), are parties to that certain Agreement and Plan of
Merger, dated as of May 16, 2001 (the "Merger Agreement"), among such parties,
pursuant to which OCA Merger Sub is to merge with and into OrthAlliance, with
OrthAlliance thereby becoming a wholly-owned subsidiary of OCA (the "Merger"),
subject to various conditions; and
WHEREAS, OCA desires to establish a program through which OCA may grant
shares of its common stock, $.01 par value per share ("OCA Common Stock"), to
certain eligible individuals (each such eligible individual, a "Participant")
who are OrthAlliance Affiliated Practitioners and who timely execute and deliver
an Amendment to OrthAlliance Service/Consulting Agreement and Amendment to
Employment Agreement and/or OCA Business Services Agreement (each as defined
below), subject to the terms described herein and completion of the Merger;
NOW, THEREFORE, OCA hereby establishes the Orthodontic Centers of
America, Inc. Stock Pool Program (the "Program").
ARTICLE I. ELIGIBILITY
In order for any person to be eligible to be a Participant in the
Program, or to be granted shares of OCA Common Stock under the Program or any
Participation Agreement (as defined below), he or she must meet or comply with
each of the following:
1.1 Must Be An OrthAlliance Affiliated Practitioner. In order to be a
Participant in the Program and to be issued any shares of OCA Common Stock under
or pursuant to the Program or any Participation Agreement (as defined below), a
person must be a licensed orthodontist or pediatric dentist who both (i) owns,
beneficially and of record, shares of capital stock of, or partnership,
membership or other equity interests in, a professional corporation or other
professional entity (each, an "OrthAlliance Affiliated PC") that is a party to a
written long-term service, management service, consulting or similar long-term
agreement with OrthAlliance and/or a subsidiary thereof pursuant to which
OrthAlliance and/or its subsidiary is providing business management or
consulting services for such Participant's orthodontic or pediatric dental
practice in exchange for a consulting or service fee (each an "OrthAlliance
Service/Consulting Agreement"), and (ii) is a full-time employee as an
orthodontist or pediatric dentist, as applicable, of such OrthAlliance
Affiliated PC (each such person, an "OrthAlliance Affiliated Practitioner").
Each Participant must also be a party to a written employment agreement (each,
an "Employment Agreement") with his or her respective OrthAlliance Affiliated
PC, pursuant to which such Participant provides orthodontic or pediatric dental
services as a full-time employee of such OrthAlliance Affiliated PC.
1.2 Must Amend Employment and Service/Consulting Agreement or Enter Into New OCA
Business Services Agreement. In order to be a Participant in the Program and to
be issued any shares of OCA Common Stock under or pursuant to the Program or any
Participation Agreement, an OrthAlliance Affiliated Practitioner must also,
along with his or her respective OrthAlliance Affiliated PC, execute and deliver
their respective (i) Amendments (as defined below) and/or (ii) OCA Business
Services Agreement (as defined below) no later than the earlier to occur of
September 30, 2001 or the effective time of the Merger. In addition, if such
OrthAlliance Affiliated PC is partially
A-1
38
owned by one or more other OrthAlliance Affiliated Practitioners, then each of
such other OrthAlliance Affiliated Practitioners must also execute and deliver
their respective Amendments and/or OCA Business Services Agreement) no later
than the earlier to occur of September 30, 2001 or the effective time of the
Merger.
For purposes of the Program:
"Amendments" means an Amendment to Employment Agreement (as defined
below) and an Amendment to OrthAlliance Service/Consulting Agreement (as defined
below).
"Amendment to Employment Agreement" shall mean a written amendment to
the OrthAlliance Affiliated Practitioner's respective Employment Agreement, in
form and substance satisfactory to OCA and its counsel, which amendment shall be
in full force and effect upon and following the effective time of the Merger,
include OrthAlliance as a third party beneficiary and provide for an agreement
by such OrthAlliance Affiliated Practitioner and the applicable OrthAlliance
Affiliated PC to continue the employment of such OrthAlliance Affiliated
Practitioner by such OrthAlliance Affiliated PC as an orthodontist or pediatric
dentist, as applicable, for a period of at least three years following the
closing date of the Merger.
"Amendment to OrthAlliance Service/Consulting Agreement" means a
written amendment to the respective OrthAlliance Service/Consulting Agreement
relating to the OrthAlliance Affiliated Practitioner's OrthAlliance Affiliated
Practice and the applicable OrthAlliance Affiliated PC employing the
OrthAlliance Affiliated Practitioner, in form and substance satisfactory to OCA
and its counsel, which amendments shall be in full force and effect upon and
following the effective time of the Merger, and provide for (A) an agreement by
such OrthAlliance Affiliated Practitioner and OrthAlliance Affiliated PC to
continue the employment of such OrthAlliance Affiliated Practitioner by such
OrthAlliance Affiliated PC as an orthodontist or pediatric dentist, as
applicable, for a period of at least three years following the closing date of
the Merger, (B) an agreement by such OrthAlliance Affiliated Practitioner to
guarantee, during the term of his or her employment by such OrthAlliance
Affiliated PC, the payment of service, consulting and other fees and amounts,
reimbursement of center expenses and other performance by such OrthAlliance
Affiliated PC under such OrthAlliance Service/Consulting Agreement, and (C) an
agreement by such OrthAlliance Affiliated Practitioner and OrthAlliance
Affiliated PC to utilize only OCA's and its subsidiaries' proprietary computer
software and operating systems in connection with patient accounting and
scheduling, payroll, supplies ordering and other business functions of such
OrthAlliance Affiliated Practice, and to maintain the current status of such
OrthAlliance Affiliated Practice's advertising or non-advertising, as the case
may be, to the general public, unless otherwise mutually agreed in writing
between OCA or its subsidiary and such OrthAlliance Affiliated PC.
"OCA Business Services Agreement" means a written long-term business
services agreement among the OrthAlliance Affiliated Practitioner, his or her
respective OrthAlliance Affiliated PC and OrthAlliance (or a subsidiary of OCA),
in form and substance satisfactory to OCA and its counsel and based on OCA's
form of such agreement (including, without limitation, the service fee,
restrictive covenant and termination provisions thereof), which agreement shall
be in full force and effect upon and following the effective time of the Merger,
and pursuant to which OCA and/or its subsidiary will provide business management
or consulting services for such OrthAlliance Affiliated Practitioner's
orthodontic or pediatric dental practice in exchange for a consulting or service
fee.
"OrthAlliance Affiliated Practice" means an orthodontic or pediatric
dental practice that is owned by the OrthAlliance Affiliated Practitioner or his
or her respective OrthAlliance Affiliated PC, and is the subject of an
OrthAlliance Service/Consulting Agreement.
A-2
39
1.3 No Litigation, Notice of Termination or Non-Compliance. An OrthAlliance
Affiliated Practitioner may not be a Participant in the Program, and will not be
issued any shares of OCA Common Stock under or pursuant to the Program or any
Participation Agreement, if:
(a) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is a party to any pending or threatened litigation or
other legal proceedings against or involving OrthAlliance, OCA or their
subsidiaries. If any such litigation or legal proceedings has been commenced or
threatened, such OrthAlliance Affiliated Practitioner may become a Participant
only if the same has been dismissed with prejudice or fully withdrawn in a
manner acceptable to OCA;
(b) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC has threatened or given notice of termination or
intention to terminate their respective OrthAlliance Service/Consulting
Agreement. If any such notice has been threatened or given, such OrthAlliance
Affiliated Practitioner may become a Participant only if the same has been fully
withdrawn in a manner acceptable to OCA; and/or
(c) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is in default or breach of, or is not in compliance
with, their obligation to pay service or consulting fees under the applicable
OrthAlliance Service/Consulting Agreement.
1.4 Must Execute Participation Agreement. In order to be a Participant in the
Program and to be issued shares of OCA Common Stock under or pursuant to the
Program or any Participation Agreement, an OrthAlliance Affiliated Practitioner
must execute and deliver to OCA, and OCA must have executed and delivered to
such OrthAlliance Affiliated Practitioner, a written participation agreement
with OCA (each, a "Participation Agreement"), which participation agreement
shall be in form and substance satisfactory to OCA and its counsel and in full
force and effect upon and following the effective time of the Merger, and shall
provide for such OrthAlliance Affiliated Practitioner's participation in the
Program subject to each of the terms and conditions set forth herein and in such
Participation Agreement.
1.5 Conditioned on Completion of the Merger. Participation in the Program, and
the issuance of any shares of OCA Common Stock or other awards under or pursuant
to the Program or any Participation Agreement, is expressly conditioned upon
completion of the Merger pursuant to the Merger Agreement. If the Merger
Agreement is voided or terminated (other than upon completion of the Merger),
OCA will thereupon and thereafter have no further obligations under the Program
or any Participation Agreement or otherwise with respect to the Program, any
Participation Agreement and any participation or awards thereunder, and any and
all awards under and participation in the Program shall thereupon automatically
terminate without any obligation or liability on the part of OCA or Affiliate
(as defined below) thereof.
ARTICLE II. STOCK AWARDS
Eligible Participants in the Program will be awarded shares of OCA
Common Stock under the Program, subject to the terms and conditions of the
Program, as follows.
2.1 Service Fee/Tenure Based Awards. Eligible Participants will be granted
(subject to the terms and conditions of the Program) under the Program the
greater of:
(a) 500 shares of OCA Common Stock, or
(b) A number of shares of OCA Common Stock equal to the sum (rounded to
the nearest whole number) of:
A-3
40
(i) (A) 30, times (B) the result of the 12 Months Service
Fees (as defined below), with respect to such
Participant, divided by $10,000,
PLUS
(ii) (A) 10, times (B) the number of whole calendar months
elapsed during the term of such Participant's (or his
or her respective OrthAlliance Affiliated PC's)
respective OrthAlliance Service/Consulting Agreement
as of the effective date of the Merger, but in no
event later than December 31, 2001.
For purposes of the Program, "12 Months Service Fees" mean service, consulting
or management fees paid to OrthAlliance or its subsidiary by a Participant or
his or her respective OrthAlliance Affiliated PC during and with respect to the
period from April 1, 2000 through March 31, 2001 (with certain adjustments and
annualization for certain specified OrthAlliance Affiliated PC's as described in
Section 2.4 of the Merger Agreement) pursuant to the applicable OrthAlliance
Service/Consulting Agreement, but excluding any amounts reimbursed, paid, earned
or accrued with respect to center expenses, operating and non-operating expenses
incurred in the operation of the applicable OrthAlliance Affiliated Practice or
other expenses.
2.2 Timing Based Awards. In addition, the first 180 eligible Participants who
execute and deliver their respective Amendments and/or OCA Business Services
Agreement, by or within the date or dates set forth below, will be granted
(subject to the terms and conditions of the Program) shares of OCA Common Stock
under the Program as follows:
(a) By June 22, 2001:
(i) 900 shares of OCA Common Stock,
PLUS
(ii) 200 shares of OCA Common Stock for each additional 20
of those Participants who execute and deliver their
respective Amendments and/or OCA Business Services
Agreement from June 23, 2001 through July 27, 2001;
(b) June 23, 2001 through June 29, 2001:
(i) 700 shares of OCA Common Stock,
PLUS
(ii) 200 shares of OCA Common Stock for each additional 20
of those Participants who execute and deliver their
respective Amendments and/or OCA Business Services
Agreement from June 30, 2001 through July 27, 2001;
EXCEPT that, eligible Participants who were issued, or whose
OrthAlliance Affiliated PC's were issued, shares of
OrthAlliance common stock in connection with initially
entering into their respective OrthAlliance Service/Consulting
Agreement or their related sale of assets or capital stock to
OrthAlliance or its subsidiary, would be granted:
(i) 900 shares of OCA Common Stock,
PLUS
A-4
41
(ii) 200 shares of OCA Common Stock for each additional 20
of those Participants who execute and deliver their
respective Amendments and/or OCA Business Services
Agreement from June 30, 2001 through July 27, 2001;
(c) June 30, 2001 through July 6, 2001:
(i) 600 shares of OCA Common Stock,
PLUS
(ii) 200 shares of OCA Common Stock for each additional 20
of those Participants who execute and deliver their
respective Amendments and/or OCA Business Services
Agreement from July 7, 2001 through July 27, 2001;
(d) July 7, 2001 through July 13, 2001:
(i) 500 shares of OCA Common Stock,
PLUS
(ii) 200 shares of OCA Common Stock for each additional 20
of those Participants who execute and deliver their
respective Amendments and/or OCA Business Services
Agreement from July 14, 2001 through July 27, 2001;
(e) July 14, 2001 through July 20, 2001:
(i) 400 shares of OCA Common Stock,
PLUS
(ii) 200 shares of OCA Common Stock for each additional of
those Participants who execute and deliver their
respective Amendments and/or OCA Business Services
Agreement from July 21, 2001 through July 27, 2001;
and
(f) July 21, 2001 through July 27, 2001:
(i) 300 shares of OCA Common Stock.
2.3 Award to Clinical Advisory Committee Members. An eligible Participant shall
be awarded (subject to the terms of the Program) an additional grant of 2,500
shares of OCA Common Stock if he or she (1) enters into the Amendments or an OCA
Business Services Agreement as required under Section 1.2 by June 22, 2001, and
(2) is selected by OCA and OrthAlliance to serve on OCA's Clinical Advisory
Committee upon completion of the Merger, and such Participant accepts and serves
in such position.
2.4 Pro Rata Basis for Practices with Multiple Owners. If a Participant's
OrthAlliance Affiliated PC is partially owned by one or more other OrthAlliance
Affiliated Practitioners, then the number of shares of OCA Common Stock granted
pursuant to Section 2.1(b) above for such Participant shall be calculated by
multiplying the number of shares of OCA Common Stock that would otherwise be
granted to such person pursuant to such Section 2.1(b) by his or her percentage
of equity ownership of such OrthAlliance Affiliated PC.
A-5
42
2.5 Timing and Conditions of Grants. Shares of OCA Common Stock awarded under
the Program shall be issuable to Participants in three annual installments, as
follows:
(a) For each Participant, one-third of the total number of shares of
OCA Common Stock (rounded to the nearest whole number) to be issued to such
Participant under the Program will be issued to such Participant following each
of the first, second and third anniversaries of the effective date of the Merger
if the amount of service or consulting fees (excluding any amounts reimbursed,
paid, earned or accrued with respect to center expenses, operating and
non-operating expenses incurred in the operation of the applicable OrthAlliance
Affiliated Practice or other expenses) paid to OCA or its subsidiary by the
Participant and/or his or her OrthAlliance Affiliated PC during and with respect
to the 12 calendar months immediately preceding that particular anniversary
pursuant to the applicable OCA Business Services Agreement or OrthAlliance
Service/Consulting Agreement ("Service Fees") is at least 90% (the "90% Minimum
Target") of the amount of Service Fees such Participant and/or OrthAlliance
Affiliated PC paid to OrthAlliance or its subsidiary during and with respect to
the 12 calendar months immediately preceding the Merger.
(b) However, if the 90% Minimum Target is not achieved in the 12
calendar month period immediately preceding the first or second anniversary of
the effective date of the Merger (each, an "Earlier Period), but is achieved
during the 12 calendar month period immediately preceding the second or third,
as applicable, anniversary of the effective date of the Merger (each, a "Later
Period"), then the installment of shares of OCA Common Stock issuable with
respect to such Earlier Period will be issued following such Later Period.
2.6 Only Whole Shares. Only whole shares of OCA Common Stock will be issued or
awarded under the Program; no fractional shares shall be issued.
ARTICLE III. ADJUSTMENT UPON CERTAIN CORPORATE CHANGES
3.1 Adjustments to Shares. The number of shares of OCA Common Stock subject to
an outstanding award of shares of OCA Common Stock granted to a Participant
under and pursuant to the Program shall be adjusted as the Committee (as defined
below) determines (in its sole discretion) to be appropriate, in the event that:
(a) OCA or an Affiliate (as defined below) effects one or more stock
dividends, stock splits, reverse stock splits, subdivisions, consolidations or
other similar events;
(b) OCA or an Affiliate engages in a transaction to which section 424
of the Code (as defined below) applies; or
(c) there occurs any other event which in the judgment of the Committee
necessitates such action.
For purposes of the Program:
(i) "Affiliate" means a "parent corporation," as defined in
section 424(e) of the Code, or "subsidiary corporation," as defined in
section 424(f) of the Code, of OCA.
(ii) "Code" means the U.S. Internal Revenue Code of 1986, as
amended.
3.2 No Adjustment upon Certain Transactions. The issuance by OCA of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services rendered, either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of OCA convertible into such shares or other
A-6
43
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, outstanding awards.
ARTICLE IV. LEGAL COMPLIANCE CONDITIONS
4.1 General. No OCA Common Stock shall be issued under the Program except in
compliance with all federal or state laws and regulations (including, without
limitation, withholding tax requirements), federal and state securities laws and
regulations and the rules of all securities exchanges or self-regulatory
organizations on which OCA's shares may be listed. OCA shall have the right to
rely on an opinion of its counsel as to such compliance. Any certificate issued
to evidence shares of OCA Common Stock granted under the Program may bear such
legends and statements as the Committee upon advice of counsel may deem
advisable to assure compliance with federal or state laws and regulations. No
OCA Common Stock shall be issued and no certificate for shares shall be
delivered until OCA has obtained such consent or approval as the Committee may
deem advisable from any regulatory bodies having jurisdiction over such matters.
4.2 Representations by Participants. As a condition to the issuance of OCA
Common Stock, OCA may require a Participant to represent and warrant at the time
of grant that the Participant does not have a present intention to sell or
distribute such shares. At the option of OCA, a stop transfer order against any
shares of stock may be placed on the official stock books and records of OCA,
and a legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel was provided (concurred in by counsel
for OCA) and stating that such transfer is not in violation of any applicable
law or regulation may be stamped on the stock certificate in order to assure
exemption from registration. The Committee may also require such other action or
agreement by the Participants as may from time to time be necessary to comply
with federal or state securities laws. This provision shall not obligate OCA or
any Affiliate to undertake registration of stock hereunder.
