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Filed by OrthAlliance, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
anddeemed filed pursuant to Rule 14a-12under the
Securities Exchange Act of 1934
Subject Company: OrthAlliance, Inc.
Commission Number: 000-22975
In connection with the proposed merger, OCA and OrthAlliance will file a proxy
statement/prospectus with the Securities and Exchange Commission ("SEC").
Investors are urged to read the proxy statement/prospectus, because it will
contain important information about the merger, OCA and OrthAlliance. After the
proxy statement/prospectus is filed with the SEC, the proxy statement/prospectus
will be available free of charge, both on the SEC's web site (www.sec.gov) and
from OCA and OrthAlliance by directing a request to Orthodontic Centers of
America, Inc., 5000 Sawgrass Village Circle, Suite 30, Ponte Vedra Beach, FL
32082, Attention: Investor Relations, or to OrthAlliance, Inc., 21535 Hawthorne
Boulevard, Suite 200, Torrance, CA 90503, Attention: Investor Relations.
OrthAlliance and its directors and officers may be deemed to be participants in
the solicitation of proxies with respect to a shareholder meeting to be held in
connection with the merger. Information about the participants in the
solicitation, including their interests in shares of OrthAlliance's common
stock, is set forth in OrthAlliance's Annual Report on Form 10-K for the year
ended December 31, 2000 filed with the SEC. Investors may obtain additional
information regarding the interests of OrthAlliance and its directors and
officers in the merger by reading the proxy statement/prospectus when it becomes
available. This does not constitute an offer of any securities for sale.
A. OrthAlliance/Orthodontic Centers of America Conference Call, June 18, 2001.
ORTHALLIANCE JUNE 18, 2001, CONFERENCE CALL
Ladies and Gentlemen, welcome to this OrthAlliance OCA Doctors Conference
Call. At this time it is my pleasure to introduce your host for the call, Mr.
Denny Summers, Chairman of the Board.
Denny Summers: Thank you very much, welcome to the call. As most of you
undoubtedly know by now, we have had a series of meetings to
discuss the OCA merger and also to discuss doctor-incentive
plans and answer questions that you may have about the
merger. We had three town hall meetings in Atlanta, L.A.,
and Dallas. And then we had our meeting the weekend before
last in Baltimore. And, as we went through these
presentations, we received a lot of good questions. We also
had requests made by many of you to OCA about different
aspects of the incentive plans, and the plans have been
revised and improved as we've gone through the process. And
those of you who attended the first meeting in Atlanta will
recognize tonight and will recognize when you read the
current versions of these plans that they've been improved
quite dramatically since we first started, and that OCA has
been responsive to your requests. At the Baltimore meeting
-- first of all, I want to express my thanks for all of you
who
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attended that meeting. It was an incredibly important
meeting for the company. We had good attendance. And we had
a lot of questions, and we tried to answer them as best we
could. After the meeting we had gotten a lot of very
positive feedback about the OCA systems and about the OCA
programs, and we've gotten a lot of questions here at the
home office. And I know that OCA has also received a number
of questions. So, what we are trying to do tonight is
respond to some of the questions that came up in Baltimore
and to flesh out some of the discussion that began at the
Baltimore meeting regarding doctor incentives. And so this
is your chance to hear the final plans, the final doctor
incentive plans as they've been improved and changed and to
ask questions about them of the OCA folks. So at this point
-- well, let me just tell you what we are going to do as the
night goes on. I'm going to introduce Tony Paternostro, whom
many of you have already met. Tony is going to lead a
discussion of the doctor incentives. We are then going to
open it up for Q&A, and you can then ask any questions that
you have. And Tony also has some of the other OCA team
members whom he'll introduce, who will be available to
answer any of your various questions. So at this point, I'd
like to turn the program over to Tony Paternostro.
Tony Paternostro: Thanks, Denny. Hi, everybody, and thanks to all the
orthodontists and pediatric dentists that are on the call
and all of you who attended all of the previous meetings and
have shown a great interest in this pending merger. As Denny
mentioned, what I want to do tonight is to review the latest
modifications and improvements in the incentives as well as
what I'll call a new incentive that we've put together for
you. First of all, I want to mention that Bart Sr.
apologizes -- he's our CEO -- for not being able to be on
the call, but coincidentally we had our regional call
scheduled for tonight with our OCA doctors. That's going on
at the same time as this call and that call is the one in
which we inform our doctors of new developments within the
company. And those have been scheduled for some time, so he
apologizes for that. I do have on the call with me Damian
Leone, Director of Human Resource, and he can answer any
questions that you might have in that arena. Also Kathy
Feagan, Director of Purchasing, and the same for her area.
Mike Cusimano, who heads up our IT Department and is
overseeing all of our computer developments, will be joining
us a little bit later, as he is on part of the OCA call. And
so he'll be joining us a little bit later, and he will be
available to answer any questions that you have pertaining
to computer issues. So that's who is on the call. I wanted
to just give you a few more updates. Our new website link at
www.orthodon.com/orthalliance is now up and operational. It
has been populated with a Q&A, an ongoing Q&A, that has been
furnished by the OrthAlliance folks. Also the incentives
that were presented in the Baltimore presentation are on the
website, as well as a detailed description of the
incentives, including all of the additions that I'll talk
about tonight. And, soon to come, we will have our OCA
contract on there, perhaps as early as tomorrow. So be on
the lookout for that, and we will update that
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periodically now that that's up and running. And I recommend
that you visit that location periodically for updated
information. Also, I wanted to mention that I believe you
have all already been invited to what I'm going to call an
open house this coming Friday, June 22nd, for all
orthodontists and pediatric dentists in the group to visit
our corporate offices in New Orleans and see what our
operations look like and visit with our department heads. We
have had a couple doctors who have already confirmed, I
believe, the invitation, including an R.S.V.P. by this
coming Wednesday, a couple days from now. So if you have an
interest and you'd like to visit with us, please feel free
to come and see us this Friday. We'll do a tour of the
departments, we will have an in-depth review of our computer
systems, and then you can ask any questions you would like
of the department heads in any area of concern that you may
have. I wanted to also tell you that we've received many,
many doctor calls since the Baltimore meeting, and even
before that. But, I would say, dozens per day. And they've,
for the most part, been very, very positive; so I appreciate
that. And we may not have gotten to all of you, but please,
if you will, be patient. We'll get to you real soon. I know
everybody's got questions. If for some reason you haven't
heard from us, please feel free to call us again or e-mail
us with any questions that you have. We're trying to get all
of your questions answered. In addition, we will be
proactively throughout next week calling any doctors who
have not yet contacted us. We want to make sure that you
have all the information you need to make your decision, an
informed decision, as to which option is best for you. So be
on the lookout for calls from folks from OCA. Also, you all
should have received amendments by now, which are required
for Option 2. And I just wanted to mention that those will
need to be signed by the key dates, and I'll go through
those in a second. And those need to be signed with no
changes to qualify for the incentives. It's important that
they come in without any modifications. The key dates are --
they were changed in Baltimore to give you guys some more
time to gather the information and make your informed
decision. And any doctors who received, as consideration,
cash in their affiliation would need to make their decision
by June 22nd, this coming Friday. And doctors who received
at least a portion in stock have until June 29th. Now, what
that means is, if you sign by those key dates, you will
preserve your rights to the maximum number of shares
available under the stock pool incentive that we talked
about at all of our meetings. After those dates, you will be
considered not to be in Group 1. You will be in Group 2. So
it's important that you remember those key dates in terms of
signing your amendment. So with that, what I'd like to do is
turn my attention to some of the newest incentives and some
of the changes to the incentives that I think are very
positive. I do want to mention again that this will be our
final call before these key dates, and this does represent
the final package of incentives, if you will. So I
appreciate everybody's participation on the call. The first
incentive I want to talk about is the -- what has been
called
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the Founder's Incentive; but, in the literature, you'll see
that it's called the OrthAlliance Stockholder Bonus Program.
The reason being, I know there are -- maybe are some
different definitions of what a "founder" is, and I don't
think it really applies to founders per se. But the proper
definition of someone who may be eligible to participate in
this program is someone who received 50% or more of their
consideration for their affiliation in stock. That is the
criteria. Now, also, to be eligible for this program, you
will have had to sign an amendment or enter into an OCA
contract by July 27th of this year. The -- in the Baltimore
meeting, we went through this program -- Bart Sr. went
through this program, and we have now expanded the program
somewhat. Initially, the program was for a participation
level company-wide of 75%. And what I mean by that is, if at
least 75% of all OrthAlliance and PedoAlliance doctors opted
to sign the amendment or sign an OCA contract by July 27th,
then the doctors with 50% or more consideration in stock and
who have signed the amendment and signed -- or signed an OCA
contract, could participate. At that time in Baltimore, we
had put together a pool of 400,000 shares of OCA stock to be
distributed amongst those who qualified for the program.
