<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ORTHALLIANCE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
April 28, 1998
Dear Stockholder:
You are cordially invited to attend the first Annual Meeting of
Stockholders of OrthAlliance, Inc. (the "Company") to be held on Friday, June 5,
1998 at the Manhattan Beach Marriott Hotel, 1400 Parkview Avenue, Manhattan
Beach, California. The meeting will begin promptly at 9:00 a.m., local time.
The items of business to be addressed at the Annual Meeting are listed in
the attached Notice of Annual Meeting of Stockholders and are more fully
described in the Proxy Statement provided herewith. In addition to these
matters, members of management will report on the Company's operations, followed
by a period for questions and discussion.
Management hopes that you will be able to attend the Annual Meeting.
However, whether or not you plan to attend the Annual Meeting, please date,
sign, and return your proxy card in the enclosed envelope as soon as possible to
ensure that your shares will be represented and voted at the Annual Meeting. If
you do attend the Annual Meeting, you may vote your shares in person even though
you have previously signed and returned your proxy.
On behalf of your Board of Directors, thank you for your continued support
and interest in OrthAlliance, Inc.
Sincerely,
/s/ Sam Westover
-----------------------------
Sam Westover
President and
Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, JUNE 5, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
OrthAlliance, Inc. (the "Company") will be held at the Manhattan Beach Marriott
Hotel, 1400 Parkview Avenue, Manhattan Beach, California on Friday, June 5, 1998
at 9:00 a.m., local time, for the following purposes as more fully described in
the Proxy Statement provided herewith:
(1) To elect two (2) directors to serve until the 2001 Annual
Meeting of Stockholders;
(2) To consider and act upon a proposal to amend the 1997 Employee
Stock Option Plan to increase the number of shares of Class A
Common Stock authorized to be issued pursuant to grants under
the 1997 Employee Stock Option Plan from 1,000,000 to
1,500,000;
(3) To consider and act upon a proposal to amend the 1997
Non-Employee Director Stock Plan to expand the group of
eligible participants to all directors of the Company and to
allow the Compensation Committee of the Board of Directors to
determine the specifics of each grant, such as the number of
options granted to a participant, vesting requirements and
exercise price;
(4) To consider and act upon a proposal to approve the 1997
Orthodontist Stock Option Plan;
(5) To ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors; and
(6) To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only the holders of record of Class A Common Stock and/or Class B
Common Stock of the Company at the close of business on April 7, 1998 are
entitled to notice of and to vote at the Annual Meeting of Stockholders and any
adjournment thereof. A list of stockholders as of the close of business on April
7, 1998, will be available at the Annual Meeting of Stockholders for examination
by any stockholder, his agent, or his attorney.
By Order of the Board of Directors,
/s/ Paul H. Hayase
-----------------------------
Paul H. Hayase
Senior Vice President,
General Counsel and Secretary
Torrance, California
April 28, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED STAMPED AND
ADDRESSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE
YOUR SHARES IN PERSON.
<PAGE> 4
ORTHALLIANCE, INC.
23848 HAWTHORNE BOULEVARD, SUITE 200
TORRANCE, CALIFORNIA 90505
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, JUNE 5, 1998
The 1998 Annual Meeting of Stockholders (the "Annual Meeting") of
OrthAlliance, Inc. (the "Company") will be held on Friday, June 5, 1998, for the
purposes set forth in the Notice of Annual Meeting of Stockholders attached
hereto and as described herein. The enclosed form of proxy is solicited by the
Board of Directors of the Company (the "Board" or "Board of Directors") and the
cost of the solicitation will be borne by the Company. When a proxy is properly
executed and returned, the shares of Class A Common Stock, $.001 par value per
share, and/or Class B Common Stock, $.001 par value per share (Class A Common
Stock and Class B Common Stock are sometimes hereinafter referred to
collectively, as the "Common Stock") represented thereby will be voted as
directed at the Annual Meeting or any adjournment thereof or, if no direction is
indicated, such shares of Common Stock will be voted in favor of the proposals
set forth in the Notice of Annual Meeting of Stockholders attached hereto
(collectively, the "Proposals") and any other matter that may properly come
before the Annual Meeting. Any Stockholder giving a proxy has the power to
revoke it at any time before it is voted. All proxies delivered pursuant to this
solicitation are revocable at any time at the option of the persons executing
them by giving written notice to the Secretary of the Company, by delivering a
later-dated proxy to the Company or by voting in person at the Annual Meeting.
Only holders of Common Stock of record as of the close of business on
April 7, 1998 (the "Record Date") will be entitled to vote at the Annual
Meeting. As of the Record Date, the Company had outstanding 12,656,483 shares of
Class A Common Stock and 250,000 shares of Class B Common Stock. The Class A
Common Stock and Class B Common Stock vote together as a class on all Proposals.
Holders of Class A Common Stock and Class B Common Stock of record as of the
close of business on the Record Date are entitled to cast one vote for each
share held. No cumulative voting rights are authorized and dissenters' rights
for Stockholders are not applicable to the matters being proposed. It is
anticipated that this Proxy Statement and the accompanying proxy card will first
be mailed to holders of Common Stock of the Company on or about April 29, 1998.
The presence in person or by proxy of holders of a majority of the
shares of Common Stock outstanding on the Record Date will constitute a quorum
for the transaction of business at the Annual Meeting or any adjournment
thereof. The affirmative vote of a plurality of the shares of Common Stock
present in person or by proxy and entitled to vote is required to elect
directors. With respect to the other Proposals and any other matter that may
properly come before the Annual Meeting, the approval of such Proposals or such
other matter requires the affirmative vote of a majority of the shares of Common
Stock present in person or by proxy and entitled to vote thereon. The NASDAQ
Stock Market National Market permits brokers who hold shares of Common Stock in
street name for beneficial owners to exercise discretionary voting power with
respect to the Proposals, including the election of directors, if voting
instructions have not been received from the beneficial owners within ten (10)
days before the Annual Meeting. Abstentions with respect to a Proposal are
counted for purposes of establishing a quorum. If a quorum is present,
abstentions have no effect on the outcome of any vote, including the election of
directors.
<PAGE> 5
PROPOSAL 1:
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation
provides for up to nine (9) directors and divides the Board into three classes
with the directors in each class serving a term of three years. The Company's
Amended and Restated Bylaws (the "Bylaws") provide for the Board of Directors to
determine the actual number of directors on the Board and there are currently
eight (8) directors serving on the Board. The terms of Douglas D. Durbin and W.
Dennis Summers, the Class I members, expire at the Annual Meeting. Dr. Durbin
and Mr. Summers have been nominated by the Nominating Committee of the Board to
stand for re-election as directors at the Annual Meeting to serve until the 2001
Annual Stockholders' Meeting or until their successors are duly elected and
qualified.
Except as otherwise provided herein, the proxy solicited hereby cannot
be voted for the election of a person to fill a directorship for which no
nominee is named in this Proxy Statement. The Board has no reason to believe
that either director nominee will be unavailable to serve as a director, if
elected. However, if at the time of the Annual Meeting any nominee should be
unable to serve or, for good cause, will not serve, the persons named proxies
will vote as recommended by the Board to elect a substitute nominee recommended
by the Board. In no event, however, will a proxy be voted to elect more than two
(2) directors.
Set forth below is information concerning the incumbent directors and
the nominees for reelection to the Board to serve until the 2001 Annual Meeting
of Stockholders or until their successors are duly elected and qualified. Such
information includes for the nominees, and for each of the incumbent directors,
certain biographical information, a brief description of each such individual's
principal occupation and business experience during the past five years, and
directorships of companies (other than the Company) presently held, which
information has been provided by the respective individuals.
NOMINEES FOR ELECTION -- CURRENT TERM EXPIRING 1998
DOUGLAS D. DURBIN, D.M.D., M.S.D. (age 43) has been a director of the
Company since the completion of the initial public offering of its Class A
Common Stock in August 1997 (the "Offering"). Dr. Durbin has served as President
of The Kentucky Center for Orthodontics, P.S.C. and its predecessors since 1983.
Dr. Durbin is a member of the American Association of Orthodontics, the American
Dental Association and the Kentucky Association of Orthodontists, a Diplomate of
the American Board of Orthodontics and has served as President, Treasurer, and
Secretary of the Bluegrass Dental Society. Dr. Durbin graduated from the
University of Kentucky College of Dentistry with a D.M.D. degree in 1978 and
received his M.S.D. and Certificate in Orthodontics from the University of
Kentucky College of Dentistry in 1983.
W. DENNIS SUMMERS (age 49) has been a director of the Company since
completion of the Offering in August 1997. Since 1984, Mr. Summers has served as
a principal of Roberts, Isaf & Summers, P.C. (and its predecessor firms), a law
firm located in Atlanta, Georgia. Mr. Summers specializes in corporate and
business matters.
-2-
<PAGE> 6
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR DOUGLAS D. DURBIN AND W.
DENNIS SUMMERS TO HOLD OFFICE UNTIL THE 2001 ANNUAL MEETING OF STOCKHOLDERS OR
UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
INCUMBENT DIRECTORS -- TERM EXPIRING 1999
RANDALL K. BENNETT, D.D.S., M.S. (age 42), has served as a Director of
the Company since its inception in October 1996. Dr. Bennett has practiced
orthodontics in Salt Lake City, Utah since 1989 and he practiced in Beverly
Hills, California from 1988 to 1989. Dr. Bennett graduated from Loma Linda
University in 1988 with an M.S. degree in orthodontics and from the University
of Alberta in 1981 with a D.D.S. degree.
U. BERTRAM ELLIS, JR. (age 44) has been a director of the Company since
completion of the Offering in August 1997. Since 1996, Mr. Ellis has served as
Chairman of the Board and Chief Executive Officer of iXL Holdings, Inc., an
interactive services company. Since April 1996, Mr. Ellis has served as
President, Chief Executive Officer and Chief Operating Officer of Broadcast
Development Corporation, a television broadcast consulting company. Mr. Ellis
founded and served as President and Chief Executive Officer of Ellis
Communications, Inc., a broadcast group of 15 television and radio stations from
1993 to April 1996. From 1992 to 1993, Mr. Ellis was President and Chief
Executive Officer of American Innovations, Inc., a manufacturer of hairbows that
filed a petition pursuant to Chapter 11 of the U.S. Bankruptcy Code in 1993.
From 1986 until 1992, Mr. Ellis served as President, Chief Executive Officer and
Chief Operating Officer for Act III Broadcasting, a broadcast group of eight
Fox-affiliate stations. Mr. Ellis serves as a director of iXL Holdings, NOVA
Information Systems, Inc., Endeavor Technologies, Inc., First Union National
Bank of Georgia, Ames Scullin & O'Haire and Upper Chattahoochee Riverkeeper.