ARTICLE V. ADMINISTRATION AND AMENDMENT
5.1 Administrative Committee. The Program shall be administered by a committee
composed of the chief executive officer and chief financial officer of OCA and
any other officer of OCA appointed to such committee by the chief executive
officer of OCA (the "Committee"). The express grant in the Program of any
specific power to the Committee shall not be construed as limiting any power or
authority of the Committee. Any decision made or action taken by the Committee
to administer the Program shall be final and conclusive. No member of the
Committee shall be liable for any act done in good faith with respect to the
Program or any Participation Agreement. In addition to all other authority
vested with the Committee under the Program, the Committee shall have complete
authority to:
(a) Interpret all provisions of the Program;
(b) Prescribe the form of any Participation Agreement;
(c) Make amendments to all Participation Agreements;
(d) Adopt, amend, and rescind rules for Program administration; and
(e) Make all determinations it deems advisable for the administration
of the Program.
5.2 Determination of Financial Performance. The authorities of the Committee
described in Section 5.1 include the full discretionary authority to make all
determinations regarding financial performance and related matters referenced in
the Program. Such matters include, but are not
A-7
44
limited to, whether or not Participants have achieved the standards of financial
performance required to receive awards of OCA Common Stock. The Committee shall
make such determinations by reference to any data and information that it deems
appropriate and, to the extent that such information that is provided by a
Participant is not otherwise subject to disclosure, shall employ reasonable
measures that are designed to keep such information confidential.
5.3 Amendment. OCA may amend or terminate the Program at any time; provided,
however, an amendment that would have a material adverse effect on the rights of
a Participant under an outstanding award of OCA Common Stock is not valid
without the Participant's consent.
ARTICLE VI. GENERAL PROVISIONS
6.1 Unfunded Program. The Program shall be unfunded, and OCA shall not be
required to segregate any assets that may at any time be represented by grants
under the Program. Any liability of OCA to any person with respect to any grant
under the Program shall be based solely upon contractual obligations that may be
created hereunder. No such obligation of OCA shall be deemed to be secured by
any pledge of, or other encumbrance on, any property of OCA.
6.2 Rules of Construction. Headings are given to the articles and sections of
the Program solely as a convenience to facilitate reference. The masculine
gender when used herein refers to both masculine and feminine. The reference to
any statute, regulation or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
6.3 Governing Law. The internal laws of the State of Louisiana (without regard
to the choice of law provisions of Louisiana) shall apply to all matters arising
under the Program, to the extent that federal law does not apply.
6.4 Federal Withholding Tax Requirements. To the extent that withholding is
required by law, at the time that any OCA Common Stock is granted, the
Participant shall, upon notification of the amount due, pay to OCA amounts
necessary to satisfy applicable federal, state and local withholding tax
requirements or shall otherwise make arrangements satisfactory to OCA for such
requirements.
A-8
45
IN WITNESS WHEREOF, the undersigned officer has executed this document
effective as of August 6, 2001.
ORTHODONTIC CENTERS OF AMERICA, INC.
By: /s/ Bartholomew F. Palmisano, Sr.
----------------------------------------
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President
and Chief Executive Officer
A-9
46
ANNEX B
ORTHODONTIC CENTERS OF AMERICA, INC.
TARGET STOCK PROGRAM
47
ORTHODONTIC CENTERS OF AMERICA, INC.
TARGET STOCK PROGRAM
PREAMBLE
WHEREAS, Orthodontic Centers of America, Inc., a Delaware corporation
("OCA"), OCA Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of OCA ("OCA Merger Sub"), and OrthAlliance, Inc., a Delaware
corporation ( "OrthAlliance"), are parties to that certain Agreement and Plan of
Merger, dated as of May 16, 2001 (the "Merger Agreement"), among such parties,
pursuant to which OCA Merger Sub is to merge with and into OrthAlliance, with
OrthAlliance thereby becoming a wholly-owned subsidiary of OCA (the "Merger"),
subject to various conditions; and
WHEREAS, OCA desires to establish a program through which OCA may grant
shares of its common stock, $.01 par value per share ("OCA Common Stock"), to
certain eligible individuals (each such eligible individual, a "Participant")
who are OrthAlliance Affiliated Practitioners and who timely execute and deliver
an Amendment to OrthAlliance Service/Consulting Agreement and Amendment to
Employment Agreement and/or OCA Business Services Agreement (each as defined
below), subject to the terms described herein and completion of the Merger;
NOW, THEREFORE, OCA hereby establishes the Orthodontic Centers of
America, Inc. Target Stock Program (the "Program").
ARTICLE I. ELIGIBILITY
In order for any person to be eligible to be a Participant in the
Program, or to be granted shares of OCA Common Stock under the Program or any
Participation Agreement (as defined below), he or she must meet or comply with
each of the following:
1.1 Must Be An OrthAlliance Affiliated Practitioner. In order to be a
Participant in the Program and to be issued any shares of OCA Common Stock under
or pursuant to the Program or any Participation Agreement (as defined below), a
person must be a licensed orthodontist or pediatric dentist who both (i) owns,
beneficially and of record, shares of capital stock of, or partnership,
membership or other equity interests in, a professional corporation or other
professional entity (each, an "OrthAlliance Affiliated PC") that is a party to a
written long-term service, management service, consulting or similar long-term
agreement with OrthAlliance and/or a subsidiary thereof pursuant to which
OrthAlliance and/or its subsidiary is providing business management or
consulting services for such Participant's orthodontic or pediatric dental
practice in exchange for a consulting or service fee (each an "OrthAlliance
Service/Consulting Agreement"), and (ii) is a full-time employee as an
orthodontist or pediatric dentist, as applicable, of such OrthAlliance
Affiliated PC (each such person, an "OrthAlliance Affiliated Practitioner").
Each Participant must also be a party to a written employment agreement (each,
an "Employment Agreement") with his or her respective OrthAlliance Affiliated
PC, pursuant to which such Participant provides orthodontic or pediatric dental
services as a full-time employee of such OrthAlliance Affiliated PC.
1.2 Must Amend Employment and Service/Consulting Agreement or Enter Into New OCA
Business Services Agreement. In order to be a Participant in the Program and to
be issued any shares of OCA Common Stock under or pursuant to the Program or any
Participation Agreement, an OrthAlliance Affiliated Practitioner must also,
along with his or her respective OrthAlliance Affiliated PC, execute and deliver
their respective (i) Amendments (as defined below), and/or (ii) OCA Business
Services Agreement (as defined below), prior to the effective time of the
Merger. In addition, if such OrthAlliance Affiliated PC is partially owned by
one or more other OrthAlliance Affiliated Practitioners, then each of such other
OrthAlliance Affiliated Practitioners must also
B-1
48
execute and deliver their respective Amendments and/or OCA Business Services
Agreement prior to the effective time of the Merger.
For purposes of the Program:
"Amendments" means an Amendment to Employment Agreement (as defined
below) and an Amendment to OrthAlliance Service/Consulting Agreement (as defined
below).
"Amendment to Employment Agreement" shall mean a written amendment to
the OrthAlliance Affiliated Practitioner's respective Employment Agreement, in
form and substance satisfactory to OCA and its counsel, which amendment shall be
in full force and effect upon and following the effective time of the Merger,
include OrthAlliance as a third party beneficiary and provide for an agreement
by such OrthAlliance Affiliated Practitioner and the applicable OrthAlliance
Affiliated PC to continue the employment of such OrthAlliance Affiliated
Practitioner by such OrthAlliance Affiliated PC as an orthodontist or pediatric
dentist, as applicable, for a period of at least three years following the
closing date of the Merger.
"Amendment to OrthAlliance Service/Consulting Agreement" means a
written amendment to the respective OrthAlliance Service/Consulting Agreement
relating to the OrthAlliance Affiliated Practitioner's OrthAlliance Affiliated
Practice and the applicable OrthAlliance Affiliated PC employing the
OrthAlliance Affiliated Practitioner, in form and substance satisfactory to OCA
and its counsel, which amendments shall be in full force and effect upon and
following the effective time of the Merger, and provide for (A) an agreement by
such OrthAlliance Affiliated Practitioner and OrthAlliance Affiliated PC to
continue the employment of such OrthAlliance Affiliated Practitioner by such
OrthAlliance Affiliated PC as an orthodontist or pediatric dentist, as
applicable, for a period of at least three years following the closing date of
the Merger, (B) an agreement by such OrthAlliance Affiliated Practitioner to
guarantee, during the term of his or her employment by such OrthAlliance
Affiliated PC, the payment of service, consulting and other fees and amounts,
reimbursement of center expenses and other performance by such OrthAlliance
Affiliated PC under such OrthAlliance Service/Consulting Agreement, and (C) an
agreement by such OrthAlliance Affiliated Practitioner and OrthAlliance
Affiliated PC to utilize only OCA's and its subsidiaries' proprietary computer
software and operating systems in connection with patient accounting and
scheduling, payroll, supplies ordering and other business functions of such
OrthAlliance Affiliated Practice, and to maintain the current status of such
OrthAlliance Affiliated Practice's advertising or non-advertising, as the case
may be, to the general public, unless otherwise mutually agreed in writing
between OCA or its subsidiary and such OrthAlliance Affiliated PC.
"OCA Business Services Agreement" means a written long-term business
services agreement among the OrthAlliance Affiliated Practitioner, his or her
respective OrthAlliance Affiliated PC and OrthAlliance (or a subsidiary of OCA),
in form and substance satisfactory to OCA and its counsel and based on OCA's
form of such agreement (including, without limitation, the service fee,
restrictive covenant and termination provisions thereof), which agreement shall
be in full force and effect upon and following the effective time of the Merger,
and pursuant to which OCA and/or its subsidiary will provide business management
or consulting services for such OrthAlliance Affiliated Practitioner's
orthodontic or pediatric dental practice in exchange for a consulting or service
fee.
"OrthAlliance Affiliated Practice" means an orthodontic or pediatric
dental practice that is owned by the OrthAlliance Affiliated Practitioner or his
or her respective OrthAlliance Affiliated PC, and is the subject of an
OrthAlliance Service/Consulting Agreement.
1.3 No Litigation, Notice of Termination, Practice Improvement Agreement or
Non-Compliance. An OrthAlliance Affiliated Practitioner may not be a Participant
in the Program, and will not be
B-2
49
issued any shares of OCA Common Stock under or pursuant to the Program or any
Participation Agreement, if:
(a) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is a party to any pending or threatened litigation or
other legal proceedings against or involving OrthAlliance, OCA or their
subsidiaries. If any such litigation or legal proceedings has been commenced or
threatened, such OrthAlliance Affiliated Practitioner may become a Participant
only if the same has been dismissed with prejudice or fully withdrawn in a
manner acceptable to OCA;
(b) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC has threatened or given notice of termination or
intention to terminate their respective OrthAlliance Service/Consulting
Agreement. If any such notice has been threatened or given, such OrthAlliance
Affiliated Practitioner may become a Participant only if the same has been fully
withdrawn in a manner acceptable to OCA;
(c) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is in default or breach of, or is not in compliance
with, their obligation to pay service or consulting fees under the applicable
OrthAlliance Service/Consulting Agreement; and/or
(d) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is a party with OrthAlliance or a subsidiary thereof
to any practice improvement performance guarantee agreement or comparable
agreement, pursuant to which service or consulting fees payable under an
OrthAlliance Service/Consulting Agreement may be abated or deferred based upon
profitability of the applicable OrthAlliance Affiliated Practice and the value
of consideration paid to such OrthAlliance Affiliated Professional and/or his or
her OrthAlliance Affiliated PC upon OrthAlliance's or its subsidiary' s
acquisition of stock or assets therefrom, or entering into of an OrthAlliance
Service/Consulting Agreement therewith.
1.4 Must Execute Participation Agreement. In order to be a Participant in the
Program and to be issued shares of OCA Common Stock under or pursuant to the
Program or any Participation Agreement, an OrthAlliance Affiliated Practitioner
must execute and deliver to OCA, and OCA must have executed and delivered to
such OrthAlliance Affiliated Practitioner, a written participation agreement
with OCA (each, a "Participation Agreement"), which Participation Agreement
shall be in form and substance satisfactory to OCA and its counsel and in full
force and effect upon and following the effective time of the Merger, and shall
provide for such OrthAlliance Affiliated Practitioner's participation in the
Program subject to each of the terms and conditions set forth herein and in such
Participation Agreement.
1.5 Conditioned on Completion of the Merger. Participation in the Program, and
the issuance of any shares of OCA Common Stock or other awards under or pursuant
to the Program or any Participation Agreement, is expressly conditioned upon
completion of the Merger pursuant to the Merger Agreement. If the Merger
Agreement is voided or terminated (other than upon completion of the Merger),
OCA will thereupon and thereafter have no further obligations under the Program
or any Participation Agreement or otherwise with respect to the Program, any
Participation Agreement and any participation or awards thereunder, and any and
all awards under and participation in the Program shall thereupon automatically
terminate without any obligation or liability on the part of OCA or Affiliate
(as defined below) thereof.
1.6 Provision of Requested Information. In order to be a Participant in the
Program and to be issued shares of OCA Common Stock under or pursuant to the
Program or any Participation Agreement, an OrthAlliance Affiliated Practitioner
must provide OCA with any financial information that OCA reasonably requests in
order to determine the number of shares of OCA Common Stock, if any, to be
granted to the OrthAlliance Affiliated Practitioner under the Program.
B-3
50
ARTICLE II. AWARDS
Eligible Participants will be awarded shares of OCA Common Stock under
either Section 2.1 or 2.2 hereof, or a promissory note as provided in Section
2.3 hereof, as applicable, subject to the terms of the Program (collectively,
the4 "Awards"):
2.1 Awards for Entering into New OCA Business Services Agreement. An eligible
Participant who, along with his or her respective OrthAlliance Affiliated PC,
executes and delivers to OCA an OCA Business Services Agreement prior to the
effective time of the Merger will be granted (subject to Section 2.3 and the
other terms and conditions of the Program) a number of shares of OCA Common
Stock calculated under the following terms:
(a) 70% Increase in Service Fees. If, during the 12 calendar months
immediately preceding the third anniversary of the effective date of the Merger,
the Participant achieves the 70% Increase In Year 3 Service Fees (as defined
below), then the number of shares of OCA Common Stock granted under this Section
2.1 shall be equal to the result (rounded to the nearest whole number) of the
following:
(x) 3,
TIMES
(y) 70% of the amount of the Prior 12 Months Assumed
Service Fees (as defined below), with respect to such
Participant,
DIVIDED BY
(z) The average closing price per share of OCA Common
Stock as reported on the New York Stock Exchange (or
other stock exchange or market on which shares of OCA
Common Stock are then principally traded) during THE
10 trading days immediately preceding the third
anniversary of the effective date of the Merger.
For purposes of the Program:
"70% Increase in Year 3 Service Fees" means that the amount of Year 3
Service Fees (as defined below) is at least 70% greater than the amount of the
Prior 12 Months Assumed Service Fees, with respect to the applicable
Participant.
"Prior 12 Months Assumed Service Fees" means the amount of service or
consulting fees (excluding any amounts reimbursed, paid, earned or accrued with
respect to center expenses, operating and non-operating expenses incurred in the
operation of the applicable OrthAlliance Affiliated Practice or other expenses)
that would have been payable to OCA, its subsidiary or OrthAlliance, as
applicable, by the OrthAlliance Affiliated Practitioner or his or her
OrthAlliance Affiliated PC under the OCA Business Services Agreement during and
with respect to the 12 calendar months immediately preceding the effective date
of 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
OrthAlliance Affiliated Practice during that period was 5% higher than the
actual operating margin for that period).
"Year 3 Service Fees" means the service or consulting fees (excluding
any amounts reimbursed, paid, earned or accrued with respect to center expenses,
operating and non-operating expenses incurred in the operation of the applicable
OrthAlliance Affiliated Practice or other
B-4
51
expenses) paid to OCA or its subsidiary by the applicable OrthAlliance
Affiliated Practitioner or his or her OrthAlliance Affiliated PC under the
applicable OCA Business Services Agreement during and with respect to the 12
calendar months immediately preceding the third anniversary of the effective
date of the Merger.
(b) Pro Rata Amount. However, if a Participant does not achieve the 70%
Increase In Year 3 Service Fees, but the amount of such Participant's Year 3
Service Fees is at least equal to the amount of such Participant's Prior 12
Months Assumed Service Fees, then the number of shares of OCA Common Stock
awarded under this Section 2.1 (subject to Section 2.3 and the other terms and
conditions of the Program) shall be a pro rata amount (rounded to the nearest
whole number) calculated by multiplying the number of shares of OCA Common Stock
that would have been awarded under subsection (a) of this Section 2.1, times a
fraction, the numerator of which is the percentage by which such Year 3 Service
Fees exceed such Prior 12 Months Assumed Service Fees, and the denominator of
which is 70%.
(c) Not Eligible Under Both Sections. If a Participant enters into the
Amendments, and also or subsequently enters into an OCA Business Services
Agreement, he or she would only be eligible for Awards under this Section 2.1
(and not Section 2.2).
2.2 Awards for Entering into Amendments. An eligible Participant who, along with
his or her respective OrthAlliance Affiliated PC, executes and delivers to OCA
their Amendments prior to the effective time of the Merger will be granted
(subject to Section 2.3 and the other terms and conditions of the Program) a
number of shares of OCA Common Stock calculated under the following terms:
(a) 70% Increase in Service Fees. If, during the 12 calendar months
immediately preceding the third anniversary of the effective date of the Merger,
the Participant achieves the 70% Increase In Year 3 Service Fees Under
Amendments (as defined below), then the number of shares of OCA Common Stock
granted under this Section 2.2 shall be equal to the result (rounded to the
nearest whole number) of the following:
(x) 3,
TIMES
(y) 70% of the amount of the Prior 12 Months Service Fees
(as defined below), with respect to such Participant,
DIVIDED BY
(z) The average closing price per share of OCA Common
Stock as reported on the New York Stock Exchange (or
other stock exchange or market on which shares of OCA
Common Stock are then principally traded) during THE
10 trading days immediately preceding the third
anniversary of the effective date of the Merger.
For purposes of the Program:
"70% Increase in Year 3 Service Fees Under Amendments" means that the
amount of Year 3 Service Fees Under Amendments (as defined below) is at least
70% greater than the amount of the Prior 12 Months Service Fees, with respect to
the applicable Participant.
B-5
52
"Prior 12 Months Service Fees" means the amount of service or
consulting fees (excluding any amounts reimbursed, paid, earned or accrued with
respect to center expenses, operating and non-operating expenses incurred in the
operation of the applicable OrthAlliance Affiliated Practice or other expenses)
paid to OrthAlliance or its subsidiary by the OrthAlliance Affiliated
Practitioner or his or her OrthAlliance Affiliated PC under the applicable
OrthAlliance Service/Consulting Agreement during and with respect to the 12
calendar months immediately preceding the effective date of the Merger.