What we have done now is we have placed two additional tiers
into the program at lower levels. Additionally, we had
modified the stock requirements there. So let me go through
that. Before, what we were talking about was a jump from 60%
to 75% participation. What we have added is a tier at 65%
and at 70%. So now there are three tiers or obtainment
levels at which a participation would result. The first is
65%, again meaning all doctors signing either an amendment
for Option 2 or an OCA contract for Option 3. If you reach
65%, the amount of stock available will be 200,000 shares,
and, if you reach the 70% plateau, the amount of stock
available is 300,000 shares; and we have kept the stock pool
at 400,000 shares for the 75% level. So, remember 200,000
for 65%, 300,000 for 70%, and 400,000 for 75%. In addition,
we have placed a base level of share participation. And that
is set, meaning that each participant, if we reach these
levels, will definitely receive, if they qualify for the
program, this base level of shares. The first level at 65%
is 1,000 shares, at 70% is 1,500 shares, and at 75% is 2,000
shares. The remaining shares will be distributed amongst all
of the participants, and I'll explain to you how that is
done in a second. So -- but let me give you just a basic
example. Let us say the participation level reaches 75%.
That would mean 400,000 shares will be issued to doctors who
qualify for the program. Of the doctors who qualify at the
75% level, all will receive at least 2,000 shares of OCA
stock. Let's use an example. If 50 doctors qualify for a 75%
participation level, that would be 50 doctors times 2,000
base level shares, or 100,000 shares. The total stock pool
available at that level is 400,000 shares, so there would be
an additional 300,000 shares which would be distributed to
the 50 doctors. The way that that will be distributed is yet
to be determined, because we don't yet know what the
participation level will be. Of all the potential
participants, we just don't
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yet know how many will sign an amendment or an OCA contract.
At that time, we will be able to determine the exact amounts
for each doctor. But the basic calculation will be to use
the consideration amount in cash or stock received at the
time of affiliation, and we will compare that to today's
value, based on the size of your practice and, therefore,
the fees that you're currently paying to OrthAlliance or
PedoAlliance. And, if there is a disparity between the
original consideration and today's value, then that
disparity will be used to base the proration or sharing the
remaining shares. So, if you think you may be qualifying for
this program and if you would like to know the specific
amount of shares that potentially could be coming to you,
you're welcome to give us a call, and we can talk about
those specific situations with you. In addition, under this
program, there will be a vesting of five years, which is
commensurate with the same vesting that is available under
the target program. And, in more detail, what will happen is
that the shares will vest first 25% after two years and then
25% per year thereafter. So, five years in total, to vest
this stock. Again, like all of the other programs, there
will be -- there needs to be an at-risk provision to save
you from having to pay taxes at the time that the value is
issued. So, what we have done is we have provided for a 90%
minimum target, meaning that you will have to achieve at
least 90% of the service or consulting fees that were paid
in the twelve calendar months prior to the merger. We have
additionally added some language that I think will be
helpful to you. We had some comments from doctors who were
concerned about meeting that; so we have added some language
which states that, if you did not for some reason achieve
that particular minimum but you achieve it in subsequent
twelve-calendar-month periods prior to the final anniversary
of your vesting period, you will still qualify, and you will
still get your stock. Remember this particular provision is
placed in there for the doctor so that the doctor gets
favorable tax treatment on the stock that's issued under
this program. So I wanted to mention that to you as well. I
would say that's in essence the stock holder bonus program.
Again, if you have any specific questions that relate to
your practice or your circumstance with your participation
in this program, I encourage you to give us a call, and I'll
be happy to go through that with you. I will field questions
a little later on regarding how this plan works, because I
realize it is somewhat complicated. Now, turning to a new
program that I don't believe anyone has heard of before,
we're calling this the High Participation Bonus Program. And
what this is, in Baltimore one of your doctors in particular
-- and I think a number of doctors agreed, you know, wanted
to see additional consideration if there was a higher
participation above the 75% level. So what we've created is
this new bonus program called the High Participation Bonus
Program. And this program is available to all doctors
company-wide, whether you're a pediatric dentist or an
orthodontist, whether you received cash or stock. If you're
an owner/doctor with the company and in an affiliation, you
qualify for the program. Now, what are the specific
requirements? Again, you
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will have had to sign either the amendment or an OCA
contract by July 27th, and, of course, this is a high
participation bonus. So, what this is for is, if the
participation level exceeds 75%, if it reaches 80%, we have
500 additional shares that will be issued to each doctor
throughout the system. If you reach an 85% participation
level, there will be not 500 but 1,000 shares provided to
each doctor. So we recognize the fact that there was
interest in reaching this high a level. We also recognize
the fact that, in order to reach this level, there would
have to be a unified approach from all doctors at this high
a participation. So we wanted all the doctors to be able to
share in this. So, that is called the High Participation
Bonus Program. It carries the same vesting requirements as
the program that was just described, the Stockholder
Program. And that is -- it's a lot simpler to explain, that
is the High Participation Program. So, those are the two
main components that I wanted to go over tonight. The other
thing I wanted to mention is that the doctor's trust, which
is a variable under Option 3, is now going to be available
to place into your PC. So, there will be transferability to
a subsequent buyer of your practice or perhaps an associate
who will be buying into your practice. Again, there was a
lot of interest from doctors on this issue so that there
would be some continuity in the practice and there would be
an ability to attract talented doctors and retain them in
your practice. And also, I guess, there was some question of
-- this is a retirement program, the doctor's trust; and it
will take a full 17 years for all of the vesting of the
stock under this program to be provided to doctors. So for
doctors who aren't necessarily going to be around that long,
this provides you a great way to pass along this incentive
to the doctors that will be buying your practice. The other
thing I wanted to mention is that I know there was some
concern about the note provision in lieu of stock for the
target program. And I wanted to explain a little bit about
that provision and then give you a new update on that. First
of all, the reason for that provision is in the unlikely
event that the OCA stock would have dropped below its market
value at that time. And what OCA has an obligation to do is,
if there is a chance for a major deletion of stock due to
that, we have a responsibility to all of our stockholders in
order to not create an event such as that. So if that were
to occur, then OCA would be able to opt to provide that to
you in cash in a note at prime plus 1 1/2 interest. Now,
what we've done is we've now matched up the timing of the
note to the timing of the vesting in the stock so that
they're both five years, so that there is no additional
delay in receiving the consideration for the value received
under the target program. So I think that bore some
qualification, and hopefully you'll find the five-year term
to be more favorable. I think that those are the main things
that I wanted to cover with you tonight. And, at this point,
Denny, what I'd like to do is go ahead and open it up for
questions, and let's see if we can get some answers for
everyone.
Denny: Okay, good.
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Mike: Tony, this is Mike. I finally made it on the call. I
apologize for being late. I was finishing up another
conference call.
Tony: Thanks, Mike. I explained to them that you had some duties
with us on the other OCA calls.
Mike: Thank you.
Tony: Okay, very well, at this time we will be taking questions
from all participants. If you have a question, please press
"1" on your telephone keypad. If your question has already
been asked and you would like to cancel your question,
please press the pound sign on your telephone keypad. One
moment while we poll for questions. Our first question comes
from Paul Lee.
Lee: Hi. I would like to ask Tony a question regarding OCA's
standard contract which is Option 3. With Option 3, you say
you have four incentives. And the sign-up -- minimum sign-up
time is three years. The Doctor Trust. If you look at it,
the Doctor Trust, if you sign up for three years, certainly
we are not going to be qualified for Doctor Trust. Is that
true?
Tony: Paul, can you hear me?
Lee: Yes, I can hear you.
Tony: Yes. The Doctor's Trust is a program that's available under
Option 3 if you sign an OCA standard contract. That contract
does require a three-year minimum. And, what I mentioned
just a few minutes ago, I think, impacts your question. What
is now available for you to do under that Doctor's Trust is
to place that trust into a PC so that, if you leave your
practice earlier than the ten-year requirement of the
Doctor's Trust, that trust will pass along to the new owner
of the PC.
Lee: The new owner of the PC.
Tony: Yes, sir.
Lee: What does it mean? Give me in plain language.
Tony: Okay. In other words, if you sell your practice, let's say
-- remember, the Doctor's Trust is a retirement program. It
was designed for our OCA doctors a few years ago to provide
them some long-term way of preserving wealth and growing
wealth through stockholdings in OCA. So keep in mind that it
is a -- it's a retirement vehicle, as opposed to a standard
incentive, that was created specifically for the
OrthAlliance merger. As such, it does require a ten-year
stay in the practice and then a seven-year vesting period.
And so a lot of the doctors were saying, well,
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that's a long time, obviously, to stay in the practice and
to stay with the OCA contract. And so we heard that, and we
have now added this provision which allows you to place it
into your PC so that the Doctors Trust will survive a sale
of your practice prior to the ten-year requirement because
the buying doctor will fill your shoes in that requirement
and, as such, the trust will survive that.
Lee: I see.
Tony: You see what I am saying?
Lee: I see. And what is -- okay. And another question is, suppose
we sign up with the OCA contract. After three years, and
then -- and we find out that OCA is really the way to go and
we would love to practice more, what would happen?
Tony: Then you would just continue in -- on the contract. There's
no requirement to leave after three years. That's just the
minimum requirement stay.