RANDALL A. SCHMIDT, D.D.S., M.S.D. (age 41) has been a director of the
Company since completion of the Offering in August 1997. Dr. Schmidt has been in
the practice of orthodontics since 1983 in northwest Indiana, where he is a
co-owner of Orthodontic Affiliates, P.C. Dr. Schmidt is a member of the American
Association of Orthodontics, American Dental Association and the Indiana Society
of Orthodontists. Dr. Schmidt graduated from Indiana University in 1981 with a
D.D.S. degree and received his M.S.D. and Certificate in Orthodontics from
Indiana University in 1983.
INCUMBENT DIRECTORS -- TERM EXPIRING 2000
CRAIG L. MCKNIGHT (age 47) has been a director of the Company since
completion of the Offering in August 1997. Since March 1995, Mr. McKnight has
served as Executive Vice President of Magellan Health Services ("Magellan"), a
specialty managed care company, which was previously known as Charter Medical
Corporation, and since October 1995 Mr. McKnight has also served as Chief
Financial Officer of Magellan. From June 1994 to March 1995, Mr. McKnight was
responsible for the Health Care Practice of Coopers & Lybrand, L.L.P. in
Philadelphia, Pennsylvania, and prior thereto was responsible for the Health
Care Practice of Coopers & Lybrand, L.L.P. in California.
SAM WESTOVER (age 42) has served as a director, President and Chief
Executive Officer of the Company since October 1996. From August 1993 until July
1996, Mr. Westover served as President and Chief Executive Officer of Systemed
Inc., a pharmacy benefit management company, where he also served as a director
from July 1992 until February 1997. From January 1993 until August 1993, Mr.
- 3 -
<PAGE> 7
Westover served as Senior Vice President, Chief Financial Officer and Treasurer
of Wellpoint Health Networks, Inc., a health insurance company. Prior to joining
Wellpoint, Mr. Westover served as Chief Financial Officer and Senior Vice
President of Corporate Financial Services of Blue Cross of California, a
position to which he was named in May 1990.
JONATHAN E. WILFONG (age 49) has served as Chairman of the Board of
Directors of the Company since May 1997. Mr. Wilfong served as an executive
consultant to the Company from its inception until September 1997 and served as
consultant to US Orthodontic Care, Inc., a predecessor to the Company, from June
1996 to August 1997. Mr. Wilfong is the founder and a principal of Newfound
Capital Associates, an investment banking advisory firm founded in 1996 that
specializes in advising high growth businesses on capital formation strategies
and acquisition transactions. Mr. Wilfong is a Certified Public Accountant, and
from 1983 to 1996 was a partner with Price Waterhouse LLP in Atlanta, Georgia
and Greenville, South Carolina.
With the exception of Mr. Westover, none of the directors are, or have
been, employed by any parent, subsidiary or other affiliate of the Company;
provided, however, that Drs. Schmidt and Bennett have entered into part-time
employment arrangements with the Company effective February 20, 1998. Mr.
Wilfong and Dr. Schmidt received compensation under consulting arrangements with
the Company. There are no family relationships between any directors or
executive officers.
MEETINGS OF THE BOARD OF DIRECTORS
During 1997, the Board met four times (including regularly scheduled
and special meetings). All of the directors attended at least 75% of all
meetings of the Board except for Mr. Ellis who attended 50% of the meetings held
during the period he has been a director and Mr. McKnight who attended neither
of the meetings held during the period he has been a director.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Board of Directors has established an Audit
Committee that consists of Messrs. McKnight and Wilfong and Dr. Bennett. Mr.
Wilfong is chairman of the Audit Committee. The Audit Committee is responsible
for (a) recommending to the Board the firm to be employed as independent
auditors of the Company, and (b) meeting with the Company's independent auditors
at least annually to review (i) the scope of audit and non-audit assignments and
related fees, (ii) accounting principles used by the company in financial
reporting, and (iii) the adequacy of the Company's internal control procedures.
During 1997, the Audit Committee held no meetings.
COMPENSATION COMMITTEE. The Board of Directors has established a
Compensation Committee that consists of Messrs. Wilfong and McKnight and Dr.
Bennett. Dr. Bennett is chairman of the Compensation Committee. The Compensation
Committee is responsible for (a) reviewing, approving, recommending and
reporting to the Chief Executive Officer and the Board of Directors matters
regarding the compensation of the Company's executive officers and other key
employees and compensation levels or plans affecting the compensation of the
Company's other employees and (b) administering the Company's 1997 Employee
Stock Option Plan, 1997 Non-Employee Director Stock Plan and 1997 Orthodontist
Stock Plan. During 1997, the Compensation Committee held no meetings and acted
by unanimous written consent on four occasions.
- 4 -
<PAGE> 8
EXECUTIVE COMMITTEE. The Board of Directors has established an
Executive Committee that consists of Messrs. Westover and Wilfong and Drs.
Bennett and Durbin. The Executive Committee is authorized by the Board to take
all action which may be delegated by the Board under the Delaware General
Corporation Law. During 1997, the Executive Committee held no meetings.
NOMINATING COMMITTEE. The Board of Directors has established a
Nominating Committee that consists of Messrs. Summers, Westover and Wilfong. The
Nominating Committee is responsible for (a) recommending candidates for election
to the Company's Board of Directors, and (b) examining the performance of
incumbent directors and making recommendations concerning the retention of such
directors. During 1997, the Nominating Committee held no meetings.
The Bylaws require an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors or the Nominating
Committee, of candidates for election as directors (the "Nomination Procedure"),
as well as for other stockholder proposals to be considered at annual
stockholders' meetings. Notice to the Company from a stockholder who proposes to
nominate a person at a meeting for election as a director generally must be
given not less than 120 nor more than 150 days prior to the anniversary of the
date notice of the annual meeting of stockholders was given in the preceding
year and must contain: (i) the name and record address of the stockholder who
intends to make the nomination; (ii) the name, age and residence address of the
nominee; (iii) the principal occupation or employment of the nominee; (iv) the
class, series and number of shares held of record, beneficially and by proxy, by
the stockholder and the nominee as of the record date of such meeting (if such
record date is publicly available) and as of the date of such notice; and (v)
such other information relating to the nominee proposed by such stockholder as
is required to be included if the Company is then subject to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including the written consent of each nominee to be named in the proxy statement
and to serve as a director of the Company if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the Nomination Procedure. Similar advance notice must be
given of any other business which a stockholder proposes to bring before an
annual meeting of stockholders. Such notice must contain (i) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class, series and number of
shares of the Company's stock which are held of record, beneficially and by
proxy by the stockholder as of the record date of such meeting (if such record
date is publicly available) and as of the date of such notice, (iv) a
description of all arrangements or understandings between the stockholder and
any other person or persons (naming such person or persons) in connection with
the proposing of such business by the stockholder, and (v) any material interest
of the stockholder in such business. The purpose of requiring advance notice is
to afford the Board an opportunity to consider the qualifications of the
proposed nominees or the merits of other stockholder proposals and, to the
extent deemed necessary or desirable by the Board, to inform stockholders about
those matters. Although the advance notice provisions do not give the Board any
power to approve or disapprove stockholder nominations or proposals for action
by the Company, they may have the effect of precluding a contest for the
election of directors or the consideration of stockholder proposals if the
procedures established by the Bylaws are not followed and the effect of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposals,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its stockholders.
- 5 -
<PAGE> 9
COMPENSATION OF DIRECTORS
Members of the Board of Directors are reimbursed for expenses incurred
in connection with attendance at Board and committee meetings. Pursuant to the
1997 Non-Employee Director Stock Plan, the Company granted to each Non-Employee
Director (as defined in Rule 16b-3 promulgated under the Exchange Act) options
to purchase 5,000 shares of Class A Common Stock at an exercise price of $12.00
per share. If the Stockholders approve the amendments to the 1997 Non-Employee
Director Stock Plan, as described in this Proxy Statement, the Compensation
Committee (composed for this purpose of solely Non-Employee Directors) will
determine grants to directors (which will not be limited to Non-Employee
Directors), including, without limitation, number of options, exercise price and
vesting schedules.
PROPOSAL 2:
APPROVAL OF AMENDMENT TO THE
1997 EMPLOYEE STOCK OPTION PLAN
The primary purpose of the 1997 Employee Stock Option Plan (the
"Employee Plan"), which was previously approved by the Board of Directors and
the Company's stockholders, is to advance the interests of the Company, its
subsidiaries and its stockholders by affording certain officers and employees of
the Company and its subsidiaries an opportunity to acquire or increase their
proprietary interests in the Company. The Board has adopted and recommends that
the Stockholders approve an amendment to the Employee Plan to increase the
number of shares of Class A Common Stock which may be issued subject to options
granted under the Employee Plan from 1,000,000 shares to 1,500,000 shares,
subject to certain anti-dilution provisions set forth in the Employee Plan (the
"Employee Plan Amendment"). All other provisions of the Employee Plan will
remain unchanged.
The material features of the Employee Plan are described below.
ADMINISTRATION
The Employee Plan is administered by the Compensation Committee. The
Compensation Committee has the power to (i) grant options in accordance with the
Employee Plan, (ii) determine those persons to whom options will be granted,
subject to the provisions of the Employee Plan, (iii) interpret the Employee
Plan, (iv) promulgate rules and regulations relating to the Employee Plan, and
(v) make all other determinations and take all other actions necessary or
desirable for the administration of the Employee Plan. Decisions of the
Compensation Committee regarding the interpretation and administration of the
Employee Plan are binding upon all interested persons.
TERMINATION AND AMENDMENT
The Employee Plan may be terminated or amended at any time and from
time to time by the Board. The Board may not, however, amend the Employee Plan
without the approval or ratification of the Stockholders of the Company if such
amendment would (i) increase the total number of shares of stock issuable
pursuant to ISOs (as defined below) or materially increase the number of shares
of stock subject to the Employee Plan, (ii) materially change the class of
employees eligible to receive ISOs or participate, or (iii) otherwise materially
increase the benefits accruing to employees.
- 6 -
<PAGE> 10
ELIGIBILITY
The class of persons eligible to participate in the Employee Plan
consists of all officers and employees of the Company whose participation the
Compensation Committee determines to be in the best interests of the Company. At
March 31, 1998, 14 individuals held options to purchase 674,500 shares of Class
A Common Stock under the Employee Plan.
STOCK SUBJECT TO THE EMPLOYEE PLAN
As of March 31, 1998, an aggregate of 674,500 shares of Class A Common
Stock were reserved for issuance upon exercise of options previously granted
under the Employee Plan and an aggregate of 325,500 shares of Class A Common
Stock remained available for the grant of future options. If the amendment is
approved, 825,500 shares of Class A Common Stock will be available for the grant
of future options under the Employee Plan.
TERMS
Under the Employee Plan, the Compensation Committee may grant either
options intended to qualify as incentive stock options ("ISOs") under the
Internal Revenue Code (as defined below) or options that do not qualify as ISOs
("NSOs"). ISOs involve certain tax implications under the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"). The Compensation Committee
establishes the exercise period for each option grant, which period may not
exceed 10 years.