"Year 3 Service Fees Under Amendments" means the service or consulting
fees (excluding any amounts reimbursed, paid, earned or accrued with respect to
center expenses, operating and non-operating expenses incurred in the operation
of the applicable OrthAlliance Affiliated Practice or other expenses) paid to
OCA or its subsidiary by the applicable OrthAlliance Affiliated Practitioner or
his or her OrthAlliance Affiliated PC under the applicable OrthAlliance Service
or Consulting Agreement during and with respect to the 12 calendar months
immediately preceding the third anniversary of the effective date of the Merger.
(b) Pro Rata Amount. However, if a Participant does not achieve the 70%
Increase In Year 3 Service Fees Under Amendments, but the amount of such
Participant's Year 3 Service Fees Under Amendments is at least equal to the
amount of such Participant's Prior 12 Months Service Fees, then the number of
shares of OCA Common Stock awarded under this Section 2.2 (subject to Section
2.3 and the other terms and conditions of the Program) shall be a pro rata
amount (rounded to the nearest whole number) calculated by multiplying the
number of shares of OCA Common Stock that would have been awarded under
subsection (a) of this Section 2.2, times a fraction, the numerator of which is
the percentage by which such Year 3 Service Fees Under Amendments exceed such
Prior 12 Months Service Fees, and the denominator of which is 70%.
2.3 Substitution of Promissory Note. Notwithstanding any provision herein
regarding the issuance of OCA Common Stock, OCA may, in its sole discretion,
elect to issue the eligible Participant a non-transferable, non-negotiable
promissory note (each, a "Promissory Note") in lieu of shares of OCA Common
Stock that would otherwise be awarded pursuant to Sections 2.1 and 2.2 hereof.
Such Promissory Note shall be payable in equal annual installments over a period
of five years commencing on the fifth anniversary of the effective date of the
Merger, and shall bear interest at the prime rate (as reported in the Wall
Street Journal) on the effective date of the Merger plus 1.5% per annum;
provided, however, that payment of each such annual installment of principal and
interest under the Promissory Note shall be subject to and conditioned upon the
prior satisfaction of the conditions described in Section 2.5 hereof over the
term of the Promissory Note (on the same basis as the Award of shares of OCA
Common Stock, except that a five year payment period shall apply).
2.4 Pro Rata Basis for Practices with Multiple Owners. If a Participant's
OrthAlliance Affiliated PC is partially owned by one or more other OrthAlliance
Affiliated Practitioners, then the value of the Award granted pursuant to
Section 2.1 or 2.2 hereof (or under a Promissory Note pursuant to Section 2.3
hereof) for such Participant shall be calculated by multiplying the total value
of the Award that would otherwise be granted to such person pursuant to such
Section 2.1 or 2.2 by his or her percentage of equity ownership of such
OrthAlliance Affiliated PC.
2.5 Timing and Conditions of Grants. Shares of OCA Common Stock awarded under
the Program shall be issuable to Participants in four annual installments, as
follows:
(a) For each Participant, one-fourth of the total number of shares of
OCA Common Stock (rounded to the nearest whole number) to be issued to such
Participant under the Program will be issued to such Participant following each
of the fifth, sixth, seventh and eighth anniversaries of the effective date of
the Merger if the amount of service or consulting fees (excluding any amounts
B-6
53
reimbursed, paid, earned or accrued with respect to center expenses, operating
and non-operating expenses incurred in the operation of the applicable
OrthAlliance Affiliated Practice or other expenses) paid to OCA or its
subsidiary by the Participant and/or his or her OrthAlliance Affiliated PC
during and with respect to the 12 calendar months immediately preceding that
particular anniversary pursuant to the applicable OCA Business Services
Agreement or OrthAlliance Service/Consulting Agreement ("Service Fees") is at
least 90% (the "90% Minimum Target") of the amount of Service Fees such
Participant and/or OrthAlliance Affiliated PC paid to OrthAlliance or its
subsidiary during and with respect to the 12 calendar months immediately
preceding the Merger.
(b) However, if the 90% Minimum Target is not achieved in the 12
calendar month period immediately preceding the fifth, sixth or seventh
anniversary of the effective date of the Merger (each, an "Earlier Period), but
is achieved during the 12 calendar month period immediately preceding the sixth,
seventh or eighth, as applicable, anniversary of the effective date of the
Merger (each, a "Later Period"), then the installment of shares of OCA Common
Stock issuable with respect to such Earlier Period will be issued following such
Later Period.
2.6 Only Whole Shares. Only whole shares of OCA Common Stock will be issued or
awarded under the Program; no fractional shares shall be issued.
ARTICLE III. ADJUSTMENT UPON CERTAIN CORPORATE CHANGES
3.1 Adjustments to Shares. The number of shares of OCA Common Stock subject to
an outstanding award of shares of OCA Common Stock granted to a Participant
under and pursuant to the Program shall be adjusted as the Committee (as defined
below) determines (in its sole discretion) to be appropriate, in the event that:
(a) OCA or an Affiliate (as defined below) effects one or more stock
dividends, stock splits, reverse stock splits, subdivisions, consolidations or
other similar events;
(b) OCA or an Affiliate engages in a transaction to which section 424
of the Code (as defined below) applies; or
(c) there occurs any other event which in the judgment of the Committee
necessitates such action.
For purposes of the Program:
(i) "Affiliate" means a "parent corporation," as defined in
section 424(e) of the Code, or "subsidiary corporation," as defined in
section 424(f) of the Code, of OCA.
(ii) "Code" means the U.S. Internal Revenue Code of 1986, as
amended.
3.2 No Adjustment upon Certain Transactions. The issuance by OCA of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services rendered, either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of OCA convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, outstanding Awards.
ARTICLE IV. LEGAL COMPLIANCE CONDITIONS
4.1 General. No OCA Common Stock shall be issued under the Program except in
compliance with all federal or state laws and regulations (including, without
limitation, withholding tax
B-7
54
requirements), federal and state securities laws and regulations and the rules
of all securities exchanges or self-regulatory organizations on which OCA's
shares may be listed. OCA shall have the right to rely on an opinion of its
counsel as to such compliance. Any certificate issued to evidence shares of OCA
Common Stock granted under the Program may bear such legends and statements as
the Committee upon advice of counsel may deem advisable to assure compliance
with federal or state laws and regulations. No OCA Common Stock shall be issued
and no certificate for shares shall be delivered until OCA has obtained such
consent or approval as the Committee may deem advisable from any regulatory
bodies having jurisdiction over such matters.
4.2 Representations by Participants. As a condition to the grant of an Award or
the issuance of OCA Common Stock, OCA may require a Participant to represent and
warrant at the time of grant that the Participant does not have a present
intention to sell or distribute such shares. At the option of OCA, a stop
transfer order against any shares of stock may be placed on the official stock
books and records of OCA, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel was provided
(concurred in by counsel for OCA) and stating that such transfer is not in
violation of any applicable law or regulation may be stamped on the stock
certificate in order to assure exemption from registration. The Committee may
also require such other action or agreement by the Participants as may from time
to time be necessary to comply with federal or state securities laws. This
provision shall not obligate OCA or any Affiliate to undertake registration of
stock hereunder.
ARTICLE V. ADMINISTRATION AND AMENDMENT
5.1 Administrative Committee. The Program shall be administered by a committee
composed of the chief executive officer and chief financial officer of OCA and
any other officer of OCA appointed to such committee by the chief executive
officer of OCA (the "Committee"). The express grant in the Program of any
specific power to the Committee shall not be construed as limiting any power or
authority of the Committee. Any decision made or action taken by the Committee
to administer the Program shall be final and conclusive. No member of the
Committee shall be liable for any act done in good faith with respect to the
Program or any Participation Agreement or Award. In addition to all other
authority vested with the Committee under the Program, the Committee shall have
complete authority to:
(a) Interpret all provisions of the Program;
(b) Prescribe the form of any Participation Agreement;
(c) Make amendments to all Participation Agreements;
(d) Adopt, amend, and rescind rules for Program administration; and
(e) Make all determinations it deems advisable for the administration
of the Program.
5.2 Determination of Performance Standards. The authorities of the Committee
described in Section 5.1 include the full discretionary authority to make all
determinations regarding financial performance and related matters referenced in
the Program. Such matters include, but are not limited to, whether or not
Participants have achieved the standards of financial performance required to
receive Awards or payments thereunder. The Committee shall make such
determinations by reference to any data and information that it deems
appropriate and, to the extent that such information that is provided by a
Participant is not otherwise subject to disclosure, shall employ reasonable
measures that are designed to keep such information confidential.
B-8
55
5.3 Amendment. OCA may amend or terminate the Program at any time; provided,
however, an amendment that would have a material adverse effect on the rights of
a Participant under an outstanding Award is not valid with respect to such Award
without the Participant's consent.
ARTICLE VI. GENERAL PROVISIONS
6.1 Unfunded Program. The Program shall be unfunded, and OCA shall not be
required to segregate any assets that may at any time be represented by grants
under the Program. Any liability of OCA to any person with respect to any grant
under the Program shall be based solely upon contractual obligations that may be
created hereunder. No such obligation of OCA shall be deemed to be secured by
any pledge of, or other encumbrance on, any property of OCA.
6.2 Rules of Construction. Headings are given to the articles and sections of
the Program solely as a convenience to facilitate reference. The masculine
gender when used herein refers to both masculine and feminine. The reference to
any statute, regulation or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
6.3 Governing Law. The internal laws of the State of Louisiana (without regard
to the choice of law provisions of Louisiana) shall apply to all matters arising
under the Program, to the extent that federal law does not apply.
6.4 Federal Withholding Tax Requirements. To the extent that withholding is
required by law, at the time that any Award is granted or OCA Common Stock is
issued, the Participant shall, upon notification of the amount due, pay to OCA
amounts necessary to satisfy applicable federal, state and local withholding tax
requirements or shall otherwise make arrangements satisfactory to OCA for such
requirements.
B-9
56
IN WITNESS WHEREOF, the undersigned officer has executed this document
effective as of August 6, 2001.
ORTHODONTIC CENTERS OF AMERICA, INC.
By: /s/ Bartholomew F. Palmisano, Sr.
-----------------------------------------
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President
and Chief Executive Officer
B-10
57
ANNEX C
ORTHODONTIC CENTERS OF AMERICA, INC.
ORTHALLIANCE STOCKHOLDER BONUS PROGRAM
58
ORTHODONTIC CENTERS OF AMERICA, INC.
ORTHALLIANCE STOCKHOLDER BONUS PROGRAM
PREAMBLE
WHEREAS, Orthodontic Centers of America, Inc., a Delaware corporation
("OCA"), OCA Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of OCA ("OCA Merger Sub"), and OrthAlliance, Inc., a Delaware
corporation ("OrthAlliance"), are parties to that certain Agreement and Plan of
Merger, dated as of May 16, 2001 (the "Merger Agreement"), among such parties,
pursuant to which OCA Merger Sub is to merge with and into OrthAlliance, with
OrthAlliance thereby becoming a wholly-owned subsidiary of OCA (the "Merger"),
subject to various conditions; and
WHEREAS, OCA desires to establish a program through which OCA may grant
shares of its common stock, $.01 par value per share ("OCA Common Stock"), to
certain eligible individuals (each such eligible individual, a "Participant")
who are OrthAlliance Affiliated Practitioners and who timely execute and deliver
an Amendment to OrthAlliance Service/Consulting Agreement and Amendment to
Employment Agreement and/or OCA Business Services Agreement (each as defined
below), subject to the terms described herein and completion of the Merger;
NOW, THEREFORE, OCA hereby establishes the Orthodontic Centers of
America, Inc. OrthAlliance Stockholder Bonus Program (the "Program").
ARTICLE I. ELIGIBILITY
In order for any person to be eligible to be a Participant in the
Program, or to be granted shares of OCA Common Stock under the Program or any
Participation Agreement (as defined below), he or she must meet or comply with
each of the following:
1.1 Must Be An OrthAlliance Affiliated Practitioner. In order to be a
Participant in the Program and to be issued any shares of OCA Common Stock under
or pursuant to the Program or any Participation Agreement (as defined below), a
person must be a licensed orthodontist or pediatric dentist who both (i) owns,
beneficially and of record, shares of capital stock of, or partnership,
membership or other equity interests in, a professional corporation or other
professional entity (each, an "OrthAlliance Affiliated PC") that is a party to a
written long-term service, management service, consulting or similar long-term
agreement with OrthAlliance and/or a subsidiary thereof pursuant to which
OrthAlliance and/or its subsidiary is providing business management or
consulting services for such Participant's orthodontic or pediatric dental
practice in exchange for a consulting or service fee (each an "OrthAlliance
Service/Consulting Agreement"), and (ii) is a full-time employee as an
orthodontist or pediatric dentist, as applicable, of such OrthAlliance
Affiliated PC (each such person, an "OrthAlliance Affiliated Practitioner").
Each Participant must also be a party to a written employment agreement (each,
an "Employment Agreement") with his or her respective OrthAlliance Affiliated
PC, pursuant to which such Participant provides orthodontic or pediatric dental
services as a full-time employee of such OrthAlliance Affiliated PC.
1.2 Must Amend Employment and Service/Consulting Agreement or Enter Into New OCA
Business Services Agreement. In order to be a Participant in the Program and to
be issued any shares of OCA Common Stock under or pursuant to the Program or any
Participation Agreement, an OrthAlliance Affiliated Practitioner must also,
along with his or her respective OrthAlliance Affiliated PC, execute and deliver
their respective (i) Amendments (as defined below) and/or (ii) OCA Business
Services Agreement (as defined below) no later than the earlier to occur of
September 30, 2001 or the effective time of the Merger. In addition, if such
OrthAlliance Affiliated PC is partially
C-1
59
owned by one or more other OrthAlliance Affiliated Practitioners, then each of
such other OrthAlliance Affiliated Practitioners must also execute and deliver
their respective Amendments and/or OCA Business Services Agreement no later than
the earlier to occur of September 30, 2001 or the effective time of the Merger.
For purposes of the Program:
"Amendments" means an Amendment to Employment Agreement (as defined
below) and an Amendment to OrthAlliance Service/Consulting Agreement (as defined
below).
"Amendment to Employment Agreement" shall mean a written amendment to
the OrthAlliance Affiliated Practitioner's respective Employment Agreement, in
form and substance satisfactory to OCA and its counsel, which amendment shall be
in full force and effect upon and following the effective time of the Merger,
include OrthAlliance as a third party beneficiary and provide for an agreement
by such OrthAlliance Affiliated Practitioner and the applicable OrthAlliance
Affiliated PC to continue the employment of such OrthAlliance Affiliated
Practitioner by such OrthAlliance Affiliated PC as an orthodontist or pediatric
dentist, as applicable, for a period of at least three years following the
closing date of the Merger.
"Amendment to OrthAlliance Service/Consulting Agreement" means a
written amendment to the respective OrthAlliance Service/Consulting Agreement
relating to the OrthAlliance Affiliated Practitioner's OrthAlliance Affiliated
Practice and the applicable OrthAlliance Affiliated PC employing the
OrthAlliance Affiliated Practitioner, in form and substance satisfactory to OCA
and its counsel, which amendments shall be in full force and effect upon and
following the effective time of the Merger, and provide for (A) an agreement by
such OrthAlliance Affiliated Practitioner and OrthAlliance Affiliated PC to
continue the employment of such OrthAlliance Affiliated Practitioner by such
OrthAlliance Affiliated PC as an orthodontist or pediatric dentist, as
applicable, for a period of at least three years following the closing date of
the Merger, (B) an agreement by such OrthAlliance Affiliated Practitioner to
guarantee, during the term of his or her employment by such OrthAlliance
Affiliated PC, the payment of service, consulting and other fees and amounts,
reimbursement of center expenses and other performance by such OrthAlliance
Affiliated PC under such OrthAlliance Service/Consulting Agreement, and (C) an
agreement by such OrthAlliance Affiliated Practitioner and OrthAlliance
Affiliated PC to utilize only OCA's and its subsidiaries' proprietary computer
software and operating systems in connection with patient accounting and
scheduling, payroll, supplies ordering and other business functions of such
OrthAlliance Affiliated Practice, and to maintain the current status of such
OrthAlliance Affiliated Practice's advertising or non-advertising, as the case
may be, to the general public, unless otherwise mutually agreed in writing
between OCA or its subsidiary and such OrthAlliance Affiliated PC.
"OCA Business Services Agreement" means a written long-term business
services agreement among the OrthAlliance Affiliated Practitioner, his or her
respective OrthAlliance Affiliated PC and OrthAlliance (or a subsidiary of OCA),
in form and substance satisfactory to OCA and its counsel and based on OCA's
form of such agreement (including, without limitation, the service fee,
restrictive covenant and termination provisions thereof), which agreement shall
be in full force and effect upon and following the effective time of the Merger,
and pursuant to which OCA and/or its subsidiary will provide business management
or consulting services for such OrthAlliance Affiliated Practitioner's
orthodontic or pediatric dental practice in exchange for a consulting or service
fee.
"OrthAlliance Affiliated Practice" means an orthodontic or pediatric
dental practice that is owned by the OrthAlliance Affiliated Practitioner or his
or her respective OrthAlliance Affiliated PC, and is the subject of an
OrthAlliance Service/Consulting Agreement.
C-2
60
1.3 No Litigation, Notice of Termination or Non-Compliance. An OrthAlliance
Affiliated Practitioner may not be a Participant in the Program, and will not be
issued any shares of OCA Common Stock under or pursuant to the Program or any
Participation Agreement, if:
(a) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is a party to any pending or threatened litigation or
other legal proceedings against or involving OrthAlliance, OCA or their
subsidiaries. If any such litigation or legal proceedings has been commenced or
threatened, such OrthAlliance Affiliated Practitioner may become a Participant
only if the same has been dismissed with prejudice or fully withdrawn in a
manner acceptable to OCA;
(b) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC has threatened or given notice of termination or
intention to terminate their respective OrthAlliance Service/Consulting
Agreement. If any such notice has been threatened or given, such OrthAlliance
Affiliated Practitioner may become a Participant only if the same has been fully
withdrawn in a manner acceptable to OCA;
(c) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is in default or breach of, or is not in compliance
with, their obligation to pay service or consulting fees under the applicable
OrthAlliance Service/Consulting Agreement; and/or
(d) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is a party with OrthAlliance or a subsidiary thereof
to any practice improvement performance guarantee agreement or comparable
agreement, pursuant to which service or consulting fees payable under an
OrthAlliance Service/Consulting Agreement may be abated or deferred based upon
profitability of the applicable OrthAlliance Affiliated Practice and the value
of consideration paid to such OrthAlliance Affiliated Professional and/or his or
her OrthAlliance Affiliated PC upon OrthAlliance's or its subsidiary' s
acquisition of stock or assets therefrom, or entering into of an OrthAlliance
Service/Consulting Agreement therewith.
