Filed by Orthodontic Centers of America,
Inc. pursuant to Rule 425 under the
Securities Act of 1933 and deemed filed
pursuant to Rule 14a-12 under the Securities
Exchange Act of 1934.
Subject Company: OrthAlliance, Inc.
Commission File No.: 0-22975
THE FOLLOWING IS A LETTER SENT BY ORTHODONTIC CENTERS OF AMERICA TO
CERTAIN ORTHALLIANCE AFFILIATED PRACTITIONERS.
Dear OrthAlliance Doctor:
If you have received this letter, you are one of the OrthAlliance
doctors who have signed an amendment to your agreements with OrthAlliance, which
entitles you to participation in a number of incentive programs available under
the terms of the merger between OCA and OrthAlliance. The attached Exhibit A is
a schedule of the shares that you may be entitled to under the various programs
that we have mentioned to you. There are some of you that indicated that the
calculation of the number OCA shares you are to receive was somewhat confusing.
We felt that this letter may be helpful to put on one page the OCA shares that
you are entitled to. There are a few points that I should make relative to your
listing of shares:
1. Exchange shares. For the purpose of the attachment, we have
assumed that you still own the OrthAlliance shares originally
issued under your affiliation with OrthAlliance. Based on this
assumption, we have estimated the number of OCA shares that you
would receive as of the effective date of the merger, November 8.
As we have no actual record of what you currently own of
OrthAlliance shares, this is simply our estimate. Additionally,
the exchange ratio set forth in Exhibit A is by way of example
only, and the final ratio shall be confirmed at the time of the
close of the merger.
2. Stockholders Value Incentive. Those doctors who received a
majority of their affiliation consideration in OrthAlliance stock
qualify for this incentive which has been created to provide
additional value to these doctors due to their financial hardship
as a result of the devaluation of OrthAlliance stock since their
affiliation.
3. Target Incentive. As your practice grows over the first three
years after the merger and OCA in turn receives additional fees,
you shall receive stock valued at three times the increase in
annual fees to OCA as calculated at the end of the third year. A
growth rate of 14.5% has been assumed for the purposes of the
estimating potential value of this incentive.
4. Sale of Practice. When you are ready to transition from your
practice, OCA will assist you in finding a buyer. We have provided
an estimate of value in the attached exhibit based on current
practice and market conditions. Actual value shall be determined
at the time of sale.
5. Qualification for Incentives. To qualify for any of the incentive
programs a doctor 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. No shares due under the incentive programs
will be issued to doctors unless these are withdrawn or resolved
before November 8, the date of the closing of the merger.
Unfortunately, OCA will be forced into the position to take over
this litigation on November 8. In fairness to all of you doctors
who have honored your agreements, we will vigorously litigate the
breached contracts until conclusion so that you new shareholders
of OCA will derive the benefits of an acceptable outcome. We wish
that we did not have to do this, but we are being forced into that
position by errors in strategic judgment by the suing doctors and
their attorneys. We harbor no ill will toward the suing doctors
and I hope that you understand the position that we have been
forced into.
6. Stock restrictions and other terms. All stock earned under the
incentive programs outlined above (excluding shares received under
the merger exchange) are subject to restrictions which are
outlined in detail in the participation agreement you have
recently received from OCA. All other pertinent terms relative to
the merger and related incentives are also contained in the
participation agreement.
Please feel free to contact me at (504) 834-4392 if you have any questions
about the merger. Thank you for your vote of confidence in the merger and OCA.
We look forward to working for you to help build quality and value in your
practice.
Yours truly,
/s/ Anthony J. Paternostro
Anthony J. Paternostro
Senior Vice President, Business Development
Orthodontic Centers of America, Inc.
2
EXHIBIT A
POTENTIAL VALUE OF SHARES EARNED UNDER THE TERMS OF THE MERGER*
DOCTOR:
ASSUMPTIONS:
Months with PPM
OrthAlliance shares received at
affiliation
Annual Revenues as of 3/31/2001
Annual Service Fees as of 3/31/2001
Approximate current OCA stock price
Estimated percentage of revenues received at time of practice sale
Estimated
OCA Shares Value
---------- ---------
1 MERGER EXCHANGE: OrthAlliance shares held times exchange ratio of 0.10135 **
2 STOCK POOL INCENTIVE:
Timing
Tenure with PPM - 10 shares per month Size of Practice - 30
shares per $10,000 in annual fees Clinical Advisory
Committee participation
3 STOCKHOLDERS VALUE INCENTIVE:
4 TARGET INCENTIVE: (shares earned after 3 years assuming 14.5% annual growth) ***
5 SALE OF PRACTICE: (assumes no growth between now and time of sale) ***
TOTAL VALUE ****
* Doctor must qualify for incentive programs 2,3, or 4 above under the
terms provided in the final merger prospectus. All stock is subject to
restrictions as provided in the final merger prospectus.
** Assumes doctor still holds shares received at the time of affiliation;
OCA does not guarantee the amount of shares indicated.