Lee: No. No. In other words, after three years we need to sign a
new contract. Is that right?
Tony: No, Paul. In other words, the contract that you sign will be
similar to the ones that you are under now. It has a 25-year
component for the practice, but your personal requirement is
a 3-year minimum term for the doctor to stay with the
practice.
Lee: But suppose we volunteer ourselves, because of our financial
condition or for some reason, suppose we say, okay, we're
going to -- we plan to work two more years. Then, what would
happen?
Tony: Well --
Lee: Can we just continue for another two years?
Tony: Yes. Well, then, I'm assuming you'd want to sell your
practice; correct?
Lee: Do we do an annual basis to extend our contract, or do we
have to sign something for the certain period of time?
Tony: No, Paul. There's no requirement to sign any additional
extension. The contract survives year after year. The
three-year requirement is just a minimum requirement, but
there is no maximum other than the full contract term. So,
in essence, whenever you are ready to retire or if you want
to transition to a new market, then you would work with us
to find a buyer for your practice.
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Lee: I see. So we just -- after three years, we just voluntarily
extend until we say we don't want to practice any more.
Tony: Correct.
Lee: Find a new buyer.
Tony: Exactly.
Lee: Right. Okay. Okay. Thank you.
Tony: Okay, Paul. Thank you.
Lee: Thank you.
Moderator: Okay. Our next question comes from Dr. Greenbaum.
Greenbaum: Yes, Tony. Hi.
Tony: Hey, Ken.
Greenbaum: Yeah. We had a conversation today, and I just had a
follow-up on your explanation about the target program --
Tony: Yes.
Greenbaum: -- investment schedule. And it said that the stock bonus
vesting was the same as the target vesting? The target
program vesting schedule?
Tony: Yes. Except that the target vesting starts on the third-year
anniversary, because we don't know what the value, if any,
of the consideration will be yet. So the target program is a
three-year program. After three years, then, we will look at
the third year's results for your practice and look at the
service fees paid in the third year, and compare that to the
service fees paid in the year prior to the merger. And to
the extent that there is an increase in service fees, then
we will provide you with a value that is a three-times
multiple of that increase. On that third anniversary date is
when we will calculate the value, and then, at that point,
starts the vesting period which is essentially a five-year
vesting period; after two years, 25% vested; and then each
year thereafter, another 25%, until the five years are up.
And then all of the stock will be vested, and no
restrictions will be on the stock.
Greenbaum: All right. Now, just to clarify. Three years -- say we sign
a contract for three years, Option 2.
Tony: Yes, sir.
Greenbaum: And then we go through this program and there's -- can you
hear me?
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Tony: Yes, Ken.
Greenbaum: Yeah. I'm sorry. And there's money available through the
vesting program. For two years after that initial three
years, there isn't anything available to us.
Tony: That's correct.
Greenbaum: The following third, fourth, and fifth year, then, the
vesting comes due, and there's money available at the end of
the fifth year.
Tony: Yeah. Well, actually, you will receive an issuance of stock
equal to 25% of the value. That issuance will occur at the
end of the second year. At the end of the third year,
another 25% issuance will occur, and then another 25% after
the end of the fourth and another 25% at the end of the
fifth.
Greenbaum: Okay. So, in other words -- but, in order to receive the
first 25, we have to be working for five years.
Tony: That's correct.
Greenbaum: All right. So the fact we sign up for three years, and those
that want to sign up for three years and then plan on
leaving, the target program is not available to them. In
other words, they cannot benefit from that because they
won't stay the additional two years.
Tony: If you're planning on leaving exactly -- yeah -- at the
third year, then that is true.
Greenbaum: Right. And if they stay the extra two years, five years,
they'll only have 25% of that target program available to
them.
Tony: That is exactly right.
Greenbaum: And they won't get the full 100% of the target program
unless they expect to work for eight years.
Tony: That is correct. And that's -- we went over that in
Baltimore, and I think that was pretty straightforward.
Greenbaum: Okay. Thank you.
Tony: Thanks, Ken.
Moderator: Our next question comes from Stuart Kimmel.
Kimmel: Yeah, hi, Tony.
Tony: Hi, Stuart.
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Kimmel I have a couple of questions for you, and then I'd like to
talk to Mike also.
Tony: All right.
Kimmel: If we sign Option 2, and we work for three years on Option
2, and we'd like to exit, what is your provision for finding
a qualified doctor who would take over the practice? How --
how -- if there are several people or many people who would
like to leave after year three, what do you think the
chances are of getting somebody to take over the practice
and also compensating the doctor for some percentage of the
practice?
Tony: Well, I think it's a doctor-by-doctor situation. As I've
mention at all the meetings, we have had a high degree of
success in finding doctors for our existing doctors, almost
without exception we have found doctors. And, for the most
part, doctors have received what I'll call full value or
pretty close to full value. But, that said, it does depend
on the doctor and the situation. Now I've mentioned many
times about my favorite doctor in Minot, North Dakota, who
is in the process of basically giving his practice away
because he's in Minot, North Dakota. On the other hand,
we've had practices in Denver bought and sold many times
over, and in the Florida area. So it really depends on the
practice location. I think it depends on the practice
situation because some practices are more profitable than
others. They're larger than others. Some have managed-care
components; some do not . And then the doctor's age, and I
think the doctor's interest in getting out has something to
do with the price, because, if you are willing to wait, just
like selling a house, sometimes it takes a while. If it's
price sensitive, then you may have to move on the price. But
all those things taken into consideration, we've been very
successful. We have no reason to believe that won't be the
case in three years.
Kimmel: Okay. Another question. On Option 2, using -- I forget the
name of the accounts payable system that you have. But using
accounts payable, since we're not -- we're on a gross
service fee rather than the net service fee, there are
certain expenses that we run through our practices that
really run through the OrthAlliance checkbook. How do we
handle that? It doesn't really affect the service fee but --
so it goes through the OCA accounts payable.
Tony: Yes. Well, you have full flexibility there. I mean, it's a
bill that could be paid by us on your behalf, depending on
the scope of the bill, you could pay it and be reimbursed by
us. We've talked a little bit about how we categorize that,
because we want to be able to -- using our business systems
-- be able to categorize your expenses so that you will be
able to really track things such as lab costs, orthodontic
supplies, or employee costs. And we have a G&A category that
has many subcategories -- meals and entertainment, travel,
and the like -- in which we could fit these, or perhaps we
could come up with a special category. But we can
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handle that either way, either as a reimbursement or through
our AP procedure.
Kimmel: And if we paid things -- if we bought things where we pay
for stuff through MasterCard or American Express or
whatever, and obviously some folks do that to get these
frequent flyer miles, can we pay certain things through the
credit cards and stuff like that?
Tony: Yes, you can. We had that question before at some of the
meetings, and the answer is yes. There is a procedure by
which you could send us that bill along with the invoices --
Kimmel: Invoice.
Tony: -- and we would reimburse you for those costs, and then you
would go ahead and pay your bill.
Kimmel: Very good. And one last question. As far as insurance plans
and stuff like that, if you're doing capitation or that kind
of stuff, you know, discounts, you can collect from these
insurance companies of Aetna's and those people and stuff
like that. Is that one of the services you do is submit
insurance forms and stuff like that?
Tony: Yes, sir. We do not currently submit initial claims
electronically. But the recurring claims are submitted
electronically, and so we can be of great assistance to you
in that area.
Kimmel: Okay. Thanks, Tony. Can I talk with Mike, please?
Tony: Sure. Mike, are you there? Mike?
Mike: Yeah.
Tony: Okay. Go ahead, Doctor.
Kimmel: Mike, this is Stuart Kimmel. How are you?
Mike: Fine sir, and you?
Kimmel: We talked the other day about your systems, and you were not
going to force -- or at least my understanding was you're
not going to -- for people who are on some sort of treatment
card, we wouldn't have to shift over or --
Mike: Yeah. I don't think --
Kimmel: How is that going to work? And also, what about patient
flow? Are you considering patient flow?
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Mike: That will be in our October release of Walrus Patient. The
big -- four big features in the October release, just to get
that out of the way, are going to be electronic treatment
cards, patient check in, patient flow, and there's a patient
data base where you can record things that are specific to
your practice about your patients. It is fully customizable.
And those are the four big features that are coming out
which will cover most of the technology features that are in
other practice management systems that are currently not in
Walrus. But to address your first point, we're not going to
force anybody to a great loss of technology outside of their
decision unless they don't feel like using treatment cards
and want to go on Walrus, then they can do it. But if not,
we're not going to force anybody -- of course, we can't; we
never would think of it -- to go onto Walrus if there's no
treatment card, and they've been using a treatment card.
It's important that we maintain the level of technology that
the office is operating at.
Kimmel: Right. Excuse me. But we're agreeing to use your system.
Mike: Yeah.
Kimmel So, therefore, we can't use your system until you upgrade to
our level of technology.
Mike: You're exactly right.
Kimmel And how, then, are you going to get our figures and stuff
like that? Are we going to have to submit them manually or
something? We won't be connected to you really.