1.4 Must Execute Participation Agreement. In order to be a Participant in the
Program and to be issued shares of OCA Common Stock under or pursuant to the
Program or any Participation Agreement, an OrthAlliance Affiliated Practitioner
must execute and deliver to OCA, and OCA must have executed and delivered to
such OrthAlliance Affiliated Practitioner, a written participation agreement
with OCA (each, a "Participation Agreement"), which Participation Agreement
shall be in form and substance satisfactory to OCA and its counsel and in full
force and effect upon and following the effective time of the Merger, and shall
provide for such OrthAlliance Affiliated Practitioner's participation in the
Program subject to each of the terms and conditions set forth herein and in such
Participation Agreement.
1.5 At least 50% of Affiliation Consideration In OrthAlliance Stock. In order to
be a Participant in the Program and to be issued by any shares of OCA Common
Stock under or pursuant to the Program or any Participation Agreement, the
OrthAlliance Affiliated Practitioner must have been issued shares of
OrthAlliance common stock by OrthAlliance or its subsidiary as all or a portion
of such person's OrthAlliance Affiliation Consideration (as defined below), and
such shares of OrthAlliance common stock must have totaled at least 50% of the
total amount of OrthAlliance Affiliation Consideration paid to such person by
OrthAlliance or its subsidiary, based upon an assumed price of $5.30 per share
of OrthAlliance common stock (each, an "OrthAlliance Stock Recipient").
For purposes of the Program, "OrthAlliance Affiliation Consideration"
means the amount of cash, OrthAlliance common stock and principal amount of
promissory notes paid to the particular OrthAlliance Affiliated Practitioner as
consideration for originally entering into their respective OrthAlliance
Service/Consulting Agreement or in respect of a related sale of assets or
capital stock to
C-3
61
OrthAlliance or its subsidiary in connection with the entering into of such
OrthAlliance Service/Consulting Agreement (excluding any consideration or other
payments in respect of any amendment, extension or supplement to such
OrthAlliance Service/Consulting Agreement).
1.6 Minimum Number of Participants. Participation in the Program, and the
issuance of any shares of OCA Common Stock pursuant to the Program or any
Participation Agreement, is expressly conditioned upon the execution and
delivery of respective Amendments and/or OCA Business Services Agreements no
later than the earlier to occur of September 30, 2001 or the effective time of
the Merger by (i) at least 120 OrthAlliance Affiliated Practitioners and their
respective OrthAlliance Affiliated PCs, and (ii) OrthAlliance Affiliated
Practitioners to whom is attributable at least 65% of OrthAlliance Service Fees
(as defined below) with respect to the 12 month period ended March 31, 2001
(with certain adjustments and annualization as described in Section 2.4 of the
Merger Agreement), and their respective OrthAlliance Affiliated PCs.
For purposes of the Program, "OrthAlliance Service Fees" means the
amount of service or consulting fees (excluding any amounts reimbursed, paid,
earned or accrued with respect to center expenses, operating and non-operating
expenses incurred in the operation of the applicable OrthAlliance Affiliated
Practice or other expenses) paid to OrthAlliance or its subsidiary by the
applicable OrthAlliance Affiliated Practitioner or his or her OrthAlliance
Affiliated PC under the applicable OrthAlliance Service/Consulting Agreement
during and with respect to the applicable period.
1.7 Conditioned on Completion of the Merger. Participation in the Program, and
the issuance of any shares of OCA Common Stock or other awards under or pursuant
to the Program or any Participation Agreement, is expressly conditioned upon
completion of the Merger pursuant to the Merger Agreement. If the Merger
Agreement is voided or terminated (other than upon completion of the Merger),
OCA will thereupon and thereafter have no further obligations under the Program
or any Participation Agreement or otherwise with respect to the Program, any
Participation Agreement and any participation or awards thereunder, and any and
all awards under and participation in the Program shall thereupon automatically
terminate without any obligation or liability on the part of OCA or Affiliate
(as defined below) thereof.
ARTICLE II. STOCK AWARDS
Participants in the Program are eligible to receive shares of OCA
Common Stock under the Program under either Section 2.2(a), (b) or (c) (but not
under more than one of such subsections), as applicable, and Section 2.3,
subject to the terms and conditions of the Program, as follows:
2.1 Total Number of Shares Available For Grant Under the Program. The total
number of shares of OCA Common Stock available for grant, award or issuance
under the Program (the "Total Available Shares") is as follows (provided, that
such amounts are not cumulative, and only the highest amount achieved shall be
applicable):
(a) 65% Participation. 200,000 total shares, if (and the provisions of
subsections (b) and (c) do not apply): (i) at least 120 to 128 OrthAlliance
Affiliated Practitioners and their respective OrthAlliance Affiliated PCs
execute and deliver their respective Amendments and/or OCA Business Service
Agreements no later than the earlier to occur of September 30, 2001 or the
effective time of the Merger, and (ii) OrthAlliance Affiliated Practitioners to
whom is attributable at least 65% to 69.99% of OrthAlliance Service Fees with
respect to the 12 month period ended March 31, 2001 (with certain adjustments
and annualization as described in Section 2.4 of the Merger Agreement), and
their respective OrthAlliance Affiliated PCs, execute and deliver their
respective Amendments and/or OCA Business Service Agreement no later than the
earlier to occur of September 30, 2001 or the effective time of the Merger; or
C-4
62
(b) 70% Participation. 300,000 total shares, if (and the provisions of
subsection (c) does not apply): (i) at least 129 to 137 OrthAlliance Affiliated
Practitioners and their respective OrthAlliance Affiliated PCs execute and
deliver their respective Amendments and/or OCA Business Service Agreements no
later than the earlier to occur of September 30, 2001 or the effective time of
the Merger, and (ii) OrthAlliance Affiliated Practitioners to whom is
attributable at least 70% to 74.99% of OrthAlliance Service Fees with respect to
the 12 month period ended March 31, 2001 (with certain adjustments and
annualization as described in Section 2.4 of the Merger Agreement), and their
respective OrthAlliance Affiliated PCs, execute and deliver their respective
Amendments and/or OCA Business Service Agreement no later than the earlier to
occur of September 30, 2001 or the effective time of the Merger; or
(c) 75% Participation. 400,000 total shares, if: (i) at least 138
OrthAlliance Affiliated Practitioners and their respective OrthAlliance
Affiliated PCs execute and deliver their respective Amendments and/or OCA
Business Service Agreements no later than the earlier to occur of September 30,
2001 or the effective time of the Merger, and (ii) OrthAlliance Affiliated
Practitioners to whom is attributable at least 75% of OrthAlliance Service Fees
with respect to the 12 month period ended March 31, 2001 (with certain
adjustments and annualization as described in Section 2.4 of the Merger
Agreement), and their respective OrthAlliance Affiliated PCs, execute and
deliver their respective Amendments and/or OCA Business Service Agreement no
later than the earlier to occur of September 30, 2001 or the effective time of
the Merger.
2.2 Base Number of Shares Per Participant. Each eligible Participant will be
awarded the following base number of shares of OCA Common Stock (provided, that
such amounts are not cumulative, and only the highest amount achieved shall be
applicable), subject to the terms and conditions of the Program:
(a) 65% Participation. 1,000 shares, if (and the provisions of
subsections (b) and (c) do not apply): (i) at least 120 to 128 OrthAlliance
Affiliated Practitioners and their respective OrthAlliance Affiliated PCs
execute and deliver their respective Amendments and/or OCA Business Service
Agreements no later than the earlier to occur of September 30, 2001 or the
effective time of the Merger, and (ii) OrthAlliance Affiliated Practitioners to
whom is attributable at least 65% to 69.99% of OrthAlliance Service Fees with
respect to the 12 month period ended March 31, 2001 (with certain adjustments
and annualization as described in Section 2.4 of the Merger Agreement), and
their respective OrthAlliance Affiliated PCs, execute and deliver their
respective Amendments and/or OCA Business Service Agreement no later than the
earlier to occur of September 30, 2001 or the effective time of the Merger; or
(b) 70% Participation. 1,500 shares, if (and the provisions of
subsection (c) does not apply): (i) at least 129 to 137 OrthAlliance Affiliated
Practitioners and their respective OrthAlliance Affiliated PCs execute and
deliver their respective Amendments and/or OCA Business Service Agreements no
later than the earlier to occur of September 30, 2001 or the effective time of
the Merger, and (ii) OrthAlliance Affiliated Practitioners to whom is
attributable at least 70% to 74.99% of OrthAlliance Service Fees with respect to
the 12 month period ended March 31, 2001 (with certain adjustments and
annualization as described in Section 2.4 of the Merger Agreement), and their
respective OrthAlliance Affiliated PCs, execute and deliver their respective
Amendments and/or OCA Business Service Agreement no later than the earlier to
occur of September 30, 2001 or the effective time of the Merger; or
(c) 75% Participation. 2,000 shares, if: (i) at least 138 OrthAlliance
Affiliated Practitioners and their respective OrthAlliance Affiliated PCs
execute and deliver their respective Amendments and/or OCA Business Service
Agreements no later than the earlier to occur of September 30, 2001 or the
effective time of the Merger, and (ii) OrthAlliance Affiliated Practitioners to
whom is attributable at least 75% of OrthAlliance Service Fees with respect to
the 12 month
C-5
63
period ended March 31, 2001 (with certain adjustments and annualization as
described in Section 2.4 of the Merger Agreement), and their respective
OrthAlliance Affiliated PCs, execute and deliver their respective Amendments
and/or OCA Business Service Agreement no later than the earlier to occur of
September 30, 2001 or the effective time of the Merger.
2.3 Pro Rata Amount of Remaining Shares. In addition to the award of shares of
OCA Common Stock under either Section 2.2(a), (b) or (c), as applicable,
eligible Participants shall be granted a pro rata amount of the Remaining Shares
(as defined below), subject to the terms and conditions of the Program, equal to
a fraction, the number of which is such Participant's Potential Loss of Stock
Consideration (as defined below), and the denominator of which is the total
aggregate sum of the Potential Loss of Stock Consideration for each and all of
the Participants.
For purposes of the Program:
"Remaining Shares" means the difference of (i) the Total Available Shares, minus
(ii) the total number of shares of OCA Common Stock awarded to Participants
pursuant to Section 2.2 hereof.
"Potential Loss of Stock Consideration" means the result of:
(i) the product of
(A) The number of shares of OrthAlliance common
stock originally issued to the applicable
Participant as OrthAlliance Affiliation
Consideration,
TIMES
(B) $5.30,
PLUS
(ii) The dollar amount of cash and principal amount of
promissory notes paid to such Participant as
OrthAlliance Affiliation Consideration,
MINUS
(ii) the product of
(A) The Applicable Multiple (as defined below),
TIMES
(B) The amount of OrthAlliance Service Fees paid
by the Participant or his or her
OrthAlliance Affiliated PC to OrthAlliance
or its subsidiary with respect to the 12
months ended March 31, 2001, (with certain
adjustments and annualization as described
in Section 2.4 of the Merger Agreement),
excluding any OrthAlliance Service fees paid
with respect to any OrthAlliance Affiliated
Practice acquired under OrthAlliance's "buy
a practice" or similar program or otherwise
without payment of significant
consideration.
C-6
64
"Applicable Multiple" means:
(a) 2.75, if (and the provisions of subsections (b) and (c) do not
apply): (i) at least 120 to 128 OrthAlliance Affiliated Practitioners and their
respective OrthAlliance Affiliated PCs execute and deliver their respective
Amendments and/or OCA Business Service Agreements no later than the earlier to
occur of September 30, 2001 or the effective time of the Merger, and (ii)
OrthAlliance Affiliated Practitioners to whom is attributable at least 65% to
69.99% of OrthAlliance Service Fees with respect to the 12 month period ended
March 31, 2001 (with certain adjustments and annualization as described in
Section 2.4 of the Merger Agreement), and their respective OrthAlliance
Affiliated PCs, execute and deliver their respective Amendments and/or OCA
Business Service Agreement no later than the earlier to occur of September 30,
2001 or the effective time of the Merger; or
(b) 3.35, if (and the provisions of subsection (c) does not apply): (i)
at least 129 to 137 OrthAlliance Affiliated Practitioners and their respective
OrthAlliance Affiliated PCs execute and deliver their respective Amendments
and/or OCA Business Service Agreements no later than the earlier to occur of
September 30, 2001 or the effective time of the Merger, and (ii) OrthAlliance
Affiliated Practitioners to whom is attributable at least 70% to 74.99% of
OrthAlliance Service Fees with respect to the 12 month period ended March 31,
2001 (with certain adjustments and annualization as described in Section 2.4 of
the Merger Agreement), and their respective OrthAlliance Affiliated PCs, execute
and deliver their respective Amendments and/or OCA Business Service Agreement no
later than the earlier to occur of September 30, 2001 or the effective time of
the Merger; or
(c) 4.5, if: (i) at least 138 OrthAlliance Affiliated Practitioners and
their respective OrthAlliance Affiliated PCs execute and deliver their
respective Amendments and/or OCA Business Service Agreements no later than the
earlier to occur of September 30, 2001 or the effective time of the Merger, and
(ii) OrthAlliance Affiliated Practitioners to whom is attributable at least 75%
of OrthAlliance Service Fees with respect to the 12 month period ended March 31,
2001 (with certain adjustments and annualization as described in Section 2.4 of
the Merger Agreement), and their respective OrthAlliance Affiliated PCs, execute
and deliver their respective Amendments and/or OCA Business Service Agreement no
later than the earlier to occur of September 30, 2001 or the effective time of
the Merger.
2.4 Timing and Conditions of Grants. Shares of OCA Common Stock awarded under
the Program shall be issuable to Participants in four annual installments, as
follows:
(a) For each Participant, one-fourth of the total number of shares of
OCA Common Stock (rounded to the nearest whole number) to be issued to such
Participant under the Program will be issued to such Participant following each
of the second, third, fourth and fifth anniversaries of the effective date of
the Merger if the amount of service or consulting fees (excluding any amounts
reimbursed, paid, earned or accrued with respect to center expenses, operating
and non-operating expenses incurred in the operation of the applicable
OrthAlliance Affiliated Practice or other expenses) paid to OCA or its
subsidiary by the Participant and/or his or her OrthAlliance Affiliated PC
during and with respect to the 12 calendar months immediately preceding that
particular anniversary pursuant to the applicable OCA Business Services
Agreement or OrthAlliance Service/Consulting Agreement ("Service Fees") is at
least 90% (the "90% Minimum Target") of the amount of Service Fees such
Participant and/or OrthAlliance Affiliated PC paid to OrthAlliance or its
subsidiary during and with respect to the 12 calendar months immediately
preceding the Merger.
(b) However, if the 90% Minimum Target is not achieved in the 12
calendar month period immediately preceding the second, third or fourth
anniversary of the effective date of the Merger (each, an "Earlier Period), but
is achieved during the 12 calendar month period immediately
C-7
65
preceding the third, fourth or fifth, as applicable, anniversary of the
effective date of the Merger (each, a "Later Period"), then the installment of
shares of OCA Common Stock issuable with respect to such Earlier Period will be
issued following such Later Period.
2.5 Only Whole Shares. Only whole shares of OCA Common Stock will be issued or
awarded under the Program; no fractional shares shall be issued.
ARTICLE III. ADJUSTMENT UPON CERTAIN CORPORATE CHANGES
3.1 Adjustments to Shares. The number of shares of OCA Common Stock subject to
an outstanding award of shares of OCA Common Stock granted to a Participant
under and pursuant to the Program shall be adjusted as the Committee (as defined
below) determines (in its sole discretion) to be appropriate, in the event that:
(a) OCA or an Affiliate (as defined below) effects one or more stock
dividends, stock splits, reverse stock splits, subdivisions, consolidations or
other similar events;
(b) OCA or an Affiliate engages in a transaction to which section 424
of the Code (as defined below) applies; or
(c) there occurs any other event which in the judgment of the Committee
necessitates such action.
For purposes of the Program:
(i) "Affiliate" means a "parent corporation," as defined in
section 424(e) of the Code, or "subsidiary corporation," as defined in
section 424(f) of the Code, of OCA.
(ii) "Code" means the U.S. Internal Revenue Code of 1986, as
amended.
3.2 No Adjustment upon Certain Transactions. The issuance by OCA of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services rendered, either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of OCA convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, outstanding Awards.
ARTICLE IV. LEGAL COMPLIANCE CONDITIONS
4.1 General. No OCA Common Stock shall be issued under the Program except in
compliance with all federal or state laws and regulations (including, without
limitation, withholding tax requirements), federal and state securities laws and
regulations and the rules of all securities exchanges or self-regulatory
organizations on which OCA's shares may be listed. OCA shall have the right to
rely on an opinion of its counsel as to such compliance. Any certificate issued
to evidence shares of OCA Common Stock granted under the Program may bear such
legends and statements as the Committee upon advice of counsel may deem
advisable to assure compliance with federal or state laws and regulations. No
OCA Common Stock shall be issued and no certificate for shares shall be
delivered until OCA has obtained such consent or approval as the Committee may
deem advisable from any regulatory bodies having jurisdiction over such matters.
4.2 Representations by Participants. As a condition to the grant of an Award or
the issuance of OCA Common Stock, OCA may require a Participant to represent and
warrant at the time of grant that the Participant does not have a present
intention to sell or distribute such shares. At the option
C-8
66
of OCA, a stop transfer order against any shares of stock may be placed on the
official stock books and records of OCA, and a legend indicating that the stock
may not be pledged, sold or otherwise transferred unless an opinion of counsel
was provided (concurred in by counsel for OCA) and stating that such transfer is
not in violation of any applicable law or regulation may be stamped on the stock
certificate in order to assure exemption from registration. The Committee may
also require such other action or agreement by the Participants as may from time
to time be necessary to comply with federal or state securities laws. This
provision shall not obligate OCA or any Affiliate to undertake registration of
stock hereunder.