*** OCA does not guarantee the stock or values indicated above under the
Target Incentive or Sale of practice. Actual results will vary by practice
depending on actual growth as well as market conditions.
**** The actual value of stock earned under the terms of the merger will
depend on the actual price of OCA stock at the time that the stock is
earned.
THE FOLLOWING IS A LETTER SENT BY ORTHODONTIC CENTERS OF AMERICA TO
CERTAIN ORTHALLIANCE AFFILIATED PRACTITIONERS.
Dear OrthAlliance Doctor:
If you have received this letter, you are one of the OrthAlliance
doctors who did not sign an amendment to their employment agreement and service
or consulting agreement with OrthAlliance (referred to as the Option 2
amendment), which may have enabled you to participate in a number of incentive
programs available in connection with the proposed merger between OCA and
OrthAlliance.
By way of this letter, I wanted to remind you that, although the
"option 2" deadline for many of these programs has passed, participation in the
new OrthAlliance Stockholders Value Program is still available to you provided
that you sign an addendum to your service or consulting agreement with
OrthAlliance before the end of the year and that you otherwise qualify for this
incentive program. I have enclosed a copy of the form of this addendum for your
review and use. Under the terms of the addendum, you would commit to use OCA's
software and services.
As with the other incentive programs, there are a number of conditions
that must be met for you to qualify for this incentive program. I have outlined
some of these conditions below. The attached Exhibit A is an example of shares
of OCA common stock that you may be eligible to receive under these incentive
programs and the terms of the merger. We thought it might be helpful to you to
put on one page the number of OCA shares that you may be eligible to receive.
Please note the following with respect to the amounts listed on Exhibit
A:
1. Merger shares. If you own shares of OrthAlliance common stock at the
time of the merger, you would receive shares of OCA stock in exchange
for your OrthAlliance shares. For purposes of calculating the merger
shares reflected in Exhibit A, we have assumed that you still own all
of the OrthAlliance shares originally issued in connection with your
affiliation with OrthAlliance. Based on this assumption, we have
estimated the number of OCA shares that you would receive in the
merger. Of course, we do not necessarily know how many OrthAlliance
shares you own currently or as of the merger, so Exhibit A simply
reflects our estimate. Additionally, the actual exchange ratio in the
merger (that is, the number of shares of OCA stock to be exchanged for
each shares of OrthAlliance stock) will not be known or determined
until the merger closes, so the number of merger shares reflected in
Exhibit A is solely by way of example, and could change.
2. OrthAlliance Stockholders Value Incentive Program. OrthAlliance doctors
who received a majority of their affiliation consideration in
OrthAlliance stock may be eligible to participate in the OrthAlliance
Stockholders Value Program, which has been created to provide
additional value to these doctors due to their financial hardship as a
result of the devaluation of OrthAlliance stock since their
affiliation.
3. Target Stock Incentive Program. You could still become eligible to
participate in the Target Stock Program by signing an option 2
amendment or new OCA business services agreement prior to the merger.
Under the Target Stock Program, as a participant's practice grows over
the three years following the merger and OCA in turn receives
additional fees, the participant may be eligible to receive additional
shares of OCA stock. For purposes of the number of Target Stock Program
shares on Exhibit A, we assumed that you participate and that your
practice grows by 14.5% during each of these three years. Of course,
your actual growth rate could differ from that.
4. Sale of Practice. When you are ready to transition from your practice,
OCA might assist you in finding a buyer for your practice. In Exhibit
A, we have provided an estimate of the purchase price of such a sale,
based on current practice and market conditions. Of course, the actual
purchase price could differ and would be determined through
negotiations with a buyer at the time of the sale.
5. Qualification for Incentives. To qualify for any of the incentive
programs, in addition to signing the addendum, option 2 amendments or a
new OCA business services agreement by certain dates, a doctor 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 litigation or notice has been
threatened or initiated, it would have to be withdrawn or resolved to
our satisfaction. Unfortunately, OCA will be forced into the position
of taking over any litigation of this type upon closing of the merger.
In fairness to all of you doctors who have honored your agreements, we
will vigorously defend against these claims so that new shareholders of
OCA will derive the benefits of an acceptable outcome. We wish that we
did not have to do this, but we are being compelled into that position
by errors in strategic judgment by the suing doctors and their
attorneys. We harbor no ill will toward the suing doctors and I hope
that you understand the position that we have been forced into.
6. Stock restrictions and other terms. All stock earned under the
incentive programs outlined above (excluding shares received under the
merger exchange) are subject to restrictions which are outlined in
detail in the incentive program documents and participation agreement
that you recently received from OCA. Other pertinent terms relative to
the merger and related incentives are also described in that
documentation and participation agreement.
It is my sincere hope that you take advantage of the incentives that are
still available to you. Please feel free to contact me at (504) 834-4392 if you
have any questions about the merger. We look forward to working for you to help
build quality and value in your practice.
Yours truly,
/s/ Anthony J. Paternostro
Anthony J. Paternostro
Senior Vice President, Business Development
Orthodontic Centers of America, Inc.