The Employee Plan provides that the exercise price for each share of
Class A Common Stock subject to an ISO shall be no less than the fair market
value of a share of Class A Common Stock on the date the ISO is granted or, if
the ISO is granted to a key employee who is a 10% shareholder of Class A Common
Stock, the exercise price for each share of Class A Common Stock subject to such
ISO shall be no less than 110% of the fair market value of a share of Class A
Common Stock on the date the ISO is granted. In addition, the exercise price for
each share of Class A Common Stock subject to a NSO shall be no less than the
fair market value of a share of Class A Common Stock on the date the NSO is
granted.
An option granted under the Employee Plan is not transferable other
than by will or by the laws of descent and distribution.
FEDERAL INCOME TAX CONSEQUENCES
NSOs. An individual receiving a NSO under the Employee Plan does not
recognize taxable income on the date of grant of the option, assuming that the
option does not have a readily ascertainable fair market value at the time it is
granted. However, the individual must generally recognize ordinary income at the
time of exercise of the NSO in the amount of the difference between the option
exercise price and the fair market value of the Class A Common Stock on the date
of exercise. The amount of ordinary income recognized by an individual is
deductible by the Company in the year that the income is recognized by the
individual. The Company's deduction, however, is subject to a $1 million
limitation on the deduction of certain employee remuneration under Section
162(m) of the Internal Revenue Code, unless an exemption for performance-based
compensation under such section applies. Upon subsequent
- 7 -
<PAGE> 11
disposition, any further gain or loss is taxable either as a short-term or
long-term capital gain or loss, depending upon the length of time that the
shares of Class A Common Stock are held.
ISOs. An individual who is granted an ISO under the Employee Plan does
not recognize taxable income either on the date of grant or on the date of its
timely exercise. However, the excess of the fair market value of the Class A
Common Stock received upon the exercise of the ISO over the option exercise
price is includable in such individual's alternative minimum taxable income and
may be subject to the alternative minimum tax ("AMT"). For AMT purposes only,
the basis of stock acquired by the exercise of an ISO is increased by the amount
of such excess.
Upon the disposition of the stock acquired upon exercise of an ISO,
long-term capital gain or loss will be recognized in an amount equal to the
difference between the sales price and the option exercise price (except that
for AMT purposes, the gain or loss would be the difference between the sales
price and the individual's basis increased as described in the preceding
paragraph), provided that such individual has not disposed of the stock within
the later of 2 years after the date of grant or 1 year after the date of
exercise. If an individual disposes of the stock without satisfying such holding
period requirements (a "Disqualifying Disposition"), the individual will
generally recognize ordinary income at the time of such Disqualifying
Disposition to the extent of the lesser of (i) the difference between the
exercise price and the fair market value of the stock on the date the ISO is
exercised or (ii) the difference between the exercise price and the amount
realized on such Disqualifying Disposition. Any remaining gain or any net loss
is treated as a short-term or long-term gain or loss, depending upon the length
of time that the stock is held. Unlike the case in which a NSO is exercised, the
Company is not entitled to a tax deduction upon either the timely exercise of an
ISO or upon disposition of the stock acquired pursuant to such exercise, except
to the extent that the individual recognizes ordinary income in a Disqualifying
Disposition.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE EMPLOYEE PLAN
AMENDMENT.
PROPOSAL 3:
APPROVAL OF THE AMENDMENTS TO THE
1997 NON-EMPLOYEE DIRECTOR STOCK PLAN
The primary purpose of the Company's 1997 Non-Employee Director Stock
Plan (the "Director Plan"), which was previously approved by the Board of
Directors and the Company's stockholders, is to attract and retain directors of
the Company. The Board has adopted and recommends that the Stockholders approve
amendments to the Director Plan to change the class of persons eligible to
participate in the Director Plan from Non-Employee Directors to all directors of
the Company and give the Compensation Committee authority and discretion to
administer the Director Plan rather than providing for automatic formula grants
(the "Director Plan Amendments"). For the purposes of the grants pursuant to the
Director Plan as amended, the Compensation Committee shall consist solely of
Non-Employee Directors. All other provisions of the Director Plan will remain
unchanged.
The material features of the Director Plan are described below.
- 8 -
<PAGE> 12
ADMINISTRATION
Prior to amendment of the Director Plan, the Director Plan was a
self-governing "formula" plan within the meaning of Note 3 to Rule 16b-3
promulgated under the Exchange Act. As amended, the Director Plan will be
administered by the Compensation Committee (composed solely of Non-Employee
Directors). Subject to the provisions of and in accordance with the Director
Plan, the Compensation Committee will have the power to (i) grant options, (ii)
determine those persons to whom options will be granted, (iii) interpret the
Director Plan, (iv) promulgate rules and regulations relating to the Director
Plan, and (v) make all other determinations and take all other actions necessary
or desirable for the administration of the Director Plan. Decisions of the
Compensation Committee regarding interpretation and administration of the
Director Plan are binding upon all interested persons.
TERMINATION AND AMENDMENT
The Board has the right to amend the Director Plan at any time and from
time to time and the right to terminate the Director Plan at any time, provided,
however, that no such termination shall terminate any outstanding options
granted under the Director Plan and provided further that no amendment to the
Director Plan shall, without the written consent of a participant adversely
affect the rights of such participant with respect to any outstanding options
granted under the Director Plan. No amendment to the Director Plan may be made
without stockholder approval if stockholder approval is required for options
granted thereunder to qualify or continue to qualify for exemption under Rule
16b-3 of the Exchange Act.
ELIGIBILITY
The class of persons eligible to participate in the Director Plan, as
amended, shall consist of all directors of the Company whose participation in
the Director Plan the Compensation Committee determines to be in the best
interests of the Company. Prior to the amendment, the class of persons eligible
to participate in the Director Plan consisted of all Non-Employee Directors. At
March 31, 1998, 3 individuals held options to purchase 15,000 shares of Class A
Common Stock under the Director Plan.
STOCK SUBJECT TO THE PLAN
As of March 31, 1998, 15,000 shares of Class A Common Stock were
reserved for issuance upon exercise of options previously granted under the
Director Plan and 185,000 shares of Class A Common Stock remained available for
the grant of future options under the Director Plan.
TERMS
All options under the Director Plan are NSOs. Under the Director Plan,
as amended, the Compensation Committee shall have the authority to grant options
and set the exercise price of options granted; provided, however, that the
exercise price of a share of Class A Common Stock subject to a NSO shall be no
less than the fair market value of a share of Class A Common Stock on the date
such NSO is granted. The Compensation Committee shall establish the exercise
period for each option grant, which period may not exceed ten years. Prior to
the amendment, the Board had no discretion as to the
- 9 -
<PAGE> 13
timing of grants, number of shares subject to any option, the exercise price of
any option, the periods during which any option may be exercised or the
expiration date of any option.
An option granted under the Director Plan cannot be sold or transferred
except by will or the laws of descent and distribution.
FEDERAL INCOME TAX CONSEQUENCES
A participant in the Director Plan is not taxed on the grant of an
option. Upon exercise, however, the participant generally recognizes ordinary
income equal to the excess, if any, of the fair market value of the shares of
stock transferred on the date of the exercise over the exercise price. The
Company is generally entitled to an income tax deduction in the year of exercise
in an amount equal to the ordinary income recognized by the participant. The
Company's deduction, however, is subject to a $1 million limitation on the
deduction of certain employee remuneration under Section 162(m) of the Internal
Revenue Code, unless an exemption for performance-based compensation under such
section applies. Depending upon the period that the shares of stock were held
after exercise, the sale or other taxable disposition of shares acquired through
the exercise of an option generally will result in a short-term or long-term
capital gain or loss equal to the difference between the amount realized on such
disposition and the fair market value of the shares when the option was
exercised.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE DIRECTOR PLAN
AMENDMENTS.
PROPOSAL 4:
APPROVAL OF THE 1997 ORTHODONTIST STOCK OPTION PLAN
The primary purpose of the Company's 1997 Orthodontist Stock Option
Plan (the "Orthodontist Plan"), which was previously approved by the Board of
Directors, is to advance the interests of the Company, its subsidiaries and its
stockholders by affording certain Allied Orthodontists (as defined below) an
opportunity to acquire or increase their proprietary interests in the Company.
The Board has adopted and recommends that the Stockholders approve the
Orthodontist Plan.
The material features of the Orthodontist Plan are described below.
ADMINISTRATION
The Orthodontist Plan is administered by the Compensation Committee.
The Compensation Committee has the power to determine the Allied Orthodontists
to whom options to purchase shares of Class A Common Stock will be granted, the
number of shares of Class A Common Stock subject to each option and such other
matters as are specified in the Orthodontist Plan. To the extent not
inconsistent with the provisions of the Orthodontist Plan, the Compensation
Committee may give an option holder an election to surrender an option in
exchange for the grant of a new option, and shall have the authority to amend or
modify an outstanding stock option agreement or to waive any provision thereof,
provided that the option holder consents to such action. The Compensation
Committee establishes the exercise period for each option grant, which period
may not exceed five years.
- 10 -
<PAGE> 14
TERMINATION AND AMENDMENT
The Orthodontist Plan may be amended by the Board from time to time to
the extent that the Board deems necessary or appropriate. Stockholder approval
is required for any amendment (a) to materially increase the number of shares of
stock reserved for issuance, (b) to materially change the class of persons
eligible to receive options or (c) to otherwise materially increase the benefits
accruing to participants. The Board may suspend the granting of options under
the Orthodontist Plan and may terminate the Orthodontist Plan at any time.
ELIGIBILITY
The class of persons eligible to participate in the Orthodontist Plan
shall be determined by the Compensation Committee, in its sole discretion, and
shall consist of certain Allied Orthodontists. An "Allied Orthodontist" is an
orthodontist or dentist who (i) holds an equity interest in an Allied Practice
(as defined below), or (ii) is a party to an existing employment agreement with
an Allied Practice. An "Allied Practice" is a professional business entity that
provides orthodontic or dental services to the public and is a party to an
existing service agreement or consulting and business services agreement with
the Company, whereby the Company provides management or consulting services to
such entity in exchange for a service or consulting fee. An Allied Orthodontist
may be eligible to participate in the Orthodontist Plan if the Compensation
Committee determines, in its sole discretion, that such Allied Orthodontist
recruited or referred an orthodontist or dentist to the Company and such
orthodontist or dentist consummates a business combination with the Company or a
subsidiary whereby such orthodontist or dentist becomes an Allied Orthodontist.
STOCK SUBJECT TO THE PLAN
An aggregate of 100,000 shares of Class A Common Stock will be reserved
for issuance upon the exercise of options under the Orthodontist Plan. As of
March 31, 1998, 16,992 shares of Class A Common Stock were reserved for issuance
upon exercise of options previously granted under the Orthodontist Plan and
83,008 shares of Class A Common Stock remained available for options yet to be
granted under the Orthodontist Plan. At March 31, 1998, 1 Allied Orthodontist
had been granted options to purchase 16,992 shares of Class A Common Stock under
the Orthodontist Plan.