ARTICLE V. ADMINISTRATION AND AMENDMENT
5.1 Administrative Committee. The Program shall be administered by a committee
composed of the chief executive officer and chief financial officer of OCA and
any other officer of OCA appointed to such committee by the chief executive
officer of OCA (the "Committee"). The express grant in the Program of any
specific power to the Committee shall not be construed as limiting any power or
authority of the Committee. Any decision made or action taken by the Committee
to administer the Program shall be final and conclusive. No member of the
Committee shall be liable for any act done in good faith with respect to the
Program or any Participation Agreement. In addition to all other authority
vested with the Committee under the Program, the Committee shall have complete
authority to:
(a) Interpret all provisions of the Program;
(b) Prescribe the form of any Participation Agreement;
(c) Make amendments to all Participation Agreements;
(d) Adopt, amend, and rescind rules for Program administration; and
(e) Make all determinations it deems advisable for the administration
of the Program.
5.2 Determination of Financial Performance. The authorities of the Committee
described in Section 5.1 include the full discretionary authority to make all
determinations regarding financial performance and related matters referenced in
the Program. Such matters include, but are not limited to, whether or not
Participants have achieved the standards of financial performance required to
receive awards of OCA Common Stock. The Committee shall make such determinations
by reference to any data and information that it deems appropriate and, to the
extent that such information that is provided by a Participant is not otherwise
subject to disclosure, shall employ reasonable measures that are designed to
keep such information confidential.
5.3 Amendment. OCA may amend or terminate the Program at any time; provided,
however, an amendment that would have a material adverse effect on the rights of
a Participant under an outstanding award is not valid with respect to such award
without the Participant's consent.
ARTICLE VI. GENERAL PROVISIONS
6.1 Unfunded Program. The Program shall be unfunded, and OCA shall not be
required to segregate any assets that may at any time be represented by grants
under the Program. Any liability of OCA to any person with respect to any grant
under the Program shall be based solely upon contractual obligations that may be
created hereunder. No such obligation of OCA shall be deemed to be secured by
any pledge of, or other encumbrance on, any property of OCA.
C-9
67
6.2 Rules of Construction. Headings are given to the articles and sections of
the Program solely as a convenience to facilitate reference. The masculine
gender when used herein refers to both masculine and feminine. The reference to
any statute, regulation or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
6.3 Governing Law. The internal laws of the State of Louisiana (without regard
to the choice of law provisions of Louisiana) shall apply to all matters arising
under the Program, to the extent that federal law does not apply.
6.4 Federal Withholding Tax Requirements. To the extent that withholding is
required by law, at the time that any Award is granted or OCA Common Stock is
issued, the Participant shall, upon notification of the amount due, pay to OCA
amounts necessary to satisfy applicable federal, state and local withholding tax
requirements or shall otherwise make arrangements satisfactory to OCA for such
requirements.
C-10
68
IN WITNESS WHEREOF, the undersigned officer has executed this document
effective as of August 6, 2001.
ORTHODONTIC CENTERS OF AMERICA, INC.
By: /s/ Bartholomew F. Palmisano, Sr.
-----------------------------------------
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President
and Chief Executive Officer
C-11
69
ANNEX D
ORTHODONTIC CENTERS OF AMERICA, INC.
HIGH PARTICIPATION BONUS PROGRAM
70
ORTHODONTIC CENTERS OF AMERICA, INC.
HIGH PARTICIPATION BONUS PROGRAM
PREAMBLE
WHEREAS, Orthodontic Centers of America, Inc., a Delaware corporation
("OCA"), OCA Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of OCA ("OCA Merger Sub"), and OrthAlliance, Inc., a Delaware
corporation ("OrthAlliance"), are parties to that certain Agreement and Plan of
Merger, dated as of May 16, 2001 (the "Merger Agreement"), among such parties,
pursuant to which OCA Merger Sub is to merge with and into OrthAlliance, with
OrthAlliance thereby becoming a wholly-owned subsidiary of OCA (the "Merger"),
subject to various conditions; and
WHEREAS, OCA desires to establish a program through which OCA may grant
shares of its common stock, $.01 par value per share ("OCA Common Stock"), to
certain eligible individuals (each such eligible individual, a "Participant")
who are OrthAlliance Affiliated Practitioners and who timely execute and deliver
an Amendment to OrthAlliance Service/Consulting Agreement and Amendment to
Employment Agreement and/or OCA Business Services Agreement (each as defined
below), subject to the terms described herein and completion of the Merger;
NOW, THEREFORE, OCA hereby establishes the Orthodontic Centers of
America, Inc. High Participation Bonus Program (the "Program").
ARTICLE I. ELIGIBILITY
In order for any person to be eligible to be a Participant in the
Program, or to be granted shares of OCA Common Stock under the Program or any
Participation Agreement (as defined below), he or she must meet or comply with
each of the following:
1.1 Must Be An OrthAlliance Affiliated Practitioner. In order to be a
Participant in the Program and to be issued any shares of OCA Common Stock under
or pursuant to the Program or any Participation Agreement (as defined below), a
person must be a licensed orthodontist or pediatric dentist who both (i) owns,
beneficially and of record, shares of capital stock of, or partnership,
membership or other equity interests in, a professional corporation or other
professional entity (each, an "OrthAlliance Affiliated PC") that is a party to a
written long-term service, management service, consulting or similar long-term
agreement with OrthAlliance and/or a subsidiary thereof pursuant to which
OrthAlliance and/or its subsidiary is providing business management or
consulting services for such Participant's orthodontic or pediatric dental
practice in exchange for a consulting or service fee (each an "OrthAlliance
Service/Consulting Agreement "), and (ii) is a full-time employee as an
orthodontist or pediatric dentist, as applicable, of such OrthAlliance
Affiliated PC (each such person, an "OrthAlliance Affiliated Practitioner").
Each Participant must also be a party to a written employment agreement (each,
an "Employment Agreement") with his or her respective OrthAlliance Affiliated
PC, pursuant to which such Participant provides orthodontic or pediatric dental
services as a full-time employee of such OrthAlliance Affiliated PC.
1.2 Must Amend Employment and Service/Consulting Agreement or Enter Into New OCA
Business Services Agreement. In order to be a Participant in the Program and to
be issued any shares of OCA Common Stock under or pursuant to the Program or any
Participation Agreement, an OrthAlliance Affiliated Practitioner must also,
along with his or her respective OrthAlliance Affiliated PC, execute and deliver
their respective (i) Amendments (as defined below) and/or (ii) OCA Business
Services Agreement (as defined below) no later than the earlier to occur of
September 30, 2001 or the effective time of the Merger. In addition, i f such
OrthAlliance Affiliated PC is partially
D-1
71
owned by one or more other OrthAlliance Affiliated Practitioners, then each of
such other OrthAlliance Affiliated Practitioners must also execute and deliver
their respective Amendments and/or OCA Business Services Agreement no later than
the earlier to occur of September 30, 2001 or the effective time of the Merger.
For purposes of the Program:
"Amendments" means an Amendment to Employment Agreement (as defined
below) and an Amendment to OrthAlliance Service/Consulting Agreement (as defined
below).
"Amendment to Employment Agreement" shall mean a written amendment to
the OrthAlliance Affiliated Practitioner's respective Employment Agreement, in
form and substance satisfactory to OCA and its counsel, which amendment shall be
in full force and effect upon and following the effective time of the Merger,
include OrthAlliance as a third party beneficiary and provide for an agreement
by such OrthAlliance Affiliated Practitioner and the applicable OrthAlliance
Affiliated PC to continue the employment of such OrthAlliance Affiliated
Practitioner by such OrthAlliance Affiliated PC as an orthodontist or pediatric
dentist, as applicable, for a period of at least three years following the
closing date of the Merger.
"Amendment to OrthAlliance Service/Consulting Agreement" means a
written amendment to the respective OrthAlliance Service/Consulting Agreement
relating to the OrthAlliance Affiliated Practitioner's OrthAlliance Affiliated
Practice and the applicable OrthAlliance Affiliated PC employing the
OrthAlliance Affiliated Practitioner, in form and substance satisfactory to OCA
and its counsel, which amendments shall be in full force and effect upon and
following the effective time of the Merger, and provide for (A) an agreement by
such OrthAlliance Affiliated Practitioner and OrthAlliance Affiliated PC to
continue the employment of such OrthAlliance Affiliated Practitioner by such
OrthAlliance Affiliated PC as an orthodontist or pediatric dentist, as
applicable, for a period of at least three years following the closing date of
the Merger, (B) an agreement by such OrthAlliance Affiliated Practitioner to
guarantee, during the term of his or her employment by such OrthAlliance
Affiliated PC, the payment of service, consulting and other fees and amounts,
reimbursement of center expenses and other performance by such OrthAlliance
Affiliated PC under such OrthAlliance Service/Consulting Agreement, and (C) an
agreement by such OrthAlliance Affiliated Practitioner and OrthAlliance
Affiliated PC to utilize only OCA's and its subsidiaries' proprietary computer
software and operating systems in connection with patient accounting and
scheduling, payroll, supplies ordering and other business functions of such
OrthAlliance Affiliated Practice, and to maintain the current status of such
OrthAlliance Affiliated Practice's advertising or non-advertising, as the case
may be, to the general public, unless otherwise mutually agreed in writing
between OCA or its subsidiary and such OrthAlliance Affiliated PC.
"OCA Business Services Agreement" means a written long-term business
services agreement among the OrthAlliance Affiliated Practitioner, his or her
respective OrthAlliance Affiliated PC and OrthAlliance (or a subsidiary of OCA),
in form and substance satisfactory to OCA and its counsel and based on OCA's
form of such agreement (including, without limitation, the service fee,
restrictive covenant and termination provisions thereof), which agreement shall
be in full force and effect upon and following the effective time of the Merger,
and pursuant to which OCA and/or its subsidiary will provide business management
or consulting services for such OrthAlliance Affiliated Practitioner's
orthodontic or pediatric dental practice in exchange for a consulting or service
fee.
"OrthAlliance Affiliated Practice" means an orthodontic or pediatric
dental practice that is owned by the OrthAlliance Affiliated Practitioner or his
or her respective OrthAlliance Affiliated PC, and is the subject of an
OrthAlliance Service/Consulting Agreement.
D-2
72
1.3 No Litigation, Notice of Termination or Non-Compliance. An OrthAlliance
Affiliated Practitioner may not be a Participant in the Program, and will not be
issued any shares of OCA Common Stock under or pursuant to the Program or any
Participation Agreement, if:
(a) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is a party to any pending or threatened litigation or
other legal proceedings against or involving OrthAlliance, OCA or their
subsidiaries. If any such litigation or legal proceedings has been commenced or
threatened, such OrthAlliance Affiliated Practitioner may become a Participant
only if the same has been dismissed with prejudice or fully withdrawn in a
manner acceptable to OCA;
(b) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC has threatened or given notice of termination or
intention to terminate their respective OrthAlliance Service/Consulting
Agreement. If any such notice has been threatened or given, such OrthAlliance
Affiliated Practitioner may become a Participant only if the same has been fully
withdrawn in a manner acceptable to OCA;
(c) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is in default or breach of, or is not in compliance
with, their obligation to pay service or consulting fees under the applicable
OrthAlliance Service/Consulting Agreement; and/or
(d) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is a party with OrthAlliance or a subsidiary thereof
to any practice improvement performance guarantee agreement or comparable
agreement, pursuant to which service or consulting fees payable under an
OrthAlliance Service/Consulting Agreement may be abated or deferred based upon
profitability of the applicable OrthAlliance Affiliated Practice and the value
of consideration paid to such OrthAlliance Affiliated Professional and/or his or
her OrthAlliance Affiliated PC upon OrthAlliance's or its subsidiary' s
acquisition of stock or assets therefrom, or entering into of an OrthAlliance
Service/Consulting Agreement therewith.
1.4 Must Execute Participation Agreement. In order to be a Participant in the
Program and to be issued shares of OCA Common Stock under or pursuant to the
Program or any Participation Agreement, an OrthAlliance Affiliated Practitioner
must execute and deliver to OCA, and OCA must have executed and delivered to
such OrthAlliance Affiliated Practitioner, a written participation agreement
with OCA (each, a "Participation Agreement"), which Participation Agreement
shall be in form and substance satisfactory to OCA and its counsel and in full
force and effect upon and following the effective time of the Merger, and shall
provide for such OrthAlliance Affiliated Practitioner's participation in the
Program subject to each of the terms and conditions set forth herein and in such
Participation Agreement.
1.5 Conditioned on Completion of the Merger. Participation in the Program, and
the issuance of any shares of OCA Common Stock pursuant to the Program or any
Participation Agreement, is expressly conditioned upon completion of the Merger
pursuant to the Merger Agreement. If the Merger Agreement is voided or
terminated (other than upon completion of the Merger), OCA will thereupon and
thereafter have no further obligations under the Program or any Participation
Agreement or otherwise with respect to the Program, any Participation Agreement
and any participation or awards thereunder, and any and all awards under and
participation in the Program shall thereupon automatically terminate without any
obligation or liability on the part of OCA or Affiliate (as defined below)
thereof.
1.6 Minimum Number of Participants. Participation in the Program, and the
issuance of any shares of OCA Common Stock pursuant to the Program or any
Participation Agreement, is expressly conditioned upon the execution and
delivery of respective Amendments and/or OCA Business Services Agreements no
later than the earlier to occur of September 30, 2001 or the effective time of
D-3
73
the Merger, by (i) at least 148 OrthAlliance Affiliated Practitioners and their
respective OrthAlliance Affiliated PCs, and (ii) OrthAlliance Affiliated
Practitioners to whom is attributable at least 80% of OrthAlliance Service Fees
(as defined below) during the 12 month period ended March 31, 2001 (with certain
adjustments and annualization as described in Section 2.4 of the Merger
Agreement), and their respective OrthAlliance Affiliated PCs.
For purposes of the Program, "OrthAlliance Service Fees" means the
amount of service or consulting fees (excluding any amounts reimbursed, paid,
earned or accrued with respect to center expenses, operating and non-operating
expenses incurred in the operation of the applicable OrthAlliance Affiliated
Practice or other expenses) paid to OrthAlliance or its subsidiary by the
applicable OrthAlliance Affiliated Practitioner or his or her OrthAlliance
Affiliated PC under the applicable OrthAlliance Service/Consulting Agreement
during and with respect to the applicable period.
ARTICLE II. STOCK AWARDS
Participants in the Program are eligible to receive shares of OCA
Common Stock under the Program under either Section 2.1(a) or (b) (but not under
both subsections), as applicable, as follows:
2.1 Number of Shares Per Participant. Each eligible Participant will be awarded
the following number of shares of OCA Common Stock (provided, that such amounts
are not cumulative, and only the highest amount achieved shall be applicable),
subject to the terms and conditions of the Program:
(a) 80% Participation. 500 shares, if (and the provisions of subsection
(b) does not apply): (i) at least 148 to 156 OrthAlliance Affiliated
Practitioners and their respective OrthAlliance Affiliated PCs execute and
deliver their respective Amendments and/or OCA Business Service Agreements no
later than the earlier to occur of September 30, 2001 or the effective time of
the Merger, and (ii) OrthAlliance Affiliated Practitioners to whom is
attributable at least 80% to 84.99% of OrthAlliance Service Fees with respect to
the 12 month period ended March 31, 2001 (with certain adjustments and
annualization as described in Section 2.4 of the Merger Agreement), and their
respective OrthAlliance Affiliated PCs, execute and deliver their respective
Amendments and/or OCA Business Service Agreement no later than the earlier to
occur of September 30, 2001 or the effective time of the Merger; or
(b) 85% Participation. 1,000 shares, if: (i) at least 157 OrthAlliance
Affiliated Practitioners and their respective OrthAlliance Affiliated PCs
execute and deliver their respective Amendments and/or OCA Business Service
Agreements no later than the earlier to occur of September 30, 2001 or the
effective time of the Merger, and (ii) OrthAlliance Affiliated Practitioners to
whom is attributable at least 85% of OrthAlliance Service Fees with respect to
the 12 month period ended March 31, 2001 (with certain adjustments and
annualization as described in Section 2.4 of the Merger Agreement), and their
respective OrthAlliance Affiliated PCs, execute and deliver their respective
Amendments and/or OCA Business Service Agreement no later than the earlier to
occur of September 30, 2001 or the effective time of the Merger; or
2.2 Timing and Conditions of Grants. Shares of OCA Common Stock awarded under
the Program shall be issuable to Participants in four annual installments, as
follows:
(a) For each Participant, one-fourth of the total number of shares of
OCA Common Stock (rounded to the nearest whole number) to be issued to such
Participant under the Program will be issued to such Participant following each
of the second, third, fourth and fifth anniversaries of the effective date of
the Merger if the amount of service or consulting fees (excluding any amounts
reimbursed, paid, earned or accrued with respect to center expenses, operating
and non-operating expenses incurred in the operation of the applicable
OrthAlliance Affiliated Practice or other
D-4
74
expenses) paid to OCA or its subsidiary by the Participant and/or his or her
OrthAlliance Affiliated PC during and with respect to the 12 calendar months
immediately preceding that particular anniversary pursuant to the applicable OCA
Business Services Agreement or OrthAlliance Service/Consulting Agreement
("Service Fees") is at least 90% (the "90% Minimum Target") of the amount of
Service Fees such Participant and/or OrthAlliance Affiliated PC paid to
OrthAlliance or its subsidiary during and with respect to the 12 calendar months
immediately preceding the Merger.
(b) However, if the 90% Minimum Target is not achieved in the 12
calendar month period immediately preceding the second, third or fourth
anniversary of the effective date of the Merger (each, an "Earlier Period), but
is achieved during the 12 calendar month period immediately preceding the third,
fourth or fifth, as applicable, anniversary of the effective date of the Merger
(each, a "Later Period"), then the installment of shares of OCA Common Stock
issuable with respect to such Earlier Period will be issued following such Later
Period.
2.3 Only Whole Shares. Only whole shares of OCA Common Stock will be
issued or awarded under the Program; no fractional shares shall be issued.
