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EXHIBIT 10.5
ORTHODONTIC CENTERS OF AMERICA, INC.
CONVERSION INCENTIVE PROGRAM
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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
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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.
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
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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.
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-
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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.
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
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(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 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:
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(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 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.
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IN WITNESS WHEREOF, the undersigned officer has executed this document
effective as of August 6, 2001.
ORTHODONTIC CENTERS OF AMERICA, INC.
By: /s/ Xxxxxxxxxxx X. Xxxxxxxxx, Xx.
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Xxxxxxxxxxx X. Xxxxxxxxx, Xx.
Chairman of the Board, President
and Chief Executive Officer
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