TERMS
All options under the Orthodontist Plan are NSOs. The exercise price of
the Class A Common Stock subject to each option shall be the same as the Closing
Stock Price (as hereinafter defined) used for the Allied Orthodontist that the
participant in the Orthodontist Plan recruited or referred to the Company. The
"Closing Stock Price" shall mean the price used to determine the number of
shares of Class A Common Stock that a recruited or referred Allied Orthodontist
received upon the closing of the affiliation of such Allied Orthodontist with
the Company.
An option granted under the Orthodontist Plan cannot be sold or
transferred except by will or the laws of descent and distribution.
- 11 -
<PAGE> 15
FEDERAL INCOME TAX CONSEQUENCES
A participant in the Orthodontist Plan is not taxed on the grant of an
option. Upon exercise, however, a participant generally recognizes ordinary
income equal to the excess, if any, of the fair market value of the shares of
stock transferred on the date of the exercise over the exercise price. The
Company is generally entitled to an income tax deduction in the year of exercise
in an amount equal to the ordinary income recognized by the participant. The
Company's deduction, however, is subject to a $1 million limitation on the
deduction of certain employee remuneration under Section 162(m) of the Internal
Revenue Code unless an exemption for performance-based compensation under such
section applies. Depending upon the period that the shares of stock were held
after exercise, the sale or other taxable disposition of shares acquired through
the exercise of an option generally will result in a short-term or long-term
capital gain or loss equal to the difference between the amount realized on such
disposition and the fair market value of the shares when the option was
exercised.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
ORTHODONTIST PLAN.
PROPOSAL 5:
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has audited the accounts of the Company and its
subsidiaries for fiscal year 1997 and has been appointed by the Audit Committee
to continue in that capacity for the Company's fiscal year ending December 31,
1998, subject to ratification by the stockholders at the Annual Meeting. Should
this firm be unable to perform the requested services for any reason or not be
ratified by the stockholders, the Audit Committee will appoint other independent
auditors to serve for the remainder of the year. A representative of Arthur
Andersen LLP will be present at the Annual Meeting, will have the opportunity to
make a statement and will be available to respond to appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
- 12 -
<PAGE> 16
COMMON STOCK OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of shares of
Class A Common Stock and Class B Common Stock as of March 31, 1998 for (i)
directors of the Company, (ii) the Chief Executive Officer and each of the three
most highly compensated executive officers of the Company (collectively the
"Named Executive Officers"), (iii) the directors and executive officers of the
Company as a group and (iv) each person who is a stockholder of the Company
holding more than a five percent (5%) interest in the Company.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF SHARES OF PERCENT OF
CLASS A PERCENT OF CLASS CLASS B CLASS B
COMMON A COMMON COMMON COMMON
STOCK STOCK STOCK STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED (1) OWNED OWNED (1) OWNED
- ------------------------ --------- ----- --------- -----
<S> <C> <C> <C> <C>
Sam Westover (2) 205,814 1.6% 33,000 13.2%
Robert S. Chilton (3) 10,000 * ---- ----
P. Craig Hethcox (4) 90,000 * ---- ----
Paul H. Hayase (5) 35,704 * 6,000 2.4%
Randall K. Bennett, D.D.S., M.S. 318,396 2.6% 24,000 9.6%
Douglas D. Durbin, D.M.D., M.S.D. 100,902 * 1,062 *
U. Bertram Ellis, Jr. ---- --- ---- ----
Craig L. McKnight ---- --- ---- ----
Randall A. Schmidt, D.D.S., M.S.D. (6) 266,004 2.1% 3,043 1.2%
W. Dennis Summers ---- --- ---- ----
Jonathan E. Wilfong (7) 430,262 3.4% 15,930 6.4%
Robert N. Pickron, D.D.S. (8) 972,180 7.8% 91,632 36.7%
All executive officers & directors as a 1,457,082 11.7% 83,035 33.2%
group (11 persons)
</TABLE>
- ------------------
* Less than 1.0%.
(1) Based on an aggregate of 12,472,950 shares of Class A Common Stock and
250,000 shares of Class B Common Stock issued and outstanding as of
March 31, 1998. Includes shares of Class A Common Stock that may be
acquired upon the exercise of stock options and warrants exercisable
within 60 days. Each share of Class B Common Stock automatically
converts into 8 shares of Class A Common Stock upon the attainment of
certain average closing price calculations for the Class A
- 13 -
<PAGE> 17
Common Stock in 5 increments of 20% each. If not converted on or before
August 21, 2003, each share of Class B Common Stock automatically
converts into 1 share of Class A Common Stock. Each person named above
has sole voting and dispositive power with respect to all shares listed
opposite such person's name, except as otherwise noted. The address of
all persons listed, except Mr. Wilfong and Dr. Pickron, is 23848
Hawthorne Boulevard, Suite 200, Torrance, California 90505.
(2) Includes 60,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Employee Plan.
(3) Includes 10,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Employee Plan.
(4) Includes 40,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Employee Plan.
(5) Includes 15,000 shares of Class A Common Stock purchasable upon
exercise of stock options that are currently exercisable or exercisable
within 60 days pursuant to the Employee Plan.
(6) Includes 20,000 shares of Class A Common Stock and 16,992 shares of
Class A Common Stock purchasable upon exercise of stock options that
are currently exercisable or exercisable within 60 days pursuant to the
Employee Plan and Orthodontist Plan, respectively. Includes 2,468
shares of Class A Common Stock and 353 shares of Class B Common Stock
held by a profit sharing plan for Dr. Schmidt's benefit and 31,600
shares of Class A Common Stock subject to warrants that are currently
exercisable. (Includes warrants to purchase 20,000 shares of Class A
Common Stock held by Dr. Schmidt's minor children. Dr. Schmidt
disclaims beneficial ownership of the shares of Class A Common Stock
subject to these warrants).
(7) The business address of Mr. Wilfong is 536 Manor Ridge Drive, N.W.,
Atlanta, Georgia 30305. Includes 318,750 shares of Class A Common Stock
subject to warrants that are currently exercisable.
(8) The business address of Dr. Pickron is 3294 Medlock Bridge Road,
Building A, Norcross, Georgia 30092. Includes an aggregate
of 84,252 shares of Class A Common Stock and 12,036 shares of Class B
Common Stock held in separate trusts by a third party trustee for the
benefit of each of Dr. Pickron's children and a niece. Dr. Pickron
disclaims beneficial ownership of the shares of Common Stock held in
such trusts.
- 14 -
<PAGE> 18
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation paid to the Company's Chief Executive Officer and each of the Named
Executive Officers whose salary and bonus compensation for the year ended
December 31, 1997 exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------------------------- ---------------------------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) COMPENSATION($) OPTIONS(#) COMPENSATION($)
------------------ ---- ------- -- ----------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sam Westover.................... 1997 $84,61 5 $75,000 $ 271,461(3) 300,000 $-----
President and Chief 1996 ----- ----- ----- ----- -----
Executive Officer
P. Craig Hethcox (6)............ 1997 62,615 ----- 107,916(4) 100,000 -----
Chief Operating 1996 ----- ----- ----- ----- -----
Officer
Paul H. Hayase.................. 1997 55,846 49,500 172,647(5) 75,000 -----
Senior Vice President 1996 ----- ----- ----- ----- -----
- Human Resources
General Counsel
and Secretary
Robert S. Chilton............... 1997 85,153 27,000 ----- 50,000 -----
Chief Financial Officer 1996 ----- ----- ----- ----- -----
</TABLE>
(1) Represents annual salary.
(2) Represents annual bonuses earned for the periods indicated.
(3) Represents fees for consulting services provided to Premier Orthodontic
Group, Inc., which company merged with and into the Company.
(4) Represents fees for consulting services provided to U.S. Orthodontic
Care, Inc., which company merged with and into the Company.
(5) Represents fees for consulting services provided to Premier Orthodontic
Group, Inc. which company merged with and into the Company.
(6) Mr. Hethcox resigned effective January 31, 1998.
- 15 -
<PAGE> 19
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock option grants
for the year ended December 31, 1997 to the Chief Executive Officer and each of
the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------- ANNUAL-RATES-OF-STOCK
PRICE APPRECIATION
FOR OPTION TERM (1)
--------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
GRANTED FISCAL 1997 SHARE DATE 5% 10%
---------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SAM WESTOVER........................ 300,000 47.7% $12 8/21/07 $2,268,000 $5,724,000
P. CRAIG HETHCOX.................... 100,000 15.9% $12 8/21/07 756,000 1,908,000
PAUL H. HAYASE...................... 75,000 11.9% $12 8/21/07 567,000 1,431,000
ROBERT S. CHILTON................... 50,000 7.9% $12 8/21/07 378,000 954,000
</TABLE>
(1) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the SEC. there can be no
assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation
over the term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Class A Common
Stock appreciates over the option term, no value will be realized
from the option grants made to the Chief Executive Officer or the
Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The following table sets forth certain information with respect to
the value of unexercised in-the-money options held by the Named Executive
Officers of the Company at December 31, 1997. No options were exercised by the
Named Executive Officers of the Company during 1997.
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FY-END (#) AT FY-END ($) (1)
------------- -----------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sam Westover 60,000 240,000 ----- -----
P. Craig Hethcox 20,000 80,000 ----- -----
Paul H. Hayase 15,000 60,000 ----- -----
Robert S. Chilton 10,000 40,000 ----- -----
</TABLE>
(1) Based on a closing price of $9.125 per share of Class A Common Stock on
December 31, 1997, none of the options were in-the-money as of December
31, 1997.
- 16 -
<PAGE> 20
NONCOMPETITION AND EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with Messrs. Westover,
Hethcox and Hayase providing for annual base salaries of $250,000, $185,000 and
$165,000, respectively, with each person being eligible for a cash bonus of up
to 30% of his base salary (the "Employment Agreements"). Additionally, the
Employment Agreements provide for the grant of options for the purchase of Class
A Common Stock to each of Messrs. Westover, Hethcox and Hayase for 300,000,
100,000 and 75,000 shares of Common Stock, respectively, and such options (i)
vested 20% on August 21, 1997 and (ii) will vest 20% per year on the first
through the fourth anniversary dates thereof. These options expire ten years
from the date of grant and are exercisable at $12.00 per share. Mr. Hethcox
resigned from the Company effective January 31, 1998 and his Employment
Agreement was terminated and his option vesting and exercise periods were
amended pursuant to a letter agreement. See "Certain Transactions."