Mike: You know, I think by the time we get to the -- to actually
doing some of these conversions and making sure the training
is done properly, and your staff knows all that they need to
know, I think it's going -- it's going to be a pretty good
timing as far as our feature rollout. So I think we're going
to see -- I think we're all going to come together quite
easily. It's not going --
Kimmel: Right. Because it would be nice to get rid of the Ortho
Track fees that they charge too.
Mike: Oh, yeah. That's one of the big things that just -- it eats
me up to see you guys pay that. And I think it's all going
to come together. Now, you're right. You've brought out a
great point. We're all working extremely hard here, and we
are putting together some long hours to make sure we meet
your needs. But that you don't have to worry about. We're
taking care of that. And I think the timing is going to come
together just fine.
Tony: Mike, why don't you mention the electronic conversion just
generally?
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Mike: What we do is, we will convert as much as possible. And we
have a lot of experience at writing data conversions. We've
converted Ortho 2, Ortho Track, OPMS, Ortho Ware. We've done
pretty much every one. Now, with this group, because there's
such a large number, we are going to put you into light
groups. In other words, these guys are using electronic
charting from Ortho Track, these guys are using patient flow
from OPMS. And we're going to put you guys into similar
categories, which makes the conversion process go a lot
easier, of course, because of economies of scale.
Kimmel And is your system Windows 2000 compatible?
Mike: Yeah. We run on all platforms of Windows. The only one that
I really do not like is Windows 98ME. I will lobby strongly
against anybody using that system. But we will run on it, of
course. We've just had more problems that we care to talk
about with Windows ME.
Kimmel: Well, that's the end of my question. Thank you very much.
Mike: Thank you, sir.
Moderator: Our next question comes from Gilbert Snow.
Snow: Yes. I have two questions. One of them is, let's say there's
75% acceptance, do you have a round figure that you've come
up with as to what the stock value will be for those holding
stock with OrthAlliance? And the second question is, I don't
know if I missed it or understand what consideration is
given to the founders who still hold stock. Is there any
additional consideration given to them?
Mike: Okay, at the 75% participation level, it will, of course,
depend on what the OCA stock is trading at at that time. But
I think we did a calculation recently at around the $32.00
level, and that comes out to be right at around $5.30 per
OrthAlliance share. And that -- so the stock that you're
talking about is valued -- I think I've answered your
question there. As far as what you are calling Founder's
Shares, the incentive that I described is our vehicle to
provide additional value to those "founders." But it's not
just founders, it's anyone who received a large amount of
their consideration, 50% or greater, in stock. And the way
we're giving that to you is through this program on these
65%, 70%, or 75% participation levels. And we've put
together these pools of stock, whether it be the 200,000,
300,000 or 400,000 shares; so that's how we're providing
that value to you.
Snow: Okay. Thank you.
Mike: You're welcome, sir.
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Moderator: Our next question comes from Dr. Smernoff.
Dr. Smernoff. Hi, guys. Jerry Smernoff. Tony.
Tony: Hey, Jerry. How are you doing?
Dr. Smernoff: Good. A question.
Tony: Yes, sir.
Dr. Smernoff: I see nothing in this document that has -- what happens in
vesting on case of death or disability so you cannot
practice?
Tony: Well, which provision are you talking about?
Dr. Smernoff: On these bonus programs, the quote Founders Bonus Programs.
Tony: Right. Well --
Dr. Smernoff: Where it's vested over five years.
Tony: Yes, sir. Well, the vesting, you know -- if you're talking
about something like the Doctor's Trust that will take some
time before the vesting begins, that -- the Doctor's Trust
Program, as I mentioned, is a specific program that's been
around awhile. If you sign in Option 3, you'll sign a
concurrent agreement on that incentive. In the Doctor's
Trust document, if you were to pass away or be disabled,
then the vesting immediately commences. On these other
programs, they're instantaneous programs; so the vesting has
obviously already started. On the target program, that won't
start until your third year. And we won't even know what
that value is yet. As far as the specific programs, once
we've filed with the SEC the final requirements, then we can
provide to you the very specific programs to sign off on.
We're prohibited by law from even offering you stock at this
point. So these incentives are obviously incentives that
will happen if the merger goes forward and if you sign
Option 2 or 3.
Dr. Smernoff: Right. But, Tony --
Tony: Yes, sir?
Dr. Smernoff: On your Stockholder Bonus Program and -- what's the other
one you just mentioned?
Tony: High Participation?
Dr. Smernoff: High Participation Program.
Tony: Yes, sir.
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Dr. Smernoff: What happens if you're a participant in that, and God forbid
you, after three years, can't practice or are dead, are they
fully vested at that time?
Tony: They don't become immediately vested. The vesting schedule
stays in place and is provided to the successor to your
estate.
Dr. Smernoff: Okay. It goes to your estate, then?
Tony: Correct.
Dr. Smernoff: Those do not pass with the practice?
Tony: Yes, sir.
Dr. Smernoff: Okay. Thank you.
Tony: You're welcome.
Moderator: Our next question comes from Victor Sand.
Tony: Hello, Vic.
Sand: Hi.
Tony: How are you?
Sand: Welcome. I appreciate all the input. I think the people at
OCA have been very helpful whenever I've called and very
professional, and I thank them for that.
Tony: Thank you.
Sand: I had a question, because it relates back to that growth
target where it doesn't start vesting until the fifth year.
I guess you establish at the end of three years that your
practice has grown by so much, the fees are grown, and you
get this multiple. Let's say you go four years or five
years, and you sell your practice. What I just heard would
mean that you get nothing. But what if the person who buys a
practice maintains that same level or higher? Wouldn't that
mean something?
Tony: Well, the way that the [tape cuts out and returns] incentive
whereby, although you're only required to be there three
years, we'd love you to stay longer. You'll have to look at
your circumstance in particular and decide whether that
particular incentive means anything to you. But, all I can
tell you that that's the basic rules of that particular
incentive and part of the incentive is an incentive to stay
with us a little longer.
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Sand: . . . person. And OCA did, and you mentored him, and he took
over the practice, and the practice kept at the same level
or higher, as when you were there. Wouldn't it be
essentially the same?
Tony: Well the incentive is actually based for the original
doctor. So I hear what you're saying. All I can tell you is
that it's not really designed that way, unfortunately. And
we're kind of to the end of the road where, in terms of --
we've got some tight time constraints, but -- well, I wish I
could tell you something different, Vic. But this particular
program, the target program, does require that you be
around. Now, consider this, and I've talked to doctors about
this. Doctors frequently have associates enter the practice
for a period of time. They buy in at lower percentages, and
the doctor continues to participate, but at some lesser
level. That would preserve your target value based on that
incentive. So that's something to consider.
Sand: Okay. Well, thank you.
Denny: Tony, could I ask a clarifying question that may help with
this? I believe this question came up at the Baltimore
meeting, and the answer as I understood it, was, if the
doctor stays on part-time as a mentor -- in other words, if
he sold a portion of his practice but kept some ownership
and stayed on as a mentor, that he would continue to
qualify.
Tony: That's exactly right. Maybe I didn't say that properly,
Denny; but you're right. That's what I was just saying is
that, if the doctor were to preserve a portion of the
ownership but sell the majority or some portion to the
buyer, then the target program would be preserved. That is
exactly right.
Sand: Well, now that I hear that, what's the percentage? 50%? 30%?
Tony: There's really no minimum set. You know, the importance to
us -- I mean, you guys have some great practices, and I know
you built those over many years. And that goodwill transfer
is not an easy one, although a sale, you know, may occur. So
your continued participation, even at a very low level, is
important to the practice and I think that that has value to
us.
Sand: Okay. Well, thank you. Thanks for verifying that, Denny.
Tony: Thanks, Vic.
Denny: Thank you.
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Moderator: Our next question comes from Dr. Silver.
Dr. Silver: Hello. I have a couple of questions here. The first one is
kind of simple, just some housekeeping. If you have an
expense that is spontaneous that comes up that you weren't
really sure exactly the amount, right now we have the
ability of writing a check on the OrthAlliance account
that's in our office. I'll give you an example. Just the
other night, we had a skating party for my practice. We ran
out of pizza and had to order 40 more pizzas at a -- maybe
-- however much it was -- maybe $400 or something of that
nature, and other expenses that we weren't really planning
on. How would we handle that in this situation?
Tony: Yes, sir, Doctor. There is a petty cash amount that's
retained in each office, and that can vary by office
depending on those types of needs. So that's one way to
handle it. Another is, if you were to pay for that, if you
needed to pay it immediately -- like, within hours --
Dr. Silver: Right.
Tony: -- then that could be placed on a credit card or just paid
and then be reimbursed by us. If it's a matter that comes up
and can be paid within a matter of days, then you can call
us -- or even maybe one day -- you could call us with the
emergency, get us the invoice, and we can just immediately
turn around and send that to whomever you wanted it to go
to. We could overnight it. So there's a few different ways
to tackle that. But most of our doctors have petty cash that
they use for that, or they will, on occasion, go ahead and
pay for something and just be reimbursed that week.