ARTICLE III. ADJUSTMENT UPON CERTAIN CORPORATE CHANGES
3.1 Adjustments to Shares. The number of shares of OCA Common Stock subject to
an outstanding award of shares of OCA Common Stock granted to a Participant
under and pursuant to the Program shall be adjusted as the Committee (as defined
below) determines (in its sole discretion) to be appropriate, in the event that:
(a) OCA or an Affiliate (as defined below) effects one or more stock
dividends, stock splits, reverse stock splits, subdivisions, consolidations or
other similar events;
(b) OCA or an Affiliate engages in a transaction to which section 424
of the Code (as defined below) applies; or
(c) there occurs any other event which in the judgment of the Committee
necessitates such action.
For purposes of the Program:
(i) "Affiliate" means a "parent corporation," as defined in
section 424(e) of the Code, or "subsidiary corporation," as defined in
section 424(f) of the Code, of OCA.
(ii) "Code" means the U.S. Internal Revenue Code of 1986, as
amended.
3.2 No Adjustment upon Certain Transactions. The issuance by OCA of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services rendered, either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of OCA convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, outstanding awards.
ARTICLE IV. LEGAL COMPLIANCE CONDITIONS
4.1 General. No OCA Common Stock shall be issued under the Program except in
compliance with all federal or state laws and regulations (including, without
limitation, withholding tax requirements), federal and state securities laws and
regulations and the rules of all securities exchanges or self-regulatory
organizations on which OCA's shares may be listed. OCA shall have the
D-5
75
right to rely on an opinion of its counsel as to such compliance. Any
certificate issued to evidence shares of OCA Common Stock granted under the
Program may bear such legends and statements as the Committee upon advice of
counsel may deem advisable to assure compliance with federal or state laws and
regulations. No OCA Common Stock shall be issued and no certificate for shares
shall be delivered until OCA has obtained such consent or approval as the
Committee may deem advisable from any regulatory bodies having jurisdiction over
such matters.
4.2 Representations by Participants. As a condition to the grant of an award for
the issuance of OCA Common Stock, OCA may require a Participant to represent and
warrant at the time of grant that the Participant does not have a present
intention to sell or distribute such shares. At the option of OCA, a stop
transfer order against any shares of stock may be placed on the official stock
books and records of OCA, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel was provided
(concurred in by counsel for OCA) and stating that such transfer is not in
violation of any applicable law or regulation may be stamped on the stock
certificate in order to assure exemption from registration. The Committee may
also require such other action or agreement by the Participants as may from time
to time be necessary to comply with federal or state securities laws. This
provision shall not obligate OCA or any Affiliate to undertake registration of
stock hereunder.
ARTICLE V. ADMINISTRATION AND AMENDMENT
5.1 Administrative Committee. The Program shall be administered by a committee
composed of the chief executive officer and chief financial officer of OCA and
any other officer of OCA appointed to such committee by the chief executive
officer of OCA (the "Committee"). The express grant in the Program of any
specific power to the Committee shall not be construed as limiting any power or
authority of the Committee. Any decision made or action taken by the Committee
to administer the Program shall be final and conclusive. No member of the
Committee shall be liable for any act done in good faith with respect to the
Program or any Participation Agreement. In addition to all other authority
vested with the Committee under the Program, the Committee shall have complete
authority to:
(a) Interpret all provisions of the Program;
(b) Prescribe the form of any Participation Agreement;
(c) Make amendments to all Participation Agreements;
(d) Adopt, amend, and rescind rules for Program administration; and
(e) Make all determinations it deems advisable for the administration
of the Program.
5.2 Determination of Financial Performance. The authorities of the Committee
described in Section 5.1 include the full discretionary authority to make all
determinations regarding financial performance and related matters referenced in
the Program. Such matters include, but are not limited to, whether or not
Participants have achieved the standards of financial performance required to
receive awards of OCA Common Stock. The Committee shall make such determinations
by reference to any data and information that it deems appropriate and, to the
extent that such information that is provided by a Participant is not otherwise
subject to disclosure, shall employ reasonable measures that are designed to
keep such information confidential.
5.3 Amendment. OCA may amend or terminate the Program at any time; provided,
however, an amendment that would have a material adverse effect on the rights of
a Participant under an outstanding award is not valid with respect to such award
without the Participant's consent.
D-6
76
ARTICLE VI. GENERAL PROVISIONS
6.1 Unfunded Program. The Program shall be unfunded, and OCA shall not be
required to segregate any assets that may at any time be represented by grants
under the Program. Any liability of OCA to any person with respect to any grant
under the Program shall be based solely upon contractual obligations that may be
created hereunder. No such obligation of OCA shall be deemed to be secured by
any pledge of, or other encumbrance on, any property of OCA.
6.2 Rules of Construction. Headings are given to the articles and sections of
the Program solely as a convenience to facilitate reference. The masculine
gender when used herein refers to both masculine and feminine. The reference to
any statute, regulation or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
6.3 Governing Law. The internal laws of the State of Louisiana (without regard
to the choice of law provisions of Louisiana) shall apply to all matters arising
under the Program, to the extent that federal law does not apply.
6.4 Federal Withholding Tax Requirements. To the extent that withholding is
required by law, at the time that OCA Common Stock is issued, the Participant
shall, upon notification of the amount due, pay to OCA amounts necessary to
satisfy applicable federal, state and local withholding tax requirements or
shall otherwise make arrangements satisfactory to OCA for such requirements.
D-7
77
IN WITNESS WHEREOF, the undersigned officer has executed this document
effective as of August 6, 2001.
ORTHODONTIC CENTERS OF AMERICA, INC.
By: /s/ Bartholomew F. Palmisano, Sr.
-----------------------------------------
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President
and Chief Executive Officer
D-8
78
ANNEX E
ORTHODONTIC CENTERS OF AMERICA, INC.
CONVERSION INCENTIVE PROGRAM
79
ORTHODONTIC CENTERS OF AMERICA, INC.
CONVERSION INCENTIVE PROGRAM
PREAMBLE
WHEREAS, Orthodontic Centers of America, Inc., a Delaware corporation
("OCA"), OCA Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of OCA ("OCA Merger Sub"), and OrthAlliance, Inc., a Delaware
corporation ("OrthAlliance"), are parties to that certain Agreement and Plan of
Merger, dated as of May 16, 2001 (the "Merger Agreement"), among such parties,
pursuant to which OCA Merger Sub is to merge with and into OrthAlliance, with
OrthAlliance thereby becoming a wholly-owned subsidiary of OCA (the "Merger"),
subject to various conditions; and
WHEREAS, OCA desires to establish a program through which OCA may grant
shares of its common stock, $.01 par value per share ("OCA Common Stock"), to
certain eligible individuals (each such eligible individual, a "Participant")
who are OrthAlliance Affiliated Practitioners and who timely execute and deliver
an OCA Business Services Agreement (each as defined below), subject to the terms
described herein and completion of the Merger;
NOW, THEREFORE, OCA hereby establishes the Orthodontic Centers of
America, Inc. Conversion Incentive Program (the "Program").
ARTICLE I. ELIGIBILITY
In order for any person to be eligible to be a Participant in the
Program, or to be granted shares of OCA Common Stock under the Program or any
Participation Agreement (as defined below), he or she must meet or comply with
each of the following:
1.1 Must Be an OrthAlliance Affiliated Practitioner. In order to be a
Participant in the Program and to be issued any shares of OCA Common Stock under
or pursuant to the Program or any Participation Agreement (as defined below), a
person must be a licensed orthodontist or pediatric dentist who both (i) owns,
beneficially and of record, shares of capital stock of, or partnership,
membership or other equity interests in, a professional corporation or other
professional entity (each, an "OrthAlliance Affiliated PC") that is a party to a
written long-term service, management service, consulting or similar long-term
agreement with OrthAlliance and/or a subsidiary thereof pursuant to which
OrthAlliance and/or its subsidiary is providing business management or
consulting services for such Participant's orthodontic or pediatric dental
practice in exchange for a consulting or service fee (each an "OrthAlliance
Service/Consulting Agreement"), and (ii) is a full-time employee as an
orthodontist or pediatric dentist, as applicable, of such OrthAlliance
Affiliated PC (each such person, an "OrthAlliance Affiliated Practitioner").
Each Participant must also be a party to a written employment agreement (each,
an "Employment Agreement") with his or her respective OrthAlliance Affiliated
PC, pursuant to which such Participant provides orthodontic or pediatric dental
services as a full-time employee of such OrthAlliance Affiliated PC.
1.2 Must Enter into New OCA Business Services Agreement. In order to be a
Participant in the Program and to be issued any shares of OCA Common Stock under
or pursuant to the Program or any Participation Agreement, an OrthAlliance
Affiliated Practitioner must also, along with his or her respective OrthAlliance
Affiliated PC, execute and deliver their respective OCA Business Services
Agreement (as defined below) no later than the earlier to occur of September 30,
2001 or the effective time of the Merger. In addition, if such OrthAlliance
Affiliated PC is partially owned by one or more other OrthAlliance Affiliated
Practitioners, then each of such other OrthAlliance Affiliated Practitioners
must also execute and deliver their respective OCA Business Services Agreement
no later than the earlier to occur of September 30, 2001 or the effective time
of the Merger.
E-1
80
For purposes of the Program, "OCA Business Services Agreement" means a
written long-term business services agreement among the OrthAlliance Affiliated
Practitioner, his or her respective OrthAlliance Affiliated PC and OrthAlliance
(or a subsidiary of OCA), in form and substance satisfactory to OCA and its
counsel and based on OCA's form of such agreement (including, without
limitation, the service fee, restrictive covenant and termination provisions
thereof), which agreement shall be in full force and effect upon and following
the effective time of the Merger, and pursuant to which OCA and/or its
subsidiary would provide business management or consulting services for such
OrthAlliance Affiliated Practitioner's orthodontic or pediatric dental practice
in exchange for a consulting or service fee.
1.3 No Litigation, Notice of Termination or Non-Compliance. An OrthAlliance
Affiliated Practitioner may not be a Participant in the Program, and will not be
issued any shares of OCA Common Stock under or pursuant to the Program or any
Participation Agreement, if:
(a) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is a party to any pending or threatened litigation or
other legal proceedings against or involving OrthAlliance, OCA or their
subsidiaries. If any such litigation or legal proceedings has been commenced or
threatened, such OrthAlliance Affiliated Practitioner may become a Participant
only if the same has been dismissed with prejudice or fully withdrawn in a
manner acceptable to OCA;
(b) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC has threatened or given notice of termination or
intention to terminate their respective OrthAlliance Service/Consulting
Agreement. If any such notice has been threatened or given, such OrthAlliance
Affiliated Practitioner may become a Participant only if the same has been fully
withdrawn in a manner acceptable to OCA; and/or
(c) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is in default or breach of, or is not in compliance
with, their obligation to pay service or consulting fees under the applicable
OrthAlliance Service/Consulting Agreement.
For purposes of the Program, "OrthAlliance Affiliated Practice" means
an orthodontic or pediatric dental practice that is owned by the OrthAlliance
Affiliated Practitioner or his or her respective OrthAlliance Affiliated PC, and
is the subject of an OrthAlliance Service/Consulting Agreement.
1.4 Must Execute Participation Agreement. In order to be a Participant in the
Program and to be issued shares of OCA Common Stock under or pursuant to the
Program or any Participation Agreement, an OrthAlliance Affiliated Practitioner
must execute and deliver to OCA, and OCA must have executed and delivered to
such OrthAlliance Affiliated Practitioner, a written participation agreement
with OCA (each, a "Participation Agreement"), which participation agreement
shall be in form and substance satisfactory to OCA and its counsel and in full
force and effect upon and following the effective time of the Merger, and shall
provide for such OrthAlliance Affiliated Practitioner's participation in the
Program subject to each of the terms and conditions set forth herein and in such
Participation Agreement.
1.5 Conditioned on Completion of the Merger. Participation in the Program, and
the issuance of any shares of OCA Common Stock or other awards under or pursuant
to the Program or any Participation Agreement, is expressly conditioned upon
completion of the Merger pursuant to the Merger Agreement. If the Merger
Agreement is voided or terminated (other than upon completion of the Merger),
OCA will thereupon and thereafter have no further obligations under the Program
or any Participation Agreement or otherwise with respect to the Program, any
Participation Agreement and any participation or awards thereunder, and any and
all awards under and participation in the
E-2
81
Program shall thereupon automatically terminate without any obligation or
liability on the part of OCA or Affiliate (as defined below) thereof.
1.6 Provision of Requested Information. In order to be a Participant in the
Program and to be issued shares of OCA Common Stock under or pursuant to the
Program or any Participation Agreement, an OrthAlliance Affiliated Practitioner
must provide OCA with any financial information that OCA reasonably requests in
order to determine the number of shares of OCA Common Stock, if any, to be
granted to the OrthAlliance Affiliated Practitioner under the Program.
ARTICLE II. STOCK AWARDS
2.1 Service Fee/Tenure Based Awards. Eligible Participants will be granted
shares of OCA Common Stock under the Program, subject to the terms and
conditions of the Program, in an amount equal to:
(a) Four,
TIMES
(b) The amount by which:
(i) the Prior 12 Months Assumed Service Fees (as defined
below), with respect to such Participant,
EXCEED
(ii) the Prior 12 Months Service Fees (as defined below),
with respect to such Participant,
DIVIDED BY
(c) The average closing price per share of OCA Common Stock as
reported on the New York Stock Exchange (or other stock
exchange or market on which shares of OCA Common Stock are
then principally traded) during the 10 trading days
immediately preceding the effective date of the Merger.
For purposes of the Program:
"Prior 12 Months Assumed Service Fees" means the amount of service or consulting
fees (excluding any amounts reimbursed, paid, earned or accrued with respect to
center expenses, operating and non-operating expenses incurred in the operation
of the applicable OrthAlliance Affiliated Practice or other expenses) that would
have been payable to OCA, its subsidiary or OrthAlliance, as applicable, by the
OrthAlliance Affiliated Practitioner or his or her OrthAlliance Affiliated PC
under the OCA Business Services Agreement during and with respect to the 12
calendar months immediately preceding the effective date of 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 OrthAlliance Affiliated
Practice during that period was 5% higher than the actual operating margin for
that period).
"Prior 12 Months Service Fees" means the amount of service or consulting fees
(excluding any amounts reimbursed, paid, earned or accrued with respect to
center expenses, operating and non-operating expenses incurred in the operation
of the applicable OrthAlliance Affiliated Practice or other expenses) paid to
OrthAlliance or its subsidiary by the OrthAlliance Affiliated Practitioner or
E-3
82
his or her OrthAlliance Affiliated PC under the applicable OrthAlliance
Service/Consulting Agreement during and with respect to the 12 calendar months
immediately preceding the effective date of the Merger.
2.2 Pro Rata Basis for Practices with Multiple Owners. If a Participant's
OrthAlliance Affiliated PC is partially owned by one or more other OrthAlliance
Affiliated Practitioners, then the number of shares of OCA Common Stock granted
pursuant to Section 2.1 above for such Participant shall be calculated by
multiplying the number of shares of OCA Common Stock that would otherwise be
granted to such person pursuant to Section 2.1 by his or her percentage of
equity ownership of such OrthAlliance Affiliated PC.
2.3 Timing and Conditions of Grants. Shares of OCA Common Stock awarded under
the Program shall be issuable to Participants in four annual installments, as
follows:
(a) For each Participant, one-fourth of the total number of shares of
OCA Common Stock (rounded to the nearest whole number) to be issued to such
Participant under the Program will be issued to such Participant following each
of the second, third, fourth and fifth anniversaries of the effective date of
the Merger if the amount of service or consulting fees (excluding any amounts
reimbursed, paid, earned or accrued with respect to center expenses, operating
and non-operating expenses incurred in the operation of the applicable
OrthAlliance Affiliated Practice or other expenses) paid to OCA or its
subsidiary by the Participant and/or his or her OrthAlliance Affiliated PC
during and with respect to the 12 calendar months immediately preceding that
particular anniversary pursuant to the applicable OCA Business Services
Agreement or OrthAlliance Service/Consulting Agreement ("Service Fees") is at
least 90% (the "90% Minimum Target") of the amount of Service Fees such
Participant and/or OrthAlliance Affiliated PC paid to OrthAlliance or its
subsidiary during and with respect to the 12 calendar months immediately
preceding the Merger.
(b) However, if the 90% Minimum Target is not achieved in the 12
calendar month period immediately preceding the second, third or fourth
anniversary of the effective date of the Merger (each, an "Earlier Period), but
is achieved during the 12 calendar month period immediately preceding the third,
fourth or fifth, as applicable, anniversary of the effective date of the Merger
(each, a "Later Period"), then the installment of shares of OCA Common Stock
issuable with respect to such Earlier Period will be issued following such Later
Period.
2.4 Only Whole Shares. Only whole shares of OCA Common Stock will be issued or
awarded under the Program; no fractional shares shall be issued.
ARTICLE III. ADJUSTMENT UPON CERTAIN CORPORATE CHANGES
3.1 Adjustments to Shares. The number of shares of OCA Common Stock subject to
an outstanding award of shares of OCA Common Stock granted to a Participant
under and pursuant to the Program shall be adjusted as the Committee (as defined
below) determines (in its sole discretion) to be appropriate, in the event that:
(a) OCA or an Affiliate (as defined below) effects one or more stock
dividends, stock splits, reverse stock splits, subdivisions, consolidations or
other similar events;
(b) OCA or an Affiliate engages in a transaction to which section 424
of the Code (as defined below) applies; or
(c) there occurs any other event which in the judgment of the Committee
necessitates such action.
E-4
83
For purposes of the Program:
(i) "Affiliate" means a "parent corporation," as defined in
section 424(e) of the Code, or "subsidiary corporation," as defined in
section 424(f) of the Code, of OCA.
(ii) "Code" means the U.S. Internal Revenue Code of 1986, as
amended.
3.2 No Adjustment upon Certain Transactions. The issuance by OCA of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services rendered, either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of OCA convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, outstanding awards.
ARTICLE IV. LEGAL COMPLIANCE CONDITIONS
4.1 General. No OCA Common Stock shall be issued under the Program except in
compliance with all federal or state laws and regulations (including, without
limitation, withholding tax requirements), federal and state securities laws and
regulations and the rules of all securities exchanges or self-regulatory
organizations on which OCA's shares may be listed. OCA shall have the right to
rely on an opinion of its counsel as to such compliance. Any certificate issued
to evidence shares of OCA Common Stock granted under the Program may bear such
legends and statements as the Committee upon advice of counsel may deem
advisable to assure compliance with federal or state laws and regulations. No
OCA Common Stock shall be issued and no certificate for shares shall be
delivered until OCA has obtained such consent or approval as the Committee may
deem advisable from any regulatory bodies having jurisdiction over such matters.