Each Employment Agreement is for an initial term of five years with an
automatic renewal for successive 1 year terms unless prior notice of termination
is provided. The Company may terminate an Employment Agreement (i) for cause,
(ii) without cause upon 30 days prior notice, or (iii) upon death or disability
of the employee. The employee may terminate the Employment Agreement within 120
days after a constructive termination (as defined therein). If the employee is
terminated by the Company without cause or the employee terminates the
Employment Agreement within 120 days following a constructive termination, the
Company is required to pay such employee a lump sum severance equal to 2 times
the applicable annual base salary. Each Employment Agreement provides that if
the employee is terminated within a twelve-month period following a change in
control of the Company (as defined therein), the Company will pay such employee
three times the sum of (i) the employee's annual base compensation, plus (ii)
the maximum possible cash bonus for such year. In addition, upon a change in
control, the Company will pay the employee any accrued salary, benefits or
reimbursements and the employee's options will fully vest and become immediately
exercisable for the longer of (i) 90 days from the change in control or (ii) the
time period specified in the stock plan. Each Employment Agreement prohibits the
employee from competing with the Company for a period of 2 years following
termination of employment.
The Company has entered into a letter agreement with Mr. Chilton
providing for an annual base salary of $135,000, and a cash bonus of up to 30%
of his annualized base salary. Additionally, the Company has granted Mr. Chilton
an option to purchase 50,000 shares of Common Stock, with a vesting schedule
consistent with the vesting schedule described above for the Employment
Agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Mr. Wilfong, Dr. Bennett
and Mr. McKnight. Mr. McKnight is not and has not been an officer or employee of
the Company or any of its subsidiaries. Dr. Bennett became a part-time employee
of the Company effective February 20, 1998, as Co-Chair of the Clinical Advisory
Committee to assist in the development of the Company's practice improvement
programs and training materials and such other projects as the Company may
request from time to time. A predecessor of the Company, U.S. Orthodontic Care,
Inc. ("USOC"), entered into a consulting agreement with Newfound Capital
Associates ("Newfound") and Newfound's president, Mr. Wilfong. The Company
succeeded to the rights and obligations of USOC with respect to this agreement
upon the merger of USOC with and into the Company and Mr. Wilfong entered into a
separate consulting agreement with the Company whereby Mr. Wilfong agreed to
provide financial and general business
- 17 -
<PAGE> 21
services to the Company in return for consulting fees of $300,000. In addition
to the consulting fees, the Company granted Mr. Wilfong a warrant to purchase
150,000 shares of Class A Common Stock at an exercise price of $12.00 per share.
A warrant granted to Mr. Wilfong to purchase 168,750 shares of USOC's common
stock was converted in such merger to a warrant to purchase 168,750 shares of
Class A Common Stock at $11.16 a share. Both warrants are exercisable for five
(5) years from August 21, 1997. Mr. Wilfong's consulting agreements terminated
on September 30, 1997.
CERTAIN TRANSACTIONS
Effective August 21, 1997, the Company entered into an Employment
Agreement with Mr. Hethcox, the Chief Operating Officer, providing for an annual
base salary of $185,000. In connection with his employment, the Company granted
to Mr. Hethcox a warrant to purchase 50,000 shares of Class A Common Stock, with
an exercise price of $0.01 a share, exercisable for 5 years from August 21,
1997. Mr. Hethcox terminated his employment with the Company effective January
31, 1998. With respect to such termination, the Company and Mr. Hethcox entered
into a letter agreement dated January 14, 1998 which provided for payment to Mr.
Hethcox of his base salary through January 31, 1998 and a severance payment of
$250,000 on January 31, 1998. The letter agreement amended Mr. Hethcox's stock
option agreement to extend the exercise period for options vested on the
termination date until January 31, 1999 and to provide for accelerated vesting
with respect to 20,000 shares of Class A Common Stock and expiration of the
exercise period for such shares on July 31, 1998.
Prior to the completion of the Offering, USOC and Premier Orthodontic
Group, Inc. ("Premier") merged with and into the Company, with the Company
succeeding to the rights and obligations of USOC and Premier (the "Merger").
Premier Orthodontic Ventures, LLC ("POV") was the majority stockholder of
Premier and had entered into consulting arrangements with Messrs. Westover and
Hayase, President and Chief Executive Officer and Senior Vice President - Human
Resources and General Counsel, respectively. The Company succeeded to these
obligations pursuant to the Merger and paid Messrs. Westover and Hayase
consulting fees of $271,461 and $172,647, respectively, from the proceeds of the
Offering.
Simultaneously with and as a condition to the closing of the Offering,
the Company closed the acquisitions of certain operating assets of, or the stock
of entities holding certain assets of, 55 separate founding orthodontic
practices in exchange for cash and shares of Class A Common Stock (the
"Acquisitions"). Drs. Bennett, Durbin and Schmidt, all of whom are directors of
the Company, and Dr. Pickron, a beneficial owner of more than 5% of the Class A
Common Stock, received 194,286, 93,468, 170,100 and 332,834 shares of Class A
Common Stock, respectively, and $582,857, $280,403, $107,432 and $998,501 in
cash, respectively, as a result of the Acquisitions.
As shareholders of USOC, Mr. Wilfong and Drs. Schmidt and Durbin,
directors of the Company, and Dr. Pickron, a beneficial owner of more than 5% of
the Class A Common Stock, received in the Merger 111,512, 18,833, 7,434 and
557,170 shares of Class A Common Stock, respectively, and 15,930, 3,043, 1,062
and 79,596 shares of Class B Common Stock, respectively. Each share of Class B
Common Stock automatically converts into 8 shares of Class A Common Stock upon
the attainment of certain average closing price calculations for the Class A
Common Stock, as determined on the Nasdaq National Market, in 5 increments of
20% each. If not converted on or before August 21, 2003, each share of Class B
Common Stock automatically converts into 1 share of Class A Common Stock.
- 18 -
<PAGE> 22
As shareholders of Premier, Mr. Westover, a director and President and
Chief Executive Officer of the Company, Mr. Hayase, Senior Vice President -
Human Resources and General Counsel of the Company, and Dr. Bennett, a director
of the Company, received in the Merger 145,814, 20,704 and 104,110 shares of
Class A Common Stock, respectively, and 33,000, 6,000 and 24,000 shares of Class
B Common Stock, respectively.
In 1997, the Company paid Dr. Schmidt, a director of the Company,
$106,320 in consulting fees for identifying and performing due diligence on
additional orthodontic practices which may affiliate with the Company. As of
March 31, 1998, the Company had paid Dr. Schmidt $157,694 under a similar
consulting arrangement. For referring orthodontists to the Company, Dr. Schmidt
received warrants to purchase 31,600 shares of Class A Common Stock exercisable
for five years from the Offering at an exercise price of $12.00 per share. Dr.
Schmidt received immediately exercisable options to purchase 5,210, 11,145 and
637 shares of Class A Common Stock under the Orthodontist Plan at exercise
prices of $12.00, $13.025 and $12.6875 per share. Under the Employee Plan, Dr.
Schmidt received options to purchase 50,000 shares of Class A Common Stock at an
exercise price of $12.00 per share, of which options to purchase 20,000 shares
are currently exercisable.
On September 9, 1997, the Company loaned $114,927 to Orthodontic
Affiliates, P.C. ("OA") of which Dr. Schmidt is a 50% owner. Interest on the
loan accrues at the prime rate plus 1% and the term of the loan is 36 months.
The loan reflects indebtedness of OA assumed by the Company in the Acquisitions.
At March 31, 1998, principal in the amount of $98,965 was outstanding.
In 1997, the Company entered into a consulting agreement and, in the
Merger, succeeded to the rights and obligations of USOC with respect to an
existing consulting agreement with Mr. Wilfong as described above in
Compensation Committee Interlocks and Insider Participation.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for ensuring that a proper
system of short and long-term compensation is in place to provide
performance-oriented incentives to management. Its report on compensation is as
follows:
The Compensation Committee (the "Committee") of the Board of Directors is
responsible for administering the Company's executive compensation program.
Until August 1997, the Company had no compensation committee or other committee
of the Board of Directors performing similar functions. Decisions regarding the
compensation of executive officers for all periods from inception until August
1997 were made by the Company's Board of Directors. In preparation for the
Offering, the Board of Directors established a Compensation Committee in August
1997, consisting of Messrs. Wilfong and McKnight and Dr. Bennett. None of the
members of the Committee are officers or employees of the Company, although Mr.
Wilfong served as a consultant to the Company until September 30, 1997 and is
Chairman of the Board of Directors. In addition, effective February 20, 1998,
Dr. Bennett became a part-time employee of the Company, as Co-Chair of the
Clinical Advisory Committee.
COMPENSATION POLICY
As a new public company, the Committee recognized that some period of
time will be necessary to establish fully its long-range compensation philosophy
and objectives. Nevertheless, the Committee has
- 19 -
<PAGE> 23
adopted the following general principles and objectives which it considered in
establishing executive compensation levels for 1997 and which it will use to
guide future compensation decisions:
-- The Company's compensation programs should be designed to
attract and retain highly qualified executives who will be
critical to the Company's long-term success.
-- A portion of the executive's total compensation should bear a
direct relationship to the operating performance and
profitability of the Company.
-- Executives should be recognized and rewarded for high
performance and extraordinary results.
-- Incentive compensation arrangements should provide executives
with an opportunity to acquire and increase direct ownership
interests in the Company and motivate them to build stockholder
value by aligning their personal interests with stockholder
interests.
EXECUTIVE COMPENSATION PROGRAM
The Committee believes that a portion of the compensation paid to
executive officers should relate to both the short-term and long-term
profitability of the Company. Therefore, the executive officers' compensation
program is composed of base salary, bonus and long-term incentive compensation.
Base Salary and Bonus. Base salaries for Messrs. Westover and Hayase are
paid pursuant to the Employment Agreements and the base salary for Mr. Chilton
is paid pursuant to the Letter Agreement. In the case of all other executive
officers, base salary is determined and fixed by management based on the
policies of the Committee.
Each of Messrs. Westover, Hayase and Chilton is eligible for an annual
cash bonus of up to thirty percent (30%) of his annualized base salary. The
individual bonus percentages for 1997 were established by the Committee based
upon each officer's level of responsibility within the Company and his
contributions toward improving operating performance and profitability. The
bonus percentages will be reviewed annually by the Committee and may be adjusted
in accordance with these factors or others that the Committee determines to be
relevant at the time.
The Committee believes that the bonus portion of the executive
compensation program is effective in motivating the executive officers of the
Company to improve the current profitability of the Company. The Committee also
believes that an adequate base salary is necessary to retain effective executive
officers and to discourage management decisions which might improve short-term
profitability but may not always be in the long-term best interest of the
Company.
Long-Term Incentives. The Committee believes that, in addition to the
annual cash bonus arrangements, it is appropriate for the Company to provide
long-term incentive awards to motivate the executive officers to improve
long-term profitability of the Company and create value for the stockholders. In
1997, pursuant to the Employment Agreements and the Letter Agreement, Messrs.
Westover, Hayase and Chilton received grants of options for the purchase of
Class A Common Stock of 300,000, 75,000 and 50,000 shares, respectively.