Dr. Silver: You pay out of your own pocket?
Tony: Yes, sir.
Dr. Silver: And then -- and then submit it and get paid back?
Tony: Yes, sir.
Dr. Silver: All right. The other -- the other question was, you were
talking about something that I didn't -- it went by me kind
of quickly. Something about you got a benefit if the fees
you paid into OCA equal 90% of the fees that were paid in
the previous 12 months? What is that referring to, and if
you'd --
Tony: All right. What that is is what I'll call an at-risk
provision. For instance, in any one of these incentives, at
the time that the incentive builds value, whether it be the
target program that would be at the end of the three years
or something like an OCA contract conversion that would be
immediate. Let's say that value -- it doesn't matter what it
is, if it's $200,000 or
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$300,000 or $500,000 -- there would be a tax event if there
was no risk of forfeiture of the stock that you would be
receiving throughout the vesting period. So the whole idea
is to provide you guys with the best tax situation that we
can. So the way that we've designed this is to come up with
a 90% of service fee requirement that puts the -- that
passes the IRS tests for an at-risk on the stock. And what
we've done is, we've tried to set up what we thought was a
lay-up; and, when we heard some concern from doctors, we've
added a provision to it. And the way it works is, in the
year before the merger, whatever service fees were paid, you
would take 90% of that amount and, provided that you paid at
least that 90% amount in the year prior to that particular
vesting period, then you would receive that stock. What
we've added to that is, if for some reason you did not meet
that 90% requirement, you could again meet it in the
following anniversary in the vesting period, and you could
again pass that test throughout the vesting period. So, in
essence, what winds up happening is, as long as you meet
that criteria for at least one of the five years, or the
three years, depending on what programs we're talking about.
Does that make sense?
Dr. Silver: Yeah. So you're talking about all programs other than the
stock that you would get as consideration for OrthAlliance
stock. You're not talking about that in there. You're
talking about other programs; is that right?
Tony: Correct. It's not the stock that would be the exchange stock
in the merger itself, because there's no vesting on that.
Dr. Silver: Okay. But any other thing that is done has that 90% of fees
as part of it.
Tony: Yes, sir. Anything that requires a vesting period -- what
we're trying to do is avoid the doctor having a tax event
prior to receiving the stock.
Dr. Silver: All right. Now, two, when you're saying the vesting period
of most of these things is five years, and you were saying
after two years, you have 25% vesting, and three years
another 25% and so on -- every time you reach a 25% vesting,
then 25% of that stock is freed up and could be sold if you
wanted to at that year?
Tony: That's exactly right. It can be held, or it can be sold
immediately. It's up to you.
Dr. Silver: And so, just in order to get the full 100%, it takes five
years. But you can --
Tony: Correct.
Dr. Silver: Okay. Great.
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Tony: And in the stock pool program, that vesting is over the
three-year period that matches with your three-year minimum
that you would be signing Option 2 or Option 3 for. Just to
clarify, that's -- that's for the stock pool only.
Dr. Silver: Okay. And that would also -- the stock pool thing would
still be involved with the 90% rule?
Tony: That's correct.
Dr. Silver: Okay. Good. Thank you, Tony
Tony: You're welcome.
Moderator: Our next question comes from Raymond McLendon.
McLendon: Hello?
Tony: Hey, Ray.
Mike: Hey, Ray.
McLendon: Hi. I -- I've -- on our email, I've gotten a question. I
presented a notion that OCA says they have consistently
saved practices 5% of their overhead compared to before
affiliation. And I think some of our members are thinking
that that's 5% of the 17%. Please talk a little bit about
how confident you are that you can save us 5%, and is that
5% of the total expenditures of the practice?
Tony: Well, Ray, you're right on the last statement. It's 5% of
gross is what we're talking about. And really that comes
from a couple areas. One, that we're going to be providing a
number of services. We've got a great staff over here at
Corporate, and we're going to be taking a lot of the burden
off of your staff's hands. To that extent, then, there are
hours and hours of time that those staff members are
spending doing those things. And that's where one essential
component of the savings is. So it is incumbent upon the
practice, then, to take advantage of those savings by
redesigning their schedules so that those staff members can
be more productive in treating patients and therefore
increasing the practice size. Or in some cases, I know I've
heard doctors talk about reducing staff. So there's two ways
to do it: either through increase in growth and therefore
percentages efficiencies take place, or by just the straight
expense reduction. That's on the employee side. Then on the
purchasing side, we've talked a lot about our purchasing
power -- and Kathy's on the line if we have any specific
questions regarding that -- but we feel like, given the
added leverage that we'll have with all of you guys coming
on board, we will be able to really again exert some
influence on getting just the very best pricing available
throughout the world and passing that along to you. There's
absolutely no
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markup on anything that you purchase through our program,
and so we think that there's going to be some powerful
savings there. So it's the combination of the two that
provide for that 5%. And we feel like that's at a minimum.
But as you know, employee cost is the single largest expense
in a practice; and it can range anywhere from the high teens
to the mid twenties. So its pretty easy to effect that to a
great degree and come up with 3, 4, 5% just in employee
costs.
McLendon: But you could work with us to help make sure we don't have
employees hanging around and not being productive; right?
Tony: Absolutely.
McLendon: Okay. Another question was related to the interpretation of
the agreement to extend. And there seemed to be some
questions on the language. I guess I just would like to hear
you say that we're actually committing to an extension of
three years for our participation and not twenty years, as
was one interpretation.
Tony: That's exactly right. You know, our attorney is available to
talk to any attorney that might interpret that different.
And I feel pretty confident that, after they talk, he would
be satisfied or she would be satisfied. But that's exactly
right, Ray. I mean, the requirement is for three years for
the doctor in the practice. Now, the practice -- the term
for the practice is the same as it is now. So that does not
change at all, and there's nothing in the amendment that
requires that.
McLendon: Okay. That's all the questions I have. Thank you.
Tony: Thanks, Ray.
Moderator: Our next question comes from Jim Evans.
Tony: Hey, Jim.
Evans: Hi. Jim Evans from South Dakota. Can you hear me?
Tony: Yes, Jim.
Denny: Hi, Jim.
Evans: I have a question about -- some of us have a Practice
Improvement Guarantee Contract, a separate individual
contract, and I'd be interested in knowing who else with
OrthAlliance has this, if they wanted to contact me. How do
you plan to acknowledge that contract?
Tony: Well, that guarantee is -- there's just a handful of doctors
in the OrthAlliance and PedoAlliance system that have that,
and literally a
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handful. Those doctors, of course, if they want to
participate in these incentives, there is a requirement that
they not be under that provision. Well, it just stands to
reason, most of these provisions, these incentives, have to
do with increases in fees or value due to fees; and that
guarantee -- of course, there may be no fees. But the stock
pool is available regardless of that provision; and, you
know, if you -- if you opt to do nothing under Option 1, of
course, that provision remains. So its up to you. But if
you're interested in the incentives, and you feel like under
-- even under that provision you may be paying fees anyway,
then it maybe makes sense to eliminate that and participate
in all these incentives.
Evans: Did I understand you --if we were to sign Option 2 or Option
3, it automatically eliminates that?
Tony: No. That's not totally correct. If you sign Option 2, it
does not eliminate that. If you sign Option 3, it would,
because you'd be signing a new contract. It would be an OCA
contract. And our contracts do not contain that type of
provision. Under Option 2, if you signed Option 2, then you
would be now available for the incentives under that option.
But one of the incentives, the target program under Option
2, does require that the doctor not have any type of
provision where the doctor would not be paying fees, because
that very provision is all about fees, it's all about growth
and fees, and therefore getting you value from that growth.
Evans: I see. Thank you.
Tony: You're welcome.
Moderator: Our next question comes from Dr. Greenbaum.
Greenbaum: Yes. Tony?
Tony: Hey doctor, how you doing?
Greenbaum: Okay, great. Yeah, just a follow up question on Ray's --
Tony: Okay, Ken.
Greenbaum: -- on Ray's information or question about the -- This is a
hypothetical question again about purchasing power and the
group. Let's just say someone decides they want to go with
Option 1. They want to just keep things the way they are in
the original contract. At this point, there's a number of
companies that deal with OrthAlliance, and we have a
discount process going on. And maybe Denny has some input on
this also. How would that process change once the merger
goes through if someone, say, goes with Option 1 or prefers
not to make a change? How would their -- the discounts be
available to those folks?
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Tony: Well, first of all, under Option 1, Ken, you would have the
option of whether you wanted to utilize our systems, which
includes our purchasing. In terms of the discounts, maybe
you can -- Denny, you can comment on that. And then I'd like
Kathy to comment on the reality of those discounts after
Denny chimes in here.
Denny: Its my understanding that what you would do is simply use
the OCA system. And their pricing is better than our current
pricing, Ken; so you would be better off by using their
purchasing program anyway.
Greenbaum: All right. Now, you're saying that if I use their purchasing
program -- that's all part of the package of using the whole
-- of taking on the whole systems; right?