2
EXHIBIT A
POTENTIAL VALUE OF SHARES EARNED UNDER THE TERMS OF THE MERGER*
DOCTOR:
ASSUMPTIONS:
Months with PPM
OrthAlliance shares received at
affiliation
Annual Revenues as of 3/31/2001
Annual Service Fees as of 3/31/2001
Approximate current OCA stock price
Estimated percentage of revenues received at time of practice sale
Estimated
OCA Shares Value
---------- ---------
1 MERGER EXCHANGE: OrthAlliance shares held times exchange ratio of 0.10135 **
2 STOCK POOL INCENTIVE:
Timing
Tenure with PPM - 10 shares per month
Size of Practice - 30 shares per $10,000 in annual fees
Clinical Advisory Committee participation
3 STOCKHOLDERS VALUE INCENTIVE:
4 TARGET INCENTIVE: (shares earned after 3 years assuming 14.5% annual growth) ***
5 SALE OF PRACTICE: (assumes no growth between now and time of sale) ***
TOTAL VALUE ****
* Doctor must qualify for incentive programs 2,3, or 4 above under the
terms provided in the final merger prospectus. All stock is subject to
restrictions as provided in the final merger prospectus.
** Assumes doctor still holds shares received at the time of affiliation;
OCA does not guarantee the amount of shares indicated.
*** OCA does not guarantee the stock or values indicated above under the
Target Incentive or Sale of practice. Actual results will vary by practice
depending on actual growth as well as market conditions.
**** The actual value of stock earned under the terms of the merger will
depend on the actual price of OCA stock at the time that the stock is
earned.
CERTAIN STATEMENTS CONTAINED IN THIS TRANSCRIPT MAY NOT BE BASED ON HISTORICAL
FACTS AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS MAY BE
IDENTIFIED BY THEIR REFERENCE TO A FUTURE PERIOD OR PERIODS OR BY THE USE OF
FORWARD-LOOKING TERMINOLOGY, SUCH AS "ANTICIPATE," "BELIEVE," "ESTIMATE,"
"EXPECT," "MAY," "MIGHT," "WILL," "COULD," "WOULD" OR "INTEND." THESE
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THOSE RELATING TO
BENEFITS TO ORTHALLIANCE'S AFFILIATED ORTHODONTISTS AND PEDODONTISTS, EFFECTS,
BENEFITS, PROSPECTS, COMPLETION AND INTEGRATION OF THE MERGER, LITIGATION AND
THE INCENTIVE PROGRAMS THAT OCA IS OFFERING IN CONNECTION WITH THE MERGER. WE
CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS TRANSCRIPT IN THAT ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS, DUE TO A VARIETY OF FACTORS.
THOSE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, FAILURE OR DELAY IN OBTAINING
REQUIRED STOCKHOLDER APPROVAL, THE COMPANIES' FAILURE TO CONSUMMATE THE MERGER,
INABILITY TO SUCCESSFULLY INTEGRATE THE COMPANIES AFTER THE MERGER, ADVERSE
CHANGES IN THE COMPANIES' FINANCIAL RESULTS AND CONDITIONS, CHANGES IN GENERAL
ECONOMIC CONDITIONS AND BUSINESS CONDITIONS, AND OTHER FACTORS GENERALLY
UNDERSTOOD TO AFFECT THE FINANCIAL RESULTS OF ORTHODONTIC PRACTICE MANAGEMENT
COMPANIES, AND OTHER RISKS DETAILED FROM TIME TO TIME IN OCA'S RELEASES AND
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000 AND OTHER
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. WE UNDERTAKE NO OBLIGATION
TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES
THAT OCCUR AFTER THE DATE ON WHICH SUCH STATEMENTS WERE MADE.
In connection with the proposed merger with OrthAlliance, OCA filed a
registration statement on Form S-4 with the Securities and Exchange Commission
("SEC"). Investors are urged to read the proxy statement/prospectus that is a
part of the registration statement, because it contains important information
about the merger, OCA and OrthAlliance. The registration statement and the proxy
statement/prospectus are available free of charge, both on the SEC's web site
(www.sec.gov) and from OCA and OrthAlliance by directing a request to
Orthodontic Centers of America, Inc., 3850 N. Causeway Boulevard, Suite 1040,
Metairie, LA 70002, Attention: Investor Relations, or to OrthAlliance, Inc.,
21535 Hawthorne Boulevard, Suite 200, Torrance, CA 90503, Attention: Investor
Relations. OrthAlliance and its directors and officers may be deemed to be
participants in the solicitation of proxies with respect to a shareholder
meeting to be held in connection with such merger. Information about the
participants in the solicitation, including their interests in shares of
OrthAlliance's common stock, is set forth in OrthAlliance's Annual Report on
Form 10-K for the year ended December 31, 2000 filed with the SEC. Investors may
obtain additional information regarding the interests of OrthAlliance and its
directors and officers by reading the proxy statement/prospectus.