- 20 -
<PAGE> 24
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Compensation arrangements for Mr. Westover as President and Chief
Executive Officer were determined based on his Employment Agreement with respect
to base salary and long-term compensation and based on consideration of the
factors described above with respect to the bonus amounts. The Committee noted
the growth of the Company since the Offering and the increase in Mr. Westover's
responsibilities related thereto.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code, added as part of the Omnibus
Budget Reconciliation Act of 1993, imposes a limitation on deductions that can
be taken by a publicly held corporation for compensation paid to certain of its
executives. Under Section 162(m), a deduction is denied for compensation paid in
a tax year beginning on or after January 1, 1994, to a corporation's chief
executive officer or any of its other four most highly compensated officers to
the extent that such compensation exceeds $1 million. Certain performance-based
compensation, however, is specifically exempt from the deduction limit.
The Committee's current policy with respect to the Section 162(m)
limitations is to preserve the federal income tax deductibility of executive
compensation payments when it is appropriate and in the best interests of the
Company and its stockholders. For the foreseeable future, the Committee does not
expect Section 162(m) to have any practical effect on the Company's compensation
program. However, the Committee reserves the right to approve the payment of
nondeductible compensation in the future if it deems such payment to be
appropriate.
COMPENSATION COMMITTEE
Randall K. Bennett, Chairman
Jonathan E. Wilfong
Craig L. McKnight
THE FOREGOING REPORT SHOULD NOT BE DEEMED INCORPORATED BY REFERENCE BY
ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY
FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE EXCHANGE ACT
(TOGETHER, THE "ACTS"), EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED
FILED UNDER SUCH ACTS.
STOCK PRICE PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in
cumulative stockholder return on the Common Stock with (a) the performance of a
broad equity market indicator, and (b) the performance of a published industry
index. The graph compares the percentage change in the return on the Common
Stock since August 21, 1997 with the cumulative total return on the Nasdaq Stock
Market Index and Nasdaq Health Services Stock Index. The commencement date for
this comparison is the date on which the Company's Common Stock was first
publicly traded. The stock price performance graph assumes an investment of $100
in the Company on August 21, 1997 and an investment of $100 in the
- 21 -
<PAGE> 25
two (2) indexes on August 21, 1997 and further assumes the reinvestment of all
dividends. Stock price performance, presented monthly for the period from August
21, 1997 through December 31, 1997 is not necessarily indicative of future
results.
<TABLE>
<CAPTION>
8/21/97 8/97 9/97 10/97 11/97 12/97
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ORTHALLIANCE INC ORAL 100.00 115.63 122.92 112.50 92.71 76.04
- -------------------------------------------------------------------------------------------------------
NASDAQ STOCK MARKET (U.S.) INAS 100.00 99.85 105.76 100.28 100.78 99.20
- -------------------------------------------------------------------------------------------------------
NASDAQ HEALTH SERVICES INAH 100.00 98.43 106.74 99.77 95.39 95.95
- -------------------------------------------------------------------------------------------------------
</TABLE>
THE STOCK PRICE PERFORMANCE GRAPH SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE ACTS EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE
BE DEEMED FILED UNDER SUCH ACT.
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires executive officers and
directors of the Company and persons who beneficially own more than ten percent
of the Company's Common Stock to file with the Securities and Exchange
Commission certain reports, and to furnish copies thereof to the Company, with
respect to each such person's beneficial ownership of the Company's equity
securities. Based solely upon a review of the copies of such reports furnished
to the Company and certain representations of such persons, the Company believes
that all filings were timely.
ANNUAL REPORT TO STOCKHOLDERS
The Annual Report of the Company for the year ended December 31, 1997,
including audited financial statements, accompanies this Proxy Statement. The
Annual Report does not form any part of the material for the solicitation of
proxies.
- 22 -
<PAGE> 26
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE, AT THE WRITTEN REQUEST OF ANY
RECORD HOLDER OF COMMON STOCK AS OF THE CLOSE OF BUSINESS ON THE RECORD DATE, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, EXCEPT EXHIBITS THERETO. The Company will provide copies of
the exhibits, should they be requested by eligible stockholders, and the Company
may impose a reasonable fee for providing such exhibits. Request for copies of
the Company's Annual Report on Form 10-K should be mailed to:
OrthAlliance, Inc.
23848 Hawthorne Boulevard, Suite 200
Torrance, California 90505
Attention: Investor Relations
STOCKHOLDER PROPOSALS
Any stockholder proposals intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company on or before
December 30, 1998 to be eligible for inclusion in the Proxy Statement and form
of proxy to be distributed by the Board of Directors in connection with such
meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. However, should any additional matters come before the
Annual Meeting, the enclosed proxy grants discretionary authority to the proxies
named therein with respect to any such matters.
EXPENSES OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In an
effort to have as large a representation at the meeting as possible, special
solicitation of proxies may, in certain instances, be made personally or by
telephone, telegraph or mail by 1 or more employees of the Company. The Company
also will reimburse brokers, banks, nominees and other fiduciaries for postage
and reasonable clerical expenses of forwarding the proxy material to their
principals who are beneficial owners of the Company's Common Stock.
By Order of the Board of Directors,
/s/ Paul H. Hayase
--------------------------------------
Paul H. Hayase
Secretary
Torrance, California
April 28, 1998
- 23 -
<PAGE> 27
APPENDIX A
ORTHALLIANCE, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
ON JUNE 5, 1998
The undersigned hereby appoints Sam Westover and Robert S.
Chilton and each of them, with full power of substitution and resubstitution, as
proxies for and in the name of the undersigned, to vote all shares of Class A
Common Stock and Class B Common Stock of OrthAlliance, Inc. (the "Company")
which the undersigned would be entitled to vote if personally present at the
Annual Meeting of Stockholders to be held on Friday, June 5, 1998, at 9:00 a.m.,
local time, at the Manhattan Beach Marriott Hotel, 1400 Parkview Avenue,
Manhattan Beach, California, or at any adjournment thereof, upon the matters
described in the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement, receipt of which is hereby acknowledged, and upon any other business
that may properly come before the meeting or any adjournment thereof. Such
proxies are directed to vote on the matters described in the Notice of Annual
Meeting of Stockholders and Proxy Statement as follows, and otherwise in their
discretion upon such other business as may properly come before the meeting or
any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS LISTED BELOW.
1. To elect two (2) directors to serve until the 2001 Annual
Meeting of Stockholders:
Douglas D. Durbin, D.M.D., M.S.D.
W. Dennis Summers
-- --
-- FOR ALL NOMINEES -- WITHHOLD AUTHORITY
(except as marked to to vote for all nominees listed
the contrary below)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
2. To approve the amendment to the 1997 Employee Stock Option
Plan:
-- -- --
-- FOR -- AGAINST --ABSTAIN
3. To approve the amendments to the 1997 Non-Employee Director
Stock Plan:
-- -- --
-- FOR -- AGAINST --ABSTAIN
4. To approve the 1997 Orthodontist Stock Plan:
-- -- --
-- FOR -- AGAINST --ABSTAIN
5. To ratify appointment of Arthur Andersen LLP as the
Company's independent public accountants:
-- -- --
-- FOR -- AGAINST --ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE PROPOSALS.
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE> 28
Date: , 1998
-------------------------------
-------------------------------------------
(Signature)
-------------------------------------------
(Signature if held jointly)
-------------------------------------------
(Title or authority, if applicable)
Please sign exactly as your name or names
appear hereon. Where more than one owner is
shown above, each should sign. When signing
in a fiduciary or representative capacity,
please give full title. If this proxy is
submitted by a corporation, it should be
executed in the full corporate name by a
duly authorized officer. If a partnership,
please sign in partnership name by
authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING ON JUNE 5, 1998.
IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
- 25 -
<PAGE> 29
APPENDIX B
ORTHALLIANCE, INC.
1997 ORTHODONTIST STOCK OPTION PLAN
<PAGE> 30
ORTHALLIANCE, INC.
1997 ORTHODONTIST STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless
the context clearly indicates to the contrary:
1.1 "Allied Orthodontist" shall mean an orthodontist or dentist
who (i) holds an equity interest in an Allied Practice, or (ii) is a party to an
existing employment agreement with an Allied Practice.
1.2 "Allied Practice" shall mean a professional business entity
that provides orthodontic or dental services to the public and is a party to an
existing (i) service agreement or (ii) consulting and business services
agreement with the Company or a subsidiary, whereby the Company or a subsidiary
provides management or consulting services to such entity in exchange for a
service or consulting fee.
1.3 "Board" shall mean the Board of Directors of the Company.
1.4 "Change in Control" shall mean the occurrence of any of the
following events:
(a) a reorganization, merger or consolidation of
the Company with one or more other corporations
(except with respect to a transaction in which the
sole purpose is to change the domicile or name of the
Company), as a result of which the Company ceases to
exist or becomes a subsidiary of another corporation
(which shall be deemed to have occurred if another
corporation shall own, directly or indirectly, more
than fifty percent (50%) of the aggregate voting
power of all outstanding equity securities of the
Company);
(b) a sale of all or substantially all of the
Company's assets; or
(c) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other
than any person who is a stockholder of the
<PAGE> 31
Company on or before the effective date of the Plan,
by the acquisition or aggregation of securities is or
becomes the beneficial owner, directly or indirectly,
of securities of the Company representing fifty
percent (50%) or more of the combined voting power of
the Company's then outstanding securities ordinarily
(and apart from rights accruing under special
circumstances) having the right to vote at elections
of directors (the "Base Capital Stock"); except that
any change in the relative beneficial ownership of
the Company's securities by any person resulting
solely from a reduction in the aggregate number of
outstanding shares of Base Capital Stock, and any
decrease thereafter in such person's ownership of
securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such
person's beneficial ownership of any securities of
the Company.
1.5 "Closing Stock Price" shall mean the price used to determine
the number of shares of Stock that a recruited or referred orthodontist or
dentist received upon the closing of the affiliation of such orthodontist or
dentist with the Company or a subsidiary.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as
amended, including effective date and transition rules (whether or not
codified). Any reference herein to a specific section of the Code shall be
deemed to include a reference to any applicable corresponding provision of
future law.
1.7 "Committee" shall mean a committee of at least two (2)
Directors appointed from time to time by the Board, having the duties and
authority set forth herein in addition to any other authority granted by the
Board, provided, however, that with respect to any Options granted to an
individual who is also a Section 16 Insider, the Committee shall consist of at
least two (2) Directors who are Non-Employee Directors (within the meaning of
Rule 16b-3). At any time that the Board shall not have appointed a committee as
described above, any reference herein to the Committee shall mean a reference to
the Board.
1.8 "Company" shall mean OrthAlliance, Inc., a Delaware
corporation.
1.9 "Director" shall mean a member of the Board and any person who
is an advisory, honorary or emeritus director of the Company if such person is
considered a director for the purposes of Section 16 of the Exchange Act, as
determined by reference to such Section 16 and to the rules, regulations,
judicial decisions, and interpretative or "no-action" positions with respect
2
<PAGE> 32
thereto of the Securities and Exchange Commission, as the same may be in effect
or set forth from time to time.
1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended. Any reference herein to a specific section of the Exchange Act shall
be deemed to include a reference to any applicable corresponding provision of
future law.