Tony: Yeah, Ken, perhaps. Kathy, do you think you can elaborate on
why --
Kathy: Yes, sir. I think --
Tony: -- that discount is not really what they think it is?
Kathy: Right.
Greenbaum: I understand -- I was at the L.A. meeting, and they say
sometimes what you think you're getting -- in other words,
they actually bump up the per item.
Kathy: Right.
Greenbaum: And you follow that, and you check --
Kathy: Right.
Greenbaum: -- and make sure that that's not happening.
Kathy: But let's say this. Let's say that you do Option 1, and you
don't want to get on the Internet, and you don't want to use
Penny Lane for whatever your reasons.
Greenbaum: Right.
Kathy: You would still be part of the OCA partnership and the
merger has happened, and you're still part of us, and you
would still get my pricing.
Greenbaum: I see.
Kathy: The best point would be, though -- for you, efficiency-wise
-- would be to get on Penny Lane when -- because it is
Internet-based, and use it anyway. But at least you would
still be, at the very least, considered an OCA partner and
get my pricing.
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Greenbaum: I understand. That answers my question.
Kathy: Okay.
Greenbaum: Thank you, Kathy.
Kathy: You're welcome.
Tony: Thanks, Kathy.
Kathy: You're welcome.
Moderator: Our next question comes from Cary Williams.
Williams: Yes, Tony. I know you've gone over this vesting quite a bit.
Is there any unrestricted stock from the initial merger, or
does everything have a vesting schedule?
Tony: No. The base merger, excluding all of these incentive
programs, provides for an exchange of OCA stock for your
OrthAlliance stock, to the degree that you hold OrthAlliance
stock, at an exchange ratio. Once you receive that OCA stock
under the close of the merger, that is totally unrestricted
stock. There's no vesting on that. So that --
Williams: That pool program is unrestricted, and then all the bonus
programs have vesting programs?
Tony: That's correct.
Williams: Okay. And, second question, in a different direction. It
sounds like you're going to be doing -- once the initial
insurance claim is filed -- you're going to be doing a big
portion of the questions, it sounds like, to the point that
we could maybe almost eliminate a collections person; or is
that true?
Kathy: Yes.
Mike: Tony, do you want me to or --
Tony: All right. Go ahead, Mike.
Mike: I mean, we're doing the initial on the continuing claims,
but there's still the over-the-counter collections and -- is
Angela on the call, Tony?
Tony: No. She's not.
Mike: Angela, the head of Patient Financial Services, is piloting
our collection service program where we actually do do -- do
the collection services for the office. That's
over-the-counter payments, insurance payments,
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everything. So that, yes, we are looking to ease the human
resource demands at the front desk.
Tony: And I'll add that -- as Mike mentioned, that is a
pilot-program force. It's going really well. It's our
intention to have that available for everyone eventually,
but the last thing we want to do is create concern with the
doctors. I know the collections piece is very personalized;
and, you know, that's an important component. Now, Mike,
isn't the program going to be flexible enough that the
doctor can pretty much customize it to suit their needs?
Mike: Yeah. At different levels with all of our systems, you'll be
able to pull that department in to give you a hand. What
sometimes we'll do also -- you know, the doctor doesn't have
to accept it. If all of a sudden they have problems in
collections, or if you have some need to have us take over
some portion of collections, that's where Angela will go and
design a flexible plan for the doctor. But it's still in
pilot, and we're doing everything for the offices that we're
piloting with. And we have noticed that, not only have
collections increased, but production has also increased.
And what the doctors have said is the big reason for that is
that a staff can actually focus on patient care. So maybe
somebody can trim a human resource; maybe you just make that
person so much better. But, yes, it will be flexible, and we
are seeing success in the pilot phase.
Tony: Does that answer all of your questions doctor?
Williams: Yes, it does. Thank you.
Tony: Thank you very much.
Moderator: Our next question comes from Dr. Silver.
Silver: Hi. Another follow-up question here too.
Tony: Okay.
Silver: Does OCA keep up -- and I'm saying this -- I feel like I
know the answer, but I just want to hear it. Does OCA keep
up with all of the incentive shares of stock and so forth
that we're supposed to be getting over the years and keep us
informed as to what we've got, or do you expect us to kind
of know that, or how does that work?
Tony: Yes, sir. We do track that for you, and we will provide
periodic reporting. I would assume that eventually we might
even have that online for you to look at at any time you
like. But what we'll do is quarterly reporting at the very
least to let you know the status of your shares, what's
vested, what is not, what is the value at that time based on
the stock price, that sort of thing.
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Silver: Okay. Thank you. And then, when the merger occurs, any stock
that you have, if you've got stock in your pension plan that
you've bought yourself, or something of that nature, all of
that stock then get transferred -- all the OrthAlliance
stock gets transferred to OCA stock at that point?
Tony: That's correct. In the merger, all OrthAlliance stock is
converted to OCA.
Silver: So anything that you've got does go through that then?
Tony: Yes, sir.
Silver: All right. And I presume that OCA then has all the
information about the number of original shares that
everyone had and so forth where you don't need us to report
any of that to you. You should have that through
OrthAlliance, I would guess.
Tony: Well, that's not my area. But, I believe, what happens in a
merger is that the attorneys will send out to all
stockholders a packet of information by which they can
convert their shares. Denny, do you have anything to add?
Denny: Yeah. That's correct. You would get information that
explains the exchange ratios and specifically what you do.
And, typically, you would have to send your share
certificates or have your stock broker send your share
certificates to a transfer agent. And then that agent would
issue new stock certificates on the OCA stock certificate
form. And it's a real mechanical process. You just have to
fill out a form and send it in.
Silver: Okay. And -- so, again, is it important that OCA knows what
your original shares were when you joined OrthAlliance, or
is that a issue at all there?
Tony: Well, under the merger, that's not important because we have
been provided with the number of shares outstanding by
OrthAlliance and the OrthAlliance folks. And so we know that
total, and we know at what level -- at particular levels
what that exchange will be. As far as who those stockholders
are, that's not really going to matter in terms of the
merger. Now in terms of these incentives, again what we've
avoided that, and we've tried to work with numbers that we
are sure of, which is what shares were originally issued
under consideration for affiliations.
Silver: Okay. All right. Well, thank you very much, Tony.
Tony: You're welcome.
Moderator: Our next question comes from Jim Evans.
Tony: Hey, Jim.
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Evans: Hi. In relation to that exchange of stocks and the
proportionate or the ratio by which they will be exchanged,
my Practice Improvement Guarantee is directly related to the
share price of the OrthAlliance stock. And since it dropped
so low, I have not had to pay the management fee since the
end of last year, since, I believe, November. And I'd be
interested to know, will the same conversion rate or ratio
apply for those of us who have this Practice Improvement
Guarantee, the handful that you mentioned, five or six?
Tony: Well, due to the exchange ratio in the merger, that will
have to be utilized now at post-merger to calculate the
guarantee. And that's something that your CPA could do for
you. But that will be on a case-by-case basis depending on
the stock that you hold and your particular situation for
your practice. Did I answer your question?
Evans: You confused me a little bit.
Tony: Okay.
Evans: Based upon the stock that I hold, what does that have to do
with the Practice Improvement Guarantee?
Tony: Well, because there will no longer be any OrthAlliance stock
after the merger, it will all be converted to OCA stock. So
in order to calculate the value of the stock, you will have
to use the exchange ratio provided in the merger in order to
figure that out. Denny, am I incorrect on that?
Denny: No. You're exactly correct. And in these kinds of things,
Jim, typically, all the contract language would say that the
conversion ratio would be used in any future calculations
relating to share price and so forth. So he stated it
correctly.
Evans: Okay. So what he said was that the conversion rate at the
time of transfer would then be that fixed ratio by which
this would be determined on into the future?
Denny: That's correct.
Evans: In other words, it isn't determined again at a new ratio
because the stock price of OCA changed in two years from
now?
Denny: No. You will receive a certain number of OCA shares at the
time that the merger is effectuated. And then those shares
would then be used to calculate the price on a pro rata
basis.
Tony: But, Denny, isn't it the number of shares originally issued
for the affiliation regardless of the amount of shares
currently held?
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Evans: It would have to be, because you don't know whether I'm at
zero or I still have all of them.
Denny: Sure. No. That's correct.
Tony: So, in essence, what it becomes a main factor of is, once
you do your conversion, and you find out how many OCA shares
you would have received if you had held all of it, then you
would use that number and multiply that times whatever the
market share price is for OCA stock at the time you
calculate that. I guess you calculate it on a monthly basis.
Evans: That's correct. That makes sense to me. Okay. Thank you very
much.
Tony: You're welcome.
Moderator: Our next question comes from Dr. Jim Moore.
Tony: Hi, Jim.
Moore: Hello. This is Jim Moore. I'm in a particular situation that
-- with my New Image contract. I'm within about nine months
of finishing it up. I've had four and half years with an
eighteen-month transition. And in April of '02, I will have
finished the four and half years. And then I have the
eighteen months transition. Well, when I figure that, that
nearly washes out what the three-year commitment is under,
say, the Option 2. Is that -- I'm hearing you correct when
you say that?