4.2 Representations by Participants. As a condition to the grant of an award or
the issuance of OCA Common Stock, OCA may require a Participant to represent and
warrant at the time of grant that the Participant does not have a present
intention to sell or distribute such shares. At the option of OCA, a stop
transfer order against any shares of stock may be placed on the official stock
books and records of OCA, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel was provided
(concurred in by counsel for OCA) and stating that such transfer is not in
violation of any applicable law or regulation may be stamped on the stock
certificate in order to assure exemption from registration. The Committee may
also require such other action or agreement by the Participants as may from time
to time be necessary to comply with federal or state securities laws. This
provision shall not obligate OCA or any Affiliate to undertake registration of
stock hereunder.
ARTICLE V. ADMINISTRATION AND AMENDMENT
5.1 Administrative Committee. The Program shall be administered by a committee
composed of the chief executive officer and chief financial officer of OCA and
any other officer of OCA appointed to such committee by the chief executive
officer of OCA (the "Committee"). The express grant in the Program of any
specific power to the Committee shall not be construed as limiting any power or
authority of the Committee. Any decision made or action taken by the Committee
to administer the Program shall be final and conclusive. No member of the
Committee shall be liable for any act done in good faith with respect to the
Program or any Participation Agreement. In addition to all other authority
vested with the Committee under the Program, the Committee shall have complete
authority to:
(a) Interpret all provisions of the Program;
E-5
84
(b) Prescribe the form of any Participation Agreement;
(c) Make amendments to all Participation Agreements;
(d) Adopt, amend, and rescind rules for Program administration; and
(e) Make all determinations it deems advisable for the administration
of the Program.
5.2 Determination of Performance Standards. The authorities of the Committee
described in Section 5.1 include the full discretionary authority to make all
determinations regarding financial performance and related matters referenced in
the Program. Such matters include, but are not limited to, whether or not
Participants have achieved the standards of financial performance required to
receive awards OCA Common Stock. The Committee shall make such determinations by
reference to any data and information that it deems appropriate and, to the
extent that such information that is provided by a Participant is not otherwise
subject to disclosure, shall employ reasonable measures that are designed to
keep such information confidential.
5.3 Amendment. OCA may amend or terminate the Program at any time; provided,
however, an amendment that would have a material adverse effect on the rights of
a Participant under an outstanding award of OCA Common Stock is not valid with
respect to such award without the Participant's consent.
ARTICLE VI. GENERAL PROVISIONS
6.1 Unfunded Program. The Program shall be unfunded, and OCA shall not be
required to segregate any assets that may at any time be represented by grants
under the Program. Any liability of OCA to any person with respect to any grant
under the Program shall be based solely upon contractual obligations that may be
created hereunder. No such obligation of OCA shall be deemed to be secured by
any pledge of, or other encumbrance on, any property of OCA.
6.2 Rules of Construction. Headings are given to the articles and sections of
the Program solely as a convenience to facilitate reference. The masculine
gender when used herein refers to both masculine and feminine. The reference to
any statute, regulation or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
6.3 Governing Law. The internal laws of the State of Louisiana (without regard
to the choice of law provisions of Louisiana) shall apply to all matters arising
under the Program, to the extent that federal law does not apply.
6.4 Federal Withholding Tax Requirements. To the extent that withholding is
required by law, at the time that OCA Common Stock is issued, the Participant
shall, upon notification of the amount due, pay to OCA amounts necessary to
satisfy applicable federal, state and local withholding tax requirements or
shall otherwise make arrangements satisfactory to OCA for such requirements.
E-6
85
IN WITNESS WHEREOF, the undersigned officer has executed this document
effective as of August 6, 2001.
ORTHODONTIC CENTERS OF AMERICA, INC.
By: /s/ Bartholomew F. Palmisano, Sr.
-----------------------------------------
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President
and Chief Executive Officer
E-7
86
ANNEX F
ORTHODONTIC CENTERS OF AMERICA, INC.
DOCTORS TRUST PROGRAM
87
ORTHODONTIC CENTERS OF AMERICA, INC.
DOCTORS TRUST PROGRAM
PREAMBLE
WHEREAS, Orthodontic Centers of America, Inc., a Delaware corporation
("OCA"), OCA Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of OCA ("OCA Merger Sub"), and OrthAlliance, Inc., a Delaware
corporation ("OrthAlliance"), are parties to that certain Agreement and Plan of
Merger, dated as of May 16, 2001 (the "Merger Agreement"), among such parties,
pursuant to which OCA Merger Sub is to merge with and into OrthAlliance, with
OrthAlliance thereby becoming a wholly-owned subsidiary of OCA (the "Merger"),
subject to various conditions; and
WHEREAS, OCA desires to establish a program through which OCA may grant
the right to purchase shares of its common stock, $.01 par value per share ("OCA
Common Stock"), at a fixed price ("Awards") to certain eligible individuals
(each such eligible individual, a "Participant") who are OrthAlliance Affiliated
Practitioners and who timely execute and deliver an OCA Business Services
Agreement (defined below), subject to the terms described herein and completion
of the Merger;
NOW, THEREFORE, OCA hereby establishes the Orthodontic Centers of
America, Inc. Doctors Trust Program (the "Program"):
ARTICLE I. ELIGIBILITY
In order for any person to be eligible to be a Participant in the
Program, or to be granted an Award or shares of OCA Common Stock under the
Program or any Participation Agreement (as defined below), he or she must meet
or comply with each of the following:
1.1 Must Be An OrthAlliance Affiliated Practitioner. In order to be a
Participant in the Program and to be issued Awards or shares of OCA Common Stock
under or pursuant to the Program or any Participation Agreement, a person must
be a licensed orthodontist or pediatric dentist who both (i) owns, beneficially
and of record, shares of capital stock of, or partnership, membership or other
equity interests in, a professional corporation or other professional entity
(each, an "OrthAlliance Affiliated PC") that is a party to a written long-term
service, management service, consulting or similar long-term agreement with
OrthAlliance and/or a subsidiary thereof pursuant to which OrthAlliance and/or
its subsidiary is providing business management or consulting services for such
Participant's orthodontic or pediatric dental practice in exchange for a
consulting or service fee (each an "OrthAlliance Service/Consulting Agreement"),
and (ii) is a full-time employee as an orthodontist or pediatric dentist, as
applicable, of such OrthAlliance Affiliated PC (each such person, an
"OrthAlliance Affiliated Practitioner"). Each Participant must also be a party
to a written employment agreement (each, an "Employment Agreement") with his or
her respective OrthAlliance Affiliated PC, pursuant to which such Participant
provides orthodontic or pediatric dental services as a full-time employee of
such OrthAlliance Affiliated PC.
1.2 Must Enter Into New OCA Business Services Agreement. In order to be a
Participant in the Program and to be issued any Awards or shares of OCA Common
Stock under or pursuant to the Program or any Participation Agreement, an
OrthAlliance Affiliated Practitioner must also, along with his or her respective
OrthAlliance Affiliated PC, execute and deliver their respective OCA Business
Services Agreement (as defined below), prior to the effective time of the
Merger. In addition, if such OrthAlliance Affiliated PC is partially owned by
one or more other OrthAlliance Affiliated Practitioners, then each of such other
OrthAlliance Affiliated Practitioners must also
F-1
88
execute and deliver their respective OCA Business Services Agreement prior to
the effective time of the Merger.
For purposes of the Program:
"OCA Business Services Agreement" means a written long-term business
services agreement among the OrthAlliance Affiliated Practitioner, his or her
respective OrthAlliance Affiliated PC and OrthAlliance (or a subsidiary of OCA),
in form and substance satisfactory to OCA and its counsel and based on OCA's
form of such agreement (including, without limitation, the service fee,
restrictive covenant and termination provisions thereof), which agreement shall
be in full force and effect upon and following the effective time of the Merger,
and pursuant to which OCA and/or its subsidiary would provide business
management or consulting services for such OrthAlliance Affiliated
Practitioner's orthodontic or pediatric dental practice in exchange for a
consulting or service fee.
"OrthAlliance Affiliated Practice" means an orthodontic or pediatric
dental practice that is owned by the OrthAlliance Affiliated Practitioner or his
or her respective OrthAlliance Affiliated PC, and is the subject of an
OrthAlliance Service/Consulting Agreement.
1.3 No Litigation, Notice of Termination or Non-Compliance. An OrthAlliance
Affiliated Practitioner may not be a Participant in the Program, and will not be
issued any Awards or shares of OCA Common Stock under or pursuant to the Program
or any Participation Agreement, if:
(a) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is a party to any pending or threatened litigation or
other legal proceedings against or involving OrthAlliance, OCA or their
subsidiaries. If any such litigation or legal proceedings has been commenced or
threatened, such OrthAlliance Affiliated Practitioner may become a Participant
only if the same has been dismissed with prejudice or fully withdrawn in a
manner acceptable to OCA;
(b) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC has threatened or given notice of termination or
intention to terminate their respective OrthAlliance Service/Consulting
Agreement. If any such notice has been threatened or given, such OrthAlliance
Affiliated Practitioner may become a Participant only if the same has been fully
withdrawn in a manner acceptable to OCA; and/or
(c) Such OrthAlliance Affiliated Practitioner and/or his or her
OrthAlliance Affiliated PC is in default or breach of, or is not in compliance
with, their obligation to pay service or consulting fees under the applicable
OrthAlliance Service/Consulting Agreement.
1.4 Must Execute Participation Agreement. In order to be a Participant in the
Program and to be issued Awards or shares of OCA Common Stock under or pursuant
to the Program or any Participation Agreement, an OrthAlliance Affiliated
Practitioner must execute and deliver to OCA, and OCA must have executed and
delivered to such OrthAlliance Affiliated Practitioner, a written participation
agreement with OCA (each, a "Participation Agreement"), which Participation
Agreement shall be in form and substance satisfactory to OCA and its counsel and
in full force and effect upon and following the effective time of the Merger,
and shall provide for such OrthAlliance Affiliated Practitioner's participation
in the Program subject to each of the terms and conditions set forth herein and
in such Participation Agreement.
1.5 Conditioned on Completion of the Merger. Participation in the Program, and
the issuance of any Awards or shares of OCA Common Stock under or pursuant to
the Program or any Participation Agreement, is expressly conditioned upon
completion of the Merger pursuant to the Merger Agreement. If the Merger
Agreement is voided or terminated (other than upon completion of the Merger),
OCA will thereupon and thereafter have no further obligations under the Program
or any
F-2
89
Participation Agreement or otherwise with respect to the Program, any
Participation Agreement and any participation or Awards thereunder, and any and
all Awards under and participation in the Program shall thereupon automatically
terminate without any obligation or liability on the part of OCA or Affiliate
(as defined below) thereof.
ARTICLE II. AWARDS
2.1 Participation and Award Grants. Following the effective time of the Merger,
each eligible Participant shall be granted an Award that entitles the
Participant to purchase shares of OCA Common Stock from OCA, subject to the
terms and conditions of the Program, in an amount (rounded to the nearest whole
number) equal to the result of:
(A) $60,000,
DIVIDED BY
(B) The average closing sales price per share of the OCA Common
Stock as reported on the New York Stock Exchange (or other
stock exchange or market on which shares of OCA Common Stock
are then principally traded) during the 10 trading days
immediately prior to the effective date of the Merger.
Such shares of OCA Common Stock would be subject to forfeiture and/or certain
restrictions on transfer that are identified in the Program and the
Participation Agreement.
2.2 Method of Exercise of Award. An Award may be exercised, if at all, by a
Participant at anytime during the two year period ending on and including the
second anniversary of the effective date of the Merger, by giving written notice
of such exercise to the Chief Financial Officer of OCA and remitting to OCA the
first Purchase Price Installment (as defined below) in cash. An Award shall be
deemed to be exercised on the date that OCA's Chief Financial Officer receives
such written notice of exercise and OCA accepts tender of payment of such
Purchase Price Installment. An Award may not be exercised in part or for less
than the total number of shares of OCA Common Stock subject to such Award.
2.3 Purchase Price. A Participant who elects to exercise his or her rights under
an Award shall purchase the OCA Common Stock identified in the Award for the
aggregate purchase price (the "Purchase Price") of $40,000.
2.4 Payment of Purchase Price. The Purchase Price shall be paid by the
applicable Participant to OCA in 40 equal quarterly installments of $1,000 over
a period of 10 years (each, a "Purchase Price Installment"), without interest.
The first Purchase Price Installment shall be due and payable on or before the
second anniversary of the effective date of the Merger. Each successive Purchase
Price Installment shall be due and payable by the 15th calendar day following
the last day of each calendar quarter thereafter, until the Purchase Price is
paid in full. Any portion of the Purchase Price that is not previously paid
shall be immediately due and payable on the twelfth anniversary of the effective
date of the Merger. All payments of the Purchase Price shall be in cash. For
convenience, Purchase Price Installments shall be retained by OCA from funds
otherwise remittable to the Participant in respect of the applicable OCA
Business Services Agreement and collections thereunder; however, payment of the
Purchase Price shall be a full recourse obligation of the Participant, and shall
not reduce the amount of service, consulting or other fees or reimbursement
payable to OCA under or pursuant to such OCA Business Services Agreement. Any
Purchase Price Installments or portion thereof that are not paid to OCA when due
shall bear interest at the prime rate (as reported in the Wall Street Journal,
or if not available, a comparable authoritative source selected by OCA) plus
1.5% per annum until paid in full.
F-3
90
2.5 Non-Transferability of Right to Purchase Shares. Awards granted under the
Program are not transferable. OCA Common Stock purchased pursuant to an Award is
subject to restrictions on transfer that are identified herein.
2.6 Issuance and Delivery of Shares. Shares of OCA Common Stock issued pursuant
to the exercise of an Award hereunder shall be issued and delivered to
Participants by OCA (or its transfer agent) in equal annual installments
following each of the eleventh through seventeenth anniversaries of the
effective date of the Merger, with one-seventh of the total number of such
shares to be issued following each such anniversary (rounded down to the nearest
whole share); provided, however, that no shares of OCA Common Stock shall be
issued hereunder unless and until all Purchase Price Installments payable on or
prior to such issuance have been paid to OCA in accordance with Section 2.4
above.
2.7 Shareholder Rights. No Participant shall have any rights as a shareholder
with respect to shares subject to Awards prior to the issuance thereto of shares
of OCA Common Stock pursuant to such Award.
2.8 Only Whole Shares. Only whole shares of OCA Common Stock will be issued or
awarded under the Program; no fractional shares shall be issued.
ARTICLE III. STOCK RIGHTS AND RESTRICTIONS
3.1 Restrictions on Transfer. Prior to the eleventh anniversary of the effective
date of the Merger, a Participant may not Transfer (as defined below) any shares
of OCA Common Stock acquired pursuant to, through or under an Award or the
Program. Beginning on the eleventh anniversary of the Merger, such Participant
may Transfer up to one-seventh of the total number of such shares of OCA Common
Stock so acquired, and on each of the twelfth through seventeenth anniversaries
of the effective date of the Merger, such Participant may Transfer up to an
additional one-seventh of the total number of such shares of OCA Common Stock so
acquired. Such increments shall be cumulative, so that such Participant may
Transfer all of such shares of OCA Common Stock so acquired upon and following
the seventeenth anniversary of the effective date of the Merger.
For purposes of the Program, "Transfer" means any sale, transfer,
encumbrance, gift, donation, assignment, pledge, hypothecation, or other
disposition, whether similar or dissimilar to those previously enumerated,
whether voluntary or involuntary, and whether during the Participant's lifetime
or upon or after the Participant's death, including, but not limited to, any
disposition by operation of law, by court order, by judicial process, or by
foreclosure, levy, or attachment. Any attempted Transfer in violation of this
Section 3.1 shall be void.
3.2 Events of Forfeiture. Upon the occurrence of any of the following events
(each, an "Event of Forfeiture"), any and all unexercised Awards shall be
canceled and forfeited, and any and all shares of OCA Common Stock that have not
then been issued to a Participant pursuant to Section 2.6 above, or become
eligible for Transfer pursuant to Section 3.1 above, shall be forfeited to OCA
and/or shall not be issued, and the related portion of such Award shall be
canceled and forfeited:
(a) The Participant ceases to be employed full-time as an orthodontist
or pediatric dentist, as applicable, in his or her OrthAlliance Affiliated
Practice prior to the tenth anniversary of the Merger;
(b) The Participant ceases to own an equity interest in his or her
OrthAlliance Affiliated PC prior to the tenth anniversary of the Merger;
F-4
91
(c) The Participant's OCA Business Services Agreement terminates, or
the Participant ceases to be a party to such OCA Business Services Agreement;
(d) The Participant and/or his or her OrthAlliance Affiliated PC fail
to utilize OCA's proprietary computer software and business systems in
connection with the business functions of their OrthAlliance Affiliated
Practice; and/or
(e) The Participant and/or his or her OrthAlliance Affiliated PC fail
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, her or their
financial obligations to OCA or its subsidiaries, or breach such OCA Business
Services Agreement.
Upon any such Event of Forfeiture, any Purchase Price Installments theretofore
paid to OCA by such Participant shall remain the property of OCA and shall not
be returned to such Participant, and any Purchase Price Installments that were
due and payable prior to such Event of Forfeiture shall remain due and payable
to OCA; however, the Participant shall not be obligated to pay any Purchase
Price Installments that first become due and payable after the date of such
Event of Forfeiture.