1.11 "Exercise Price" shall mean the price at which an Optionee may
purchase a share of Stock under a Stock Option Agreement.
1.12 "Fair Market Value" on any date shall mean (i) the average
closing sales price of the Stock for the immediately preceding five (5) trading
days; (ii) if the Stock is not traded on any national securities exchange, the
average of the closing high bid and low asked prices of the Stock on the Nasdaq
National Market or other over-the-counter market on the date such value is to be
determined, or in the absence of closing bids on such date, the closing bids on
the next preceding date on which there were bids; or (iii) if the Stock is not
traded on a national securities exchange or the over-the-counter market, the
fair market value as determined in good faith by the Board or the Committee
based on such relevant facts as may be available, including, without limitation,
the price at which recent sales of Stock have been made, the book value of the
Stock and the Company's current and future earnings.
1.13 "Officer" shall mean a person who constitutes an officer of the
Company for the purposes of Section 16 of the Exchange Act, as determined by
reference to such Section 16 and to the rules, regulations, judicial decisions,
and interpretative or "no-action" positions with respect thereto of the
Securities and Exchange Commission, as the same may be in effect or set forth
from time to time.
1.14 "Option" shall mean an option to purchase Stock granted
pursuant to the provisions of Article VI hereof.
1.15 "Optionee" shall mean an Allied Orthodontist to whom an Option
has been granted hereunder or their permitted assign.
1.16 "Plan" shall mean the OrthAlliance, Inc. 1997 Orthodontist
Stock Option Plan, the terms of which are set forth herein.
1.17 "Section 16 Insider" shall mean any person who is subject to
the provisions of Section 16 of the Exchange Act.
3
<PAGE> 33
1.18 "Stock" shall mean the Class A Common Stock, $.001 par value
per share, of the Company, subject to applicable provisions of Section 5.2.
1.19 "Stock Option Agreement" shall mean a written agreement between
the Company and an Optionee under which the Optionee may purchase Stock
hereunder, as provided in Article VI hereof.
1.20 "Subsidiary" shall mean any corporation in which the Company
directly or indirectly owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock of such corporation.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "OrthAlliance, Inc. 1997
Orthodontist Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of
the Company, its Subsidiaries and its stockholders by affording certain Allied
Orthodontists an opportunity to acquire or increase their proprietary interests
in the Company. The objective of the Options is to promote the growth and
profitability of the Company and its Subsidiaries by providing Allied
Orthodontists with an additional incentive to achieve the Company's objectives
through participation in its success and growth and by rewarding Allied
Orthodontists for successfully recruiting or referring additional orthodontists
or dentists to affiliate with the Company or a Subsidiary.
2.3 Effective Date. The effective date of this Plan is October 14,
1997, subject to stockholder approval.
4
<PAGE> 34
ARTICLE III
PARTICIPANTS
An Allied Orthodontist may be eligible to participate in the Plan if
the Committee determines, in its sole discretion, that such Allied Orthodontist
recruited or referred an orthodontist or dentist to the Company and such
orthodontist or dentist consummates a business combination with the Company or a
Subsidiary whereby such orthodontist or dentist becomes an Allied Orthodontist.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. This Plan shall be
administered by the Committee. The Committee shall hold its meetings at such
times and places as it may determine and shall keep minutes of such meetings.
The Committee shall make such rules and regulations for the conduct of its
business as it may deem necessary. The Committee shall have the power to act by
unanimous written consent in lieu of a meeting, and to meet telephonically. In
administering this Plan, the Committee's actions and determinations shall be
binding on all interested parties. Only the Committee shall have the power to
grant Options in accordance with the provisions of this Plan. Subject to the
provisions of this Plan, the Committee shall have the discretion and authority
to determine those Allied Orthodontists to whom Options will be granted, the
number of shares of Stock subject to each Option, such other matters as are
specified herein, and any other terms and conditions of a Stock Option
Agreement. To the extent not inconsistent with the provisions of this Plan, the
Committee may give an Optionee an election to surrender an Option in exchange
for the grant of a new Option, and shall have the authority to amend or modify
an outstanding Stock Option Agreement or to waive any provision thereof,
provided that the Optionee consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions of
the Plan, the Committee shall have complete authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement, and to make all other
determinations necessary or advisable for the administration of the Plan,
including, without limitation, the amending or altering of the Plan and any
Options granted hereunder as may be required to comply with or to conform to any
federal, state or local laws or regulations.
5
<PAGE> 35
4.3 No Liability. Neither any Director nor any member of the
Committee shall be liable to any person for any act or determination made in
good faith with respect to the Plan or any Option granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee
shall constitute a quorum, and any action taken by a majority at a meeting at
which a quorum is present, or any action taken without a meeting evidenced by a
writing executed by all the members of the Committee, shall constitute the
action of the Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to the eligibiltiy of
Allied Orthodontists to receive a grant under the Plan, their death, disability,
or other termination of status as an Allied Orthodontist and such other
pertinent facts as the Committee may require. The Company shall furnish the
Committee with such clerical and other assistance as is necessary in the
performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant
to the provisions of Section 5.2 hereof, the maximum number of shares of Stock
that may be issued hereunder shall be One Hundred Thousand (100,000). The amount
of Stock subject to the Plan may be increased from time to time in accordance
with Article VIII hereof. Shares of Stock subject to an Option may be either
authorized and unissued shares or shares issued and later acquired by the
Company. The shares covered by any unexercised portion of an Option that has
terminated for any reason (except as set forth in the following paragraph) may
again be optioned under this Plan, and such shares shall not be considered as
having been optioned or issued in computing the number of shares of Stock
remaining available for Options hereunder.
If Options are issued in respect of options to acquire stock of any
entity acquired, by merger or otherwise, by the Company or any Subsidiary, to
the extent that such issuance shall not be inconsistent with the terms,
limitations and conditions of Rule 16b-3 promulgated pursuant to the Exchange
Act, the aggregate number of shares of Stock for which Options may be granted
hereunder shall automatically be increased by the number of shares subject to
the Options so issued.
5.2 Antidilution.
6
<PAGE> 36
(a) If (i) the outstanding shares of Stock are increased,
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of merger, consolidation,
reorganization, recapitalization, reclassification, combination or exchange of
shares, or stock split or stock dividend (excluding the conversion of the
Company's Class B Common Stock into shares of Stock as set forth in the
Company's Amended and Restated Certificate of Incorporation), (ii) any spin-off,
split-off or other distribution of assets materially affects the price of the
Company's stock, or (iii) there is any assumption and conversion to this Plan by
the Company of an acquired company's outstanding option grants, then:
(A) the aggregate number and kind of shares of Stock for
which Options may be granted hereunder shall be adjusted
appropriately by the Committee; and
(B) the rights of Optionees (concerning the number of
shares of Stock subject to Options and the Exercise Price)
under outstanding Options shall be adjusted appropriately by
the Committee.
(b) If a Change in Control occurs, the Committee, in its
discretion, may provide notice to all Optionees that all Options granted under
this Plan shall be assumed by the successor corporation or substituted on an
equitable basis with options issued by such successor corporation.
(c) If the Company is to be liquidated or dissolved, the
adoption of a plan of dissolution or liquidation of the Company shall cause
every Option outstanding under the Plan to terminate to the extent not exercised
prior to the adoption of such plan of dissolution or liquidation by the
stockholders, provided, however, that, notwithstanding any other provisions
hereof, the Committee may declare all Options granted under the Plan to be
exercisable at any time on or before the fifth (5th) business day following such
adoption.
(d) The adjustments described in paragraphs (a) through (c) of
this Section 5.2, and the manner of their application, shall be determined
solely by the Committee, and any such adjustment may provide for the elimination
of fractional share interests. The adjustments required under this Article V
shall apply to any successors of the Company and shall be made regardless of the
number or type of successive events requiring such adjustments.
7
<PAGE> 37
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan,
grant only non-qualified Options. Neither the Company, any Subsidiary nor any
other person warrants or otherwise represents that favorable or desirable tax
treatment or characterization will be applicable in respect of any Option or
shares of Stock relating thereto.
6.2 Option Grant and Agreement. Each Option granted hereunder
shall be evidenced by minutes of a meeting or the written consent of the
Committee and by a written Stock Option Agreement executed by the Company and
the Optionee. The terms of the Option, including the Option's duration and
exercise price, shall be stated in the Stock Option Agreement. Every Optionee
shall be given a copy of the Plan.
6.3 Exercise Price. The Exercise Price of the Stock subject to
each Option shall be the same as the Closing Stock Price used for the
orthodontist or dentist that the Optionee recruited or referred to the Company
that created such Optionee's eligibility for a grant of an Option hereunder.
6.4 Exercise Period. The period for the exercise of each Option
granted hereunder shall commence immediately upon the grant date and remain
exercisable until such Option expires and is no longer exercisable after the
fifth anniversary of the grant date of such Option.
6.5 Option Exercise.
(a) Unless otherwise provided in the Stock Option Agreement or
this Section, an Option may be exercised at any time or from time to time during
the term of the Option as to any or all full shares subject to the Option, but
not at any time as to less than one hundred (100) shares unless the remaining
shares subject to the Option are less than one hundred (100) shares. The
Committee shall have the authority to prescribe in any Stock Option Agreement
that the Option may be exercised only in accordance with a vesting schedule
during the term of the Option.
(b) An Option shall be exercised by (i) delivery to the Company
at its principal office of a written notice of exercise with respect to a
specified number of shares of Stock and (ii) payment to the Company at that
office of the full amount of the Exercise Price for such number of shares in
accordance with Section 6.5(c).
8
<PAGE> 38
(c) The Exercise Price is to be paid in full in cash by a
certified or cashier's check payable to the Company upon the exercise of the
Option and the Company shall not be required to deliver certificates for the
shares purchased until such payment has been made; provided, however, that the
Committee may provide in a Stock Option Agreement (or may otherwise determine in
its sole discretion at the time of exercise) that in lieu of cash, all or any
portion of the Exercise Price may be paid by tendering to the Company shares of
Stock duly endorsed for transfer and owned by the Optionee, or by authorization
to the Company to withhold shares of Stock otherwise issuable upon exercise of
the Option, in each case to be credited against the Exercise Price at the Fair
Market Value of such shares on the date of exercise (however, no fractional
shares may be so transferred, and the Company shall not be obligated to make any
cash payments in consideration of any excess of the aggregate Fair Market Value
of shares transferred over the aggregate Exercise Price).
(d) In addition to and at the time of payment of the Exercise
Price, the Company may withhold, or require the Optionee to pay to the Company
in cash, the amount of any federal, state and local income, employment or other
withholding taxes which the Committee determines are required to be withheld
under federal, state or local law in connection with the exercise of an Option;
provided, however, the Committee may provide in a Stock Option Agreement (or may
otherwise determine in its sole discretion at the time of exercise) that all or
any portion of such tax obligations may, upon the election of the Optionee, be
paid by tendering to the Company whole shares of Stock duly endorsed for
transfer and owned by the Optionee, or by authorization to the Company to
withhold shares of Stock otherwise issuable upon exercise of the Option, in
either case in that number of shares having a Fair Market Value on the date of
exercise equal to the amount of such taxes thereby being paid, and subject to
such restrictions as to the approval and timing of any such election as the
Committee may from time to time determine to be necessary or appropriate to
satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable.