Tony: The commitment is three years from the date of the merger
under Option 2. That's right.
Moore: But the merger is -- is projected for, I understand, about
October?
Tony: That's right. I believe the final cutoff date is late
November.
Moore: So I would actually have about five or six months left plus
the eighteen at that particular time, opposed to -- if I
took Option 2, I would go ahead, and I'd have an automatic
three-year commitment at that point, a minimum of three
years.
Tony: Correct. So in essence you'd be adding approximately one
year on to your present commitment.
Moore: Now, from my contract with New Image, as I understand it, we
don't -- we cannot sell our practice, as we already have an
agreement in there that we don't do that. Its not ours to
sell.
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Tony: Yes, sir.
Moore: If I take Option 2, and I stay three years plus, then I do
have the option to sell, and I can sell my practice; is that
correct?
Tony: Actually, Option 2 preserves your existing contract. All it
does is it provides that (1) you'll stay the three year
minimum, and (2) that you will utilize our business systems.
Option 3 would allow you to sell your practice because that
would be an OCA contract, and under the OCA contract you
could sell your practice.
Moore: Okay. It would erase all the New Image contract stuff.
Tony: Correct.
Moore: Okay. Then, if I took Option 3, what is my minimum
commitment there?
Tony: It is again the same three years; so there's no additional
commitment.
Moore: So what is the difference, then, between -- to me between 2
and 3?
Tony: Well, the difference -- the main difference between 2 and 3
is that it's a profit-based fee structure whereby we receive
40% of the net instead of 17% of the gross and, depending on
your margins, that could mean you would pay more fee or
possibly less fee. It just depends on what your margins are.
That's the main difference between the two. The other --
there are other differences that I could go over with you.
Perhaps you should call me, and we can go over that in
detail.
Moore: Good. But under Option 2, I would technically stay at about
17%, and I would still have the two-year commitment --
Tony: Yes, sir.
Moore: -- from that point on.
Tony: If that's -- yeah. If that's what your contract states.
Moore: Yeah. And I would not, of course, if I -- when I say five
years, I'd have to stay eight years to have any additional
benefits from the program?
Tony: That's not totally correct. There's two incentives under
Option 2. One is called the stock pool. And provided -- it's
just depending on when you sign up and depending on how long
you've been under your contract and depending on how much in
fees you've been paying, there's a lot of opportunity there.
I used an example in Baltimore whereby a doctor could
possibly receive 75,000 or so in consideration under the
pool. And that -- the vesting on that incentive is only
three years. So by the time your
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three-year commitment is over, you would have full use of
that stock, all of that stock, to sell or retain as you
like. Then the target program is the gross program that I've
been talking about. That's the one that, to receive 100% of
the potential benefit out of that program, you would need,
in effect, to be with the practice for eight years.
Moore: Yeah. Well I appreciate your time. Tony, I have left you
some messages. If you would get back to me, if you can, I'll
only be in town actually through Wednesday.
Tony: Yes, sir. I'll make it a point to call you before then.
Moore: Okay. I appreciate it. Thanks.
Tony: You're welcome.
Moderator: Next question comes from Raymond McLendon.
McLendon: Hello?
Tony: Hey, Ray.
McLendon: A couple questions about collections and how the computer
system might interface with that. I'm sure this has not
happened to anybody else, but I actually had a patient who
disappeared for a year and came back and was quite
disappointed in my staff, that they had allowed this to
happen. And I got a feeling that your computer is set up to
actually make things happen or not happen in the areas of --
if a patient's not showing up, that it essentially forces
staff members to take action. I'm thinking that if a
patient's a certain number of days past due, it forces an
action which I would like a lot. And -- so tell me if that's
true and little bit about that.
Tony: Mike, you want to take that one?
Mike: Sure. What we do is we're not -- as part of our corporate
strategy, we don't send statements to current patients. If
the doctor so chooses, we will. But that -- taking that into
mind, this is the way it happens. We send statements to
thirty-day patients. We also send statements plus a letter
informing them that they're in danger of being turned over
to collections when they're in sixty-days. So you have the
statement at thirty days, statement and a certified letter
at sixty days. At ninety days -- actually its not a
certified letter anymore. We found out it didn't need to be
certified. But you have the statement at thirty, statement
and letter at sixty, and then at ninety, if the doctor so
chooses, our system can automatically turn the patient over
to a collection agency for collection processing. Now, of
course, before it does this, it informs your staff and lets
them know "these are the patients that will be turned over
to collections, are you sure you want to do this?" If the
staff member does
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not want this patient turned over, or the doctor for that
matter, you can call the patient and make financial
arrangements to extend that time period. But, yes, you are
right, Dr. McLendon. The system will ultimately take some
sort of action or tell the staff member that the doctor and
they should take some sort of action on this delinquent
patient.
Tony: And, Mike, doesn't it require the doctor's approval?
Mike: At all levels, with financially delinquent patients or
anything that requires a discontinuation of treatment, it
requires the doctor's approval.
McLendon: I appreciate that. What I would describe my system as is, in
this amount of time, this should have happened; and in that
amount of time, this should have happened; and it reality,
it doesn't always happen. And that frustrates me.
Mike: Yeah. And that's why there was a lot of attention and care
when it came to designing that portion of Walrus because we
are real experts at the financial end of the practice and
helping to manage that front desk; and, yeah, there's not a
lot of patients, not any patients that can slip through the
cracks. We try and shoot holes in the system every day to
see if that can happen. And, really, our doctors can rest
assured that that's not going to happen easily.
McLendon: Now, generally a patient who's not coming is not paying. But
I did have one one time that was paid in full at the
beginning of treatment and disappeared, of all things. So do
you have something that helps us identify those who simply
are not coming for regular care?
Mike: Yeah. There's Recall and there's Needs Appointment. And we
stress the use of those two lists. The Needs Appointment
list is, if somebody cancels or reschedules an appointment
or actually just cancels, whether you have to cancel or the
patient, we stress that you put them on Needs Appointment.
Now, right now that's not linked. But in the next version of
Walrus, whenever you, through the scheduler cancels or
either the patient cancels or you cancel that appointment,
it's automatically going to put them on the Needs
Appointment list. That way, there's a report that you run at
month-end that will show those patients that have missed an
appointment. That's a real powerful list. And we also have
the Recall list, of course, which most of you are familiar
with, where you can recall consultation appointments and
retention visit appointments when they need to be recalled.
So, yeah, it's important for us to make sure that patients
make their appointments.
McLendon: And then my last question is, if you're not sending a
regular statement to patients every month, what support do
you have to encourage that regular payment if its not a
statement?
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Mike: We have coupon books. We found that those are very helpful.
And we are -- when Angela does the collections, when we do
the collections here for Dr. Debra's office, that's the
doctor that we're piloting, she does send statements to
their current patients because it does have a payment slip
on the bottom that they use to make payment to Bank One. So
the bank booklet or the little coupon booklet helps out, but
also, when we do the collections, we do send statements out.
Tony: And isn't there, Mike, the automatic bank withdrawal option
as well as the credit card?
Mike: There are so many different options for them to pay. There
is -- soon they're going to be able to do payments over the
Web; they do have the automatic draft; they can do credit
card; we accept Discover, Visa, MasterCard, American
Express; they can mail in a check/money order; both -- they
can drop it off at the office or mail it in to our Lock Box.
So there's a lot of ways for them to make payment. We try
and make that as convenient for the patient as possible.
McLendon: Sounds like you take everything except crude oil, huh?
Mike: Actually we would take that.
Tony: Only in full barrels.
Mike: Exactly.
McLendon: Okay. I think that's the basics of my question. Thank you.
Mike/Tony: Thank you, sir.
Moderator: Our next question comes from a Dr. Smernoff.
Smernoff: Hi, guys.
Tony: Hey, Jerry.
Smernoff: The following question is for Mike.
Mike: Yes, sir.
Smernoff: Do you have a timeline for conversion to Walrus after the
merger?
Mike: Yeah. I think our first -- believe it or not, there are
people out there who are on manual systems, and I would
guarantee that there are some of them in your practice -- in
your group of doctors. Those are going to be the first to be
converted to the system, obviously, because they need it
most. I would say the second group that would go would be
those that don't --
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that have -- that aren't using any features that Walrus
doesn't have. And then the last groups would be those that
have features that are still being developed and will be
released in October. I'm anticipating we'd begin the process
in November. And to tell you the truth, what we're going to
run into with those last few groups is going to be the
holidays because its just going to be hard to get managers
in for training, and so we may be looking at wrapping it all
up at the end of the first quarter of next year.
Smernoff: Okay. Another question. Are you going to supply us with a
demo name and password to look at Walrus on the Web?
Mike: Yeah. When we get to that point of the merger, I think Tony
-- Tony won't give me any information. He keeps holding off.
I think in July I'll be able to start giving that
information out.
Smernoff: Okay.