3.3 Retirement After Tenth Anniversary. Notwithstanding the forfeiture
provisions of Section 3.2, if, after the tenth anniversary of the effective date
of the Merger, a Participant retires from practice as an orthodontist or
pediatric dentist, as applicable, by transferring his or her OrthAlliance
Affiliated Practice to another orthodontist or pediatric dentist, as applicable,
acceptable to OCA who enters into a written agreement with OCA and such
Participant acceptable to OCA in which such other orthodontist or pediatric
dentist assumes all of the Participant's obligations under the applicable OCA
Business Services Agreement, it shall not be deemed to be an Event of Forfeiture
with respect to a Pro Rata Amount of Shares (as defined below), and such Pro
Rata Amount of Shares shall be issuable as provided in Section 2.6 above and
subject to the terms and conditions of the Program (provided, that the Award
shall be terminated with respect to the remaining number of shares subject to
such Award), if (a) at least through the tenth anniversary of the effective date
of the Merger, such Participant remains employed full-time as an orthodontist or
pediatric dentist, as applicable, in his or her respective OrthAlliance
Affiliated Practice, owns an equity interest in the OrthAlliance Affiliated PC
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 the Program and the respective Participation Agreement, and (b)
such Participant thereafter continues to comply with the provisions of any
applicable covenant not to compete or solicit, or other non-competition,
non-solicitation and/or confidentiality agreement or provision in or under the
applicable OCA Business Services Agreement or otherwise with OCA or its
subsidiary (collectively, the "Non-Competition Agreements"). In the event that
the Participant breaches any of the Non-Competition Agreements, any and all of
such shares of OCA Common Stock that have not then been issued to a Participant
pursuant to Section 2.6 above, or become eligible for Transfer pursuant to
Section 3.1 above, shall be forfeited to OCA and/or shall not be issued, and the
related portion of such Award shall be canceled and forfeited.
For purposes of the Program, "Pro Rata Amount of Shares" means a number of
shares of OCA Common Stock (rounded down to the nearest whole share) which
equals the same proportion of the total number of shares of OCA Common Stock
issuable to a Participant under or pursuant to his or her Award as the
proportion that the aggregate amount of Purchase Price Installments theretofore
paid to OCA by such Participant with respect to such shares bears to the total
Purchase Price for such shares.
F-5
92
3.4 Death or Disability. Notwithstanding the forfeiture provisions of Section
3.2, if a Participant dies or becomes disabled (and permanently ceases to
practice orthodontics or pediatric dentistry, as applicable), it shall not be
deemed to be an Event of Forfeiture with respect to a Pro Rata Amount of Shares,
and such Pro Rata Amount of Shares shall be issuable as provided in Section 2.6
above and subject to the terms and conditions of the Program (provided, that the
Award shall be terminated with respect to the remaining number of shares subject
to such Award), if such Participant thereafter continues to comply with the
provisions of any applicable Non-Competition Agreements. In the event that the
Participant breaches any of the Non-Competition Agreements, any and all of such
shares of OCA Common Stock that have not then been issued to a Participant
pursuant to Section 2.6 above, or become eligible for Transfer pursuant to
Section 3.1 above, shall be forfeited to OCA and/or shall not be issued, and the
related portion of such Award shall be canceled and forfeited.
3.5 Issuance to Professional Entity. Shares of OCA Common Stock issued under the
Program may, if requested in writing to OCA by a Participant, be issued to the
Participant's OrthAlliance Affiliated PC, rather than to the individual
Participant, if the OrthAlliance Affiliated PC executes and delivers to OCA a
Participation Agreement in which it agrees to become bound by, and take such
shares subject to, the terms and conditions of the Program (including, without
limitation, Sections 3.1 and 3.2), as if such shares were held by such
Participant. If the OrthAlliance Affiliated PC is conveyed to a successor
orthodontist or pediatric dentist, as applicable, acceptable to OCA and who
concurrently enters into a written agreement with OCA and such Participant
acceptable to OCA in which such successor assumes all of such Participant's
obligations under the applicable OCA Business Services Agreement, such
conveyance shall not be deemed to be an Event of Forfeiture with respect to
shares of OCA Common Stock so issued to such OrthAlliance Affiliated PC
(provided, that the applicable Award shall be terminated with respect to any
unissued shares subject to such Award), and such shares may continue as an asset
of the OrthAlliance Affiliated PC under the ownership of the successor
practitioner, and shall be treated for purposes of the Program as if held by the
successor practitioner. For purposes of the years of employment or ownership in
Sections 3.2(a) and (b) and Section 3.4, such successor practitioner shall be
credited with the number of years (or portion thereof) completed by the
Participant transferring such OrthAlliance Affiliated PC prior to such transfer.
ARTICLE IV. ADJUSTMENT UPON CERTAIN CORPORATE CHANGES
4.1 Adjustments to Shares. The number of shares of OCA Common Stock subject to
an outstanding Award shall be adjusted as the Committee (as defined below)
determines (in its sole discretion) to be appropriate, in the event that:
(a) OCA or an Affiliate (as defined below) effects one or more stock
dividends, stock splits, reverse stock splits, subdivisions, consolidations or
other similar events;
(b) OCA or an Affiliate engages in a transaction to which section 424
of the Code (as defined below) applies; or
(c) there occurs any other event which in the judgment of the Committee
necessitates such action.
For purposes of the Program:
(i) "Affiliate" means a "parent corporation," as defined in
section 424(e) of the Code, or "subsidiary corporation," as defined in
section 424(f) of the Code, of OCA.
(ii) "Code" means the U.S. Internal Revenue Code of 1986, as
amended.
F-6
93
4.2 No Adjustment upon Certain Transactions. The issuance by OCA of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services rendered, either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of OCA convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, outstanding Awards.
ARTICLE V. LEGAL COMPLIANCE CONDITIONS
5.1 General. No Award shall be exercisable, no OCA Common Stock shall be issued,
no certificates for shares of OCA Common Stock shall be delivered, and no
payment shall be made under the Program or any Participation Agreement except in
compliance with all federal or state laws and regulations (including, without
limitation, withholding tax requirements), federal and state securities laws and
regulations and the rules of all securities exchanges or self-regulatory
organizations on which OCA's shares may be listed. OCA shall have the right to
rely on an opinion of its counsel as to such compliance. Any certificate issued
to evidence shares of OCA Common Stock for which an Award is exercised may bear
such legends and statements as the Committee upon advice of counsel may deem
advisable to assure compliance with federal or state laws and regulations. No
Award shall be exercisable, no OCA Common Stock shall be issued, no certificate
for shares shall be delivered and no payment shall be made under the Program or
any Participation Agreement until OCA has obtained such consent or approval as
the Committee may deem advisable from any regulatory bodies having jurisdiction
over such matters.
5.2 Representations by Participants. As a condition to the exercise of an Award,
OCA may require a Participant to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares. At the option of OCA, a
stop transfer order against any shares of stock may be placed on the official
stock books and records of OCA, and a legend indicating that the stock may not
be pledged, sold or otherwise transferred unless an opinion of counsel was
provided (concurred in by counsel for OCA) and stating that such transfer is not
in violation of any applicable law or regulation may be stamped on the stock
certificate in order to assure exemption from registration. The Committee may
also require such other action or agreement by the Participants as may from time
to time be necessary to comply with federal or state securities laws. This
provision shall not obligate OCA or any Affiliate to undertake registration of
options or stock hereunder.
ARTICLE VI. ADMINISTRATION AND AMENDMENT
6.1 Administrative Committee. The Program shall be administered by a committee
composed of the chief executive officer and chief financial officer of OCA and
any other officer of OCA appointed to such committee by the chief executive
officer of OCA (the "Committee"). The express grant in the Program of any
specific power to the Committee shall not be construed as limiting any power or
authority of the Committee. Any decision made or action taken by the Committee
to administer the Program shall be final and conclusive. No member of the
Committee shall be liable for any act done in good faith with respect to the
Program or any Participation Agreement or Award. In addition to all other
authority vested with the Committee under the Program, the Committee shall have
complete authority to:
(a) Interpret all provisions of the Program;
(b) Prescribe the form of any Participation Agreement;
(c) Make amendments to all Participation Agreements;
F-7
94
(d) Adopt, amend, and rescind rules for Program administration; and
(e) Make all determinations it deems advisable for the administration
of the Program.
6.2 Amendment. OCA may amend or terminate the Program at any time; provided,
however, an amendment that would have a material adverse effect on the rights of
a Participant under an outstanding Award is not valid with respect to such Award
without the Participant's consent.
ARTICLE VII. GENERAL PROVISIONS
7.1 Unfunded Program. The Program, insofar as it provides for grants, shall be
unfunded, and OCA shall not be required to segregate any assets that may at any
time be represented by grants under the Program. Any liability of OCA to any
person with respect to any grant under the Program shall be based solely upon
contractual obligations that may be created hereunder. No such obligation of OCA
shall be deemed to be secured by any pledge of, or other encumbrance on, any
property of OCA.
7.2 Rules of Construction. Headings are given to the articles and sections of
the Program solely as a convenience to facilitate reference. The masculine
gender when used herein refers to both masculine and feminine. The reference to
any statute, regulation or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
7.3 Governing Law. The internal laws of the State of Louisiana (without regard
to the choice of law provisions of Louisiana) shall apply to all matters arising
under the Program, to the extent that federal law does not apply.
7.4 Federal Withholding Tax Requirements. To the extent that withholding is
required by law, at the time that an Award is exercised, the Participant shall,
upon notification of the amount due, pay to OCA amounts necessary to satisfy
applicable federal, state and local withholding tax requirements or shall
otherwise make arrangements satisfactory to OCA for such requirements.
F-8
95
IN WITNESS WHEREOF, the undersigned officer has executed this document
effective as of August 6, 2001.
ORTHODONTIC CENTERS OF AMERICA, INC.
By: /s/ Bartholomew F. Palmisano, Sr.
-----------------------------------------
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President
and Chief Executive Officer
F-9
96
ANNEX G
ORTHODONTIC CENTERS OF AMERICA, INC.
FORM OF PARTICIPATION AGREEMENT
97
PARTICIPATION AGREEMENT
ORTHODONTIC CENTERS OF AMERICA, INC.
____________ PROGRAM
THIS PARTICIPATION AGREEMENT ("Agreement") is made and entered into as
of ______________, 2001, by and between ORTHODONTIC CENTERS OF AMERICA, INC., a
Delaware corporation ("OCA"), and _______________________, an individual
residing in the State of ______________ (the "Participant").
RECITALS:
WHEREAS, OCA adopted the Orthodontic Centers of America, Inc. _______
Program (the "Program") through resolutions adopted by OCA's Board of Directors;
and
WHEREAS, the Participant desires to participate in the Program, subject
to the terms and conditions therein and herein;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this agreement, the parties agree as follows:
AGREEMENT:
1. Election to Participate. The Participant hereby elects to participate in the
Program, in accordance with and subject to all of the terms, conditions and
provisions of the Program and this Agreement, as such may be amended from time
to time. OCA hereby permits the Participant to participate in the Program
(subject to the Participant's fulfillment and compliance with all of the
criteria for participation specified in the Program), as and to the extent
provided in the Program and on the terms, conditions and provisions specified
therein and herein, as such may be amended from time to time. The Participant
represents and warrants to OCA that the Participant has, along with his or her
respective OrthAlliance Affiliated PC (as defined in the Program), executed and
delivered to OrthAlliance their respective (i) Amendments (as defined in the
Program) and/or (ii) OCA Business Services Agreement (as defined in the Program)
on the date or dates specified on Schedule 1 hereto. The Participant further
represents and warrants to OCA that he or she is an OrthAlliance Affiliated
Practitioner (as defined in the Program).
2. Program Document Controls. The Participant acknowledges and agrees that such
participation, and any and all awards, grants, shares or rights granted or
awarded to the Participant under the Program, will be governed by and subject to
all of the terms, conditions, and provisions of this Agreement and the Program,
as such exist on the date of this Agreement and as such may be amended from time
to time hereafter. A copy of the Program, as it exists on the date hereof, is
attached hereto as Exhibit A, and/or has been previously provided to the
Participant, and is made a part hereof as if fully set forth herein. In the
event of any conflict between the provisions of the Agreement and the provisions
of the Program, the terms of the Program, as such may be amended, shall control,
except as expressly stated otherwise therein.
3. Notice. Whenever any notice is required or permitted hereunder, such notice
must be in writing and personally delivered or sent by mail or a delivery
service that is approved by OCA. Any notice required or permitted to be
delivered hereunder shall be deemed to be delivered on the date which it is
personally delivered, or, whether actually received or not, on the third
business day after it is deposited in the United States mail, certified or
registered, postage prepaid, addressed to the person who is to receive it at the
address identified in this Section. OCA or the Participant may
G-1
98
change, by written notice to the other, the address specified for receiving
notices. Notices to OCA shall be addressed as follows:
Orthodontic Centers of America, Inc.
3850 N. Causeway Boulevard, Suite 1040
Metairie, LA 70002
Attention: Bartholomew F. Palmisano, Jr.
Notices to the Participant shall be hand delivered to the Participant on the
premises of OCA or its subsidiaries, or addressed to the latest address shown on
the records of OCA.
4. Information Confidential. As partial consideration for the Participant's
participation the Program, the Participant agrees that he or she will keep
confidential all information and knowledge that the Participant has relating to
the manner and amount of his or her participation in the Program; provided,
however, that such information may be disclosed as required by law and may be
given in confidence to the Participant's spouse, tax and financial advisors, or
to a financial institution to the extent that such information is necessary to
secure a loan.
5. Authorization. The Participant hereby represents and warrants to OCA that the
execution, delivery and performance of this Agreement by the Participant has
been duly authorized by all necessary laws, resolutions and corporate action,
and that this Agreement constitutes the valid and enforceable obligations of the
Participant in accordance with its terms.
6. No Assignment. The Participant may not assign or transfer this Agreement, any
of his or her rights hereunder, his or her participation in the Program nor,
except as provided in the Program, any of his or her rights, benefits or awards
under the Program.
7. Miscellaneous. This Agreement shall be construed and interpreted according to
the laws of the State of Louisiana, without regard to the principles of
conflicts of law thereof. This Agreement (together with the Program) contains
the entire and only agreement between the parties respecting the subject matter
hereof. The headings of the various sections of this Agreement are for
convenience of reference only, and shall not modify, define, limit or expand the
express provisions of this Agreement. This Agreement shall be binding upon and
inure to the benefit of any successor or successors of OCA. This Agreement may
be executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which when executed and delivered shall be deemed
an original effective for binding the parties hereto, but all of which shall
together constitute one and the same instrument.
G-2
99
IN WITNESS WHEREOF, OCA has caused this Agreement to be executed and
the Participant has set his hand hereto on the day and year first written above.
ORTHODONTIC CENTERS OF AMERICA, INC.
By:
---------------------------------
Name:
Title:
"PARTICIPANT"
------------------------------------
Name:
G-3
100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of this offering, which are to be paid by the Registrant,
are estimated as follows:
Securities and Exchange Commission registration fee................. $ 30,600
NYSE listing fee.................................................... 14,653
Legal fees and expenses............................................. 25,000
Auditors' fees and expenses......................................... 5,000
Miscellaneous expenses.............................................. 1,747
-----------
Total........................................................ $ 77,000
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law grants corporations
the power to indemnify their directors, officers, employees and agents in
accordance with the provisions thereof. The Registrant's Restated Certificate of
Incorporation provides for indemnification of the Registrant's directors,
officers, agents and employees to the full extent permissible under Section 145
of the Delaware General Corporation Law. The Registrant maintains, and pays
premiums on, an insurance policy on behalf of its directors and officers against
liability asserted against, or incurred by, such persons in connection with, or
arising from, their capacity as director or officer.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
4.1 -- Specimen Stock Certificate (1)
5.1 -- Opinion of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company*
10.1 -- Orthodontic Centers of America, Inc. Stock Pool Program*
10.2 -- Orthodontic Centers of America, Inc. Target Stock Program*
10.3 -- Orthodontic Centers of America, Inc. OrthAlliance
Stockholder Bonus Program*
10.4 -- Orthodontic Centers of America, Inc. High Participation
Bonus Program*
10.5 -- Orthodontic Centers of America, Inc. Conversion Incentive
Program*
10.6 -- Orthodontic Centers of America, Inc. Doctors Trust Program*
10.7 -- Form of Participation Agreement*
23.1 -- Consent of Ernst & Young LLP*
23.2 -- Consent of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company (included in opinion filed as
Exhibit 5.1)*
24.1 -- Power of Attorney (included on Page II-4)
II-1
101
---------
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration Statement
No. 33-85326.
* Filed herewith.
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions or are
inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to
II-2
102
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Metairie, State of Louisiana, on August 7, 2001.
ORTHODONTIC CENTERS OF AMERICA, INC.
By: /s/ Bartholomew F. Palmisano, Sr.
-----------------------------------------
Bartholomew F. Palmisano, Sr.
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bartholomew F. Palmisano, Sr. his true
and lawful attorney-in-fact, as agent and with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacity, to sign any or all amendments to this Registration Statement and any
registration statement relating to the same offering as this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents in full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as they might or be in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Bartholomew F. Palmisano, Sr. Chairman of the Board, President and Chief August 7, 2001
----------------------------------------- Executive Officer (principal executive officer)
Bartholomew F. Palmisano, Sr.
/s/ Bartholomew F. Palmisano, Jr. Chief Financial Officer, Secretary August 7, 2001
----------------------------------------- (principal financial and accounting officer)
Bartholomew F. Palmisano, Jr.
/s/ Michael C. Johnsen Chief Operating Officer, Director August 7, 2001
-----------------------------------------
Michael C. Johnsen
/s/ Ashton J. Ryan, Jr. Director August 7, 2001
-----------------------------------------
Ashton J. Ryan, Jr.
/s/ John J. Sheridan, D.D.S., M.S.D. Director August 7, 2001
-----------------------------------------
John J. Sheridan, D.D.S., M.S.D.
/s/ A Gordon Tunstall Director August 7, 2001
-----------------------------------------
A Gordon Tunstall
/s/ Edward J. Walters, Jr. Director August 7, 2001
-----------------------------------------
Edward J. Walters, Jr.
II-4
104
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
4.1 -- Specimen Stock Certificate (1)
5.1 -- Opinion of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company*
10.1 -- Orthodontic Centers of America, Inc. Stock Pool Program*
10.2 -- Orthodontic Centers of America, Inc. Target Stock Program*
10.3 -- Orthodontic Centers of America, Inc. OrthAlliance
Stockholder Bonus Program*
10.4 -- Orthodontic Centers of America, Inc. High Participation
Bonus Program*
10.5 -- Orthodontic Centers of America, Inc. Conversion Incentive
Program*
10.6 -- Orthodontic Centers of America, Inc. Doctors Trust Program*
10.7 -- Form of Participation Agreement*
23.1 -- Consent of Ernst & Young LLP*
23.2 -- Consent of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company (included in opinion filed as
Exhibit 5.1)*
24.1 -- Power of Attorney (included on Page II-4)
-----------
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration Statement
No. 33-85326.
* Filed herewith