(e) The holder of an Option shall not have any of the rights of
a stockholder with respect to the shares of Stock subject to the Option until
such shares have been issued and transferred to the Optionee upon the exercise
of the Option.
6.6 Nontransferability of Option. No Option shall be transferable
by an Optionee other than by will or the laws of descent and distribution.
9
<PAGE> 39
ARTICLE VII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder
or any portion thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on the stock
exchange, Nasdaq National Market or other over-the-counter market on which the
Stock is then listed;
(b) The completion of any registration or other qualification
of such shares which the Committee shall deem necessary or advisable under any
federal or state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency or body which the Committee shall determine
to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may establish for reasons
of administrative convenience.
Stock certificates issued and delivered to Optionees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws.
ARTICLE VIII
TERMINATION AND AMENDMENT OF PLAN
8.1 Termination and Amendment. The Board may at any time terminate
the Plan, and may at any time and from time to time and in any respect amend the
Plan; provided, however, that the Board (unless its actions are approved or
ratified by the stockholders of the Company within twelve (12) months of the
date that the Board amends the Plan) may not amend the Plan to:
(a) Materially increase the number of shares of Stock subject
to the Plan, except as contemplated in Section 5.2 hereof;
(b) Materially change the class of persons that may participate
in the Plan; or
10
<PAGE> 40
(c) Otherwise materially increase the benefits accruing to
participants under the Plan.
8.2 Effect on Optionee's Rights. No termination, amendment or
modification of the Plan shall affect adversely an Optionee's rights under a
Stock Option Agreement without the consent of the Optionee or his legal
representative, unless such termination, amendment or modification is required
to comply with applicable state and federal laws.
ARTICLE IX
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE X
MISCELLANEOUS
10.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or accept the surrender of outstanding Options and grant new
Options in substitution for them. However no modification of an Option shall
adversely affect an Optionee's rights under a Stock Option Agreement without the
consent of the Optionee or his legal representative, unless such modification is
required to comply with applicable state and federal laws.
10.2 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
10.3 Headings Not Part of Plan. Headings of Articles and Sections
hereof are inserted for convenience and reference and do not constitute part of
the Plan.
10.4 Interpretation. With respect to Section 16 Insiders,
transactions under this Plan, are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Plan administrators fails to so
comply, it shall be deemed void to the extent permitted by law and deemed
advisable by the Plan administrators.
11
<PAGE> 41
10.5 Governing Law. This Plan shall be governed by, and construed
in accordance with, the laws of the State of Delaware without regard to
conflicts of laws principles.
* * * *
12
<PAGE> 42
OrthAlliance, Inc.
1997 Orthodontist Stock Option Plan
Form of Stock Option Agreement
ORTHALLIANCE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of the
_____ day of ________________, 1997 by and between OrthAlliance, Inc., a
Delaware corporation (the "Company"), and _________________ (the "Optionee").
WHEREAS, on October 14, 1997, the Board of Directors of the Company
adopted a stock option plan known as the "OrthAlliance, Inc. 1997 Orthodontist
Stock Option Plan" (the "Plan") and recommended that the Plan be approved by the
Company's stockholders; and
WHEREAS, on ______, 1998, the stockholders of the Company approved the
Plan;
WHEREAS, the Committee has granted the Optionee an Option (as described
below) to purchase the number of shares of the Company's Common Stock (the
"Stock") as set forth below; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to the Option in accordance with the Plan; and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Plan;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows.
1. Incorporation of Plan. This Option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
Notwithstanding anything in this Agreement to the contrary, to the extent the
terms of this Agreement conflict with or otherwise attempt to exceed the
authority set forth under the Plan, the Plan shall govern and control in all
respects.
2 Grant of Option. Subject to the terms, restrictions,
limitations, and conditions stated herein and the terms of the Plan, the Company
hereby evidences its grant to the Optionee of the right and option to purchase
all or any part of the number of shares of Stock (as defined under the
1
<PAGE> 43
Plan), set forth on Schedule A attached hereto and incorporated herein by
reference (the "Option"). The Option shall be exercisable in the amounts
specified on Schedule A. The Option shall expire and shall not be exercisable
after the date specified on Schedule A as the expiration date or on such earlier
date as determined pursuant to the Plan.
3 Purchase Price. The price per share to be paid by the Optionee
for the shares subject to this Option (the "Exercise Price") shall be as
specified on Schedule A.
4 Exercise Terms. In the event this Option is not exercised with
respect to all or any part of the shares subject to this Option prior to its
expiration, the shares with respect to which this Option was not exercised shall
no longer be subject to this Option.
5 Restrictions on Transferability. No Option shall be
transferable by Optionee other than by will or the laws of descent and
distribution.
6 Notice of Exercise of Option. This Option may be exercised by
the Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 13 hereof to the attention of the Senior
Vice President, General Counsel or such other officer as the Company may
designate. Any such notice shall (a) specify the number of shares of Stock which
the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, then elects to purchase hereunder, (b)
contain such information as may be reasonably required pursuant to Section 10
hereof, and (c) be accompanied by a certified or cashier's check payable to the
Company in payment of the total Exercise Price applicable to such shares as
provided herein; or, if approved by the Committee (i) shares of Stock owned by
the Optionee and duly endorsed or accompanied by stock transfer powers having a
Fair Market Value equal to the total Exercise Price applicable to such shares
purchased hereunder or (ii) a certified or cashier's check accompanied by the
number of shares of Stock whose Fair Market Value when added to the amount of
the check equals the total Exercise Price applicable to such shares purchased
hereunder, subject to compliance with applicable federal and state laws. Upon
receipt of any such notice and accompanying payment, and subject to the terms
hereof, the Company agrees to issue to the Optionee or the Optionee's
administrators, executors or personal representatives, as the case may be, stock
certificates for the number of shares specified in such notice registered in the
name of the person exercising this Option.
7 Adjustment in Option. The number of shares of Stock subject to
this Option, the Exercise Price and other matters are subject to adjustment
during the term of this Option in accordance with the Plan.
2
<PAGE> 44
8 Death of Optionee. In the event of the Optionee's death, the
appropriate persons described in Section 6 hereof or persons to whom all or a
portion of this Option is transferred in accordance with Section 5 hereof may
exercise this Option at any time within a period ending on the earlier of (a)
the last day of the one (1) year period following the Optionee's death or (b)
the expiration date of this Option.
9 Date of Grant. This Option was granted by the Committee on the
date set forth in Schedule A (the "Date of Grant").
10 Compliance with Regulatory Matters. The Optionee acknowledges
that the issuance of capital stock of the Company is subject to limitations
imposed by federal and state law and the Optionee hereby agrees that the Company
shall not be obligated to issue any shares of Stock upon exercise of this Option
that would cause the Company to violate law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission) having jurisdiction over the affairs of the
Company. The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section.
11 Investment Representation of Optionee
(a) Optionee represents to the Company the following:
(i) that Optionee has read and understands the terms and
provisions of the Plan, and hereby accepts this Agreement
subject to all the terms and provisions of the Plan;
(ii) that Optionee shall accept as binding and final all
decisions or interpretations of the Board or of the Committee
upon any questions arising under the Plan; and
(iii) Optionee understands that, unless at the time of
exercise of the Option, a registration statement under the
Securities Act of 1933, as amended, is in effect covering the
Stock, as a condition to the exercise of the Option the Company
may require Optionee to represent that Optionee is acquiring
the Stock for Optionee's own account only and not with a view
to, or for sale in connection with, any distribution of the
Stock.
3
<PAGE> 45
(b) The Optionee understands and agrees that the certificate or
certificates representing any shares of Stock acquired hereunder may bear an
appropriate legend relating to registration and resale under federal and state
securities laws.
(c) The Optionee shall not have any rights of a stockholder of the
Company with respect to the shares of Stock which may be purchased upon exercise
of this Option, unless and until such shares shall have been issued and
delivered and his/her name has been entered as a stockholder on the stock
transfer records of the Company.
12 Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and
their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Delaware, without regard to conflicts of
laws principles.
(c) Any notice, request, document or other communication given
hereunder shall be deemed to be sufficiently given upon personal delivery to the
other party or upon the expiration of three (3) days after depositing same in
the United States mail, return receipt requested, properly addressed to the
respective parties or such other address as they may give to the other party in
writing in the same manner as follows:
Company: OrthAlliance, Inc.
23848 Hawthorne Blvd., Suite 200
Torrance, California 90505
Attention: Senior Vice President, General Counsel
Optionee:
------------------------------
------------------------------
------------------------------
------------------------------
(d) This Agreement may not be modified except in writing
executed by each of the parties hereto.
4
<PAGE> 46
(e) This Agreement, together with the Plan, contains the entire
understanding of the parties hereto and supersedes any prior understanding
and/or written or oral agreement between them respecting the subject matter
hereof.
(f) The parties agree that the provisions of this Agreement are
severable and the invalidity or unenforceability of any provision in whole or
part shall not affect the validity or enforceability of any enforceable part of
such provision or any other provisions hereof.
(g) The headings with Sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
(h) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
(i) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Committee has caused this Stock Option
Agreement to be executed on behalf of the Company and attested by the Secretary
or an Assistant Secretary of the Company, and the Optionee has executed this
Stock Option Agreement, all as of the day and year first above written.
COMPANY:
ORTHALLIANCE, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
OPTIONEE:
By:
----------------------------------
5
<PAGE> 47
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
ORTHALLIANCE, INC.
AND
[Name of Optionee]
Dated ________________
Number of Shares Subject to Option: __________ shares of Stock.
Option Exercise Price: $ _________________ per share.
Date of Grant: ________________________
Option Exercise Period:
6
<PAGE> 48
SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
ORTHALLIANCE, INC.
AND
[Name of Optionee]
Dated ________________
NOTICE OF EXERCISE
The undersigned hereby notifies OrthAlliance, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ________________ shares of Stock (as defined under the Plan) pursuant
to the Stock Option Agreement (the "Agreement") between the undersigned and the
Company dated ________________. Accompanying this Notice is (1) a certified or a
cashier's check in the amount of $________________ payable to the Company,
and/or (2) _______________ shares of Stock (as defined under the Plan) presently
owned by the undersigned and duly endorsed or accompanied by stock transfer
powers, having an aggregate Fair Market Value (as defined under the Plan) as of
the date hereof of $__________________, such amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 7 of the
Agreement).
The undersigned is a resident of the State of .
IN WITNESS WHEREOF, the undersigned has set his/her hand and
seal, this ________ day of ________________, ______.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
Name:
Position (if other than Optionee):
7