Tony: Yeah. Jerry, what we're waiting to see the -- the results
after these initial two dates. We want to make these guys
work hard in the computer arena. But they're already working
really hard, and we don't want to put any undue pressure on
them. I want them to focus on getting this stuff ready. And
so, as the merger becomes more into focus and we have
30-plus doctors signed up, then we'll be able to start that
process.
Smernoff: Okay. Thank you.
Tony: Thanks, Jerry.
Moderator: Our next question comes from Brian -- I'm sorry. Excuse me.
Dr. Brian Nettleman.
Nettleman: Hi. This is Brian here.
Tony: Hi, Brian.
Nettleman: I have a question. OrthAlliance had a rather aggressive
stock repurchase plan. What happens with that?
Tony: Well, I'm not familiar with it. Denny, can you enlighten me
on that? Denny? I guess Denny's not on.
Denny: Yeah. I'm here. I'm sorry. After the merger occurs, that
plan would just disappear.
Nettleman: I'm asking what's going to happen with the stock that was --
that was repurchased?
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Denny: It's in -- it's what's called treasury stock. The company
owns the stock. In other words, the company bought its own
stock and put it back in the treasury.
Nettleman: Okay. So that's going to be all turned over to OCA then?
Denny: Well, it just reduces the number of outstanding shares out
there. And so the benefit that we have is that the shares
have been purchased on the open market thereby reducing the
number of shares out there. But they're in the treasury.
Nettleman: Okay. And then OCA is going to take over that treasury?
Denny: Yeah. That's true. I mean, in effect, it -- all of the
assets of the company would become assets of OCA.
Tony: And since -- and now that I understand the question and
what's transpired, essentially that's all been figured into
the merger. I'm sure that when the folks analyzed the
merger, they looked at that amount of Treasury Stock as
opposed to outstanding shares, and we calculated the pricing
based on that.
Nettleman: Okay. Thank you.
Tony: You're welcome.
Moderator: Our next question comes from Raymond Fortson.
Fortson: Yes. Does Orth -- OCA have available consultants to come
into the office and help train staff?
Tony: Yes, sir. We do. And also, any services that have been
available to you under OrthAlliance or PedoAlliance
provisions will still be available. So, you've got some
practice enhancement folks out there, and that service will
continue to be available to you.
Fortson: Are we going to have quarterly training seminars like we
used to?
Tony: We haven't sat down and figured out what's the best way to
do it. We don't want to reduce the amount of information
you've been receiving in the past. So, I think what we're
going to do is maybe throw that question to the doctors,
post-merger. And we're going to do whatever you guys want --
is, -- and the final result -- what we do is we poll our
doctors. If they want to get together twice a year, we'll do
that; four times a year; or perhaps we can do things, over
the phone; we can set up regional seminars; there are a
number of ways to do it. So we'd like to investigate that. I
think there's a lot of things that you guys are doing --
have been
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doing really well, and that's one of them. So we definitely
want to promote that.
Fortson: Okay. Next question would be -- and I think I know the
answer -- is we will not be able to write any checks out of
the office like we do presently now?
Tony: Under Option 2 or 3, that's correct.
Fortson: Okay. And then, the next thing is, like, presently in our
office, we automatically send monthly statements. That will
not be done any more?
Tony: No. We will do that for you.
Fortson: Do -- you do send a monthly statement to everybody?
Tony: Well, you can elect to send it to current -- you can elect
to send it to any aged patient, whether its current, 30, 60,
or 90, or 120. Yeah. You'll select which patients you want
to send it to, and we have a service which does that.
Tony: -- and then high end -- I mean, we have doctors making,
four, five hundred. I think we may even have some in the six
hundred range.
Chuck: Yeah. But what percentage would that be?
Tony: I honesty don't know that. I don't know the percentage.
Chuck: Are those $6 or $7 million dollar practices?
Tony: We have a -- we don't have a -- we don't have any $6 or $7
million dollar practices. I think we've got -- one or two
might be in a run rate of $4 or $5 million. Most of our big
practices are $2 and $3 million.
Chuck: Okay. What -- also, my next question is, what percent of the
current of the OCA doctors participate in your television
marketing programs, and who pays for those media charges?
OCA, corporate, or the participating doctor?
Tony: Again, I'm not sure of the exact percentage. But, I mean, we
do have a very high percentage of advertising doctors. If we
have -- I'm trying to think, maybe 90% or maybe in the 80's
that are advertising. As far as how they -- how the charges
are paid, that is done by market. So, for instance, if there
are a number of doctors in a market and they all advertise,
then they all will share in that cost depending on the size
of their practices. Any doctors who are in that market who
are not advertising pay nothing for advertising.
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Simons: How do you handle fringe-area cities that are in that market
but may be a hundred miles away?
Tony: Well, if you're an advertising doctor and you chose to
advertise, and therefore you chose to receive any calls
generated from advertising, then you will be allocated some
percentage of that cost depending on the value that you
actually receive as calculated in case starts.
Simons: Okay. I have two questions for Denny. Who gets the $3
million in severance fees, and how many shares has OCA
purchased through the aggressive repurchase program?
Denny: I'll answer the last part of that, and, that is, I think we
purchased over $5 million worth of shares, about 5.9
million, I believe. And they were purchased at various
prices. So I think it was under a million shares, but
probably between 800,000 and a million shares.
Simons: Okay. And that all goes to OCA; correct?
Denny: Well, I think you are misunderstanding. The shares are in
the treasury of the company. Some of those shares were
purchased with borrowed money. So to the extent that the
treasury shares are in the treasury, there is an associated
debt that goes along with it. So it balances out. But the
answer is that all assets of the company would go to OCA in
the merger.
Tony: Yeah. Essentially, Doctor we -- in other words, when we pay,
we're paying obviously in a stock exchange; we're not paying
any cash. So what we are concerned about is the amount of
shares that are outstanding and that have been provided to
us. So that is the number we looked at. That is net of
treasury stock. Is that correct, Denny?
Denny: I'm sorry. I didn't understand the question. I'm sorry.
Tony: In other words, my point is that, to the extent that you
have repurchased shares, then they do not become part of the
exchange for the merger.
Denny: Oh, sure. No. That's absolutely right. So then there's no --
there's no payment made in OCA shares.
Tony: So the net effect for us is that we just -- we looked at the
shares outstanding. Frankly, how many shares were
repurchased really doesn't enter the picture for us unless
there is a corresponding debt. So -- and we are taking on
all the debts of OrthAlliance, PedoAlliance; and as such, if
anything, the repurchase program is a -- is an increase in
debt that we are assuming.
Denny: Right.
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Simons: How many actual agreements or amendments have been signed to
date?
Tony: I don't know that. Denny?
Denny: We have quite a few. They're coming in every day. And we
have verbal commitments from doctors for quite a large
number. But I don't know the exact number at this point.
Simons: You don't have them tallied? You don't tally them day by
day?
Mike: Chuck, we're concerned, I think, also about insider
information. So I think a decision's been made to wait this
out a little bit until we feel like we are at a point where
we can make a public disclosure to all the shareholders.
Simons: When will we be updated and presented with the numbers?
Before our commitment is made?
Tony: Let me -- let me answer that. This is Tony with OCA. What
obviously -- we've been working real hard on trying to put
together just the best package of incentives we could. And
then, we have all of these dates that are up and coming. And
we've been just focusing on that. Frankly, we haven't really
been that much concerned about how many have been signed to
date because we realize that folks have been waiting for all
of this information. Now, as of tonight and this call, we
are looking at the first date being this Friday. We expect a
large number of agreements to come in this week. And then
again next week. And then after those two weeks, I think
we'll have a much better idea of the reality of how many
participants we're talking about. As soon as we are in a
position to provide that kind of information, we will be
providing that to the public because we're a public company.
And as such, you will be notified as well. But it's just at
this point, it really -- I don't want to say it doesn't
concern us. But we're just concerning ourselves with
focusing on getting the questions answered. And we just have
-- I can tell you we've received just an overwhelming
positive response since Baltimore out of the dozens and
dozens of calls we've received. I can tell you, I feel that
very few calls that were even -- in any way negative. So
we're really excited about what we think is going to be a
very high participation level.
Moderator: Any other questions doctor? Next question please.
Simons: -- return call from Paul Spensel.
Tony: Paul?
Denny: That -- I'm sorry. Your question didn't come through, or we
got only the last word of it. Could you repeat it?
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Simons: Yes. I've been waiting for over a week now for my call to be
returned that I placed twice to OCA in New Orleans for Paul
Spencel, and I'm wondering what is the best way to get
through if my advisors or myself have a question to be
asked?
Tony: Yes, sir. Why don't you call me directly. Call me tomorrow.
This Tony Paternostro. And you can reach me at (504)
834-4392.
Simons: Okay. That's what I tried with Paul. I'll try you tomorrow.
Tony: And I'm sorry, Doctor. Could I have your name again?
Simons: Simons, S-i-m-o-n-s.
Tony: Yes, sir. I'll make sure that, if you give us a call
tomorrow or even if you don't, we will get in touch with
you.
Simons: Thank you.
Tony: You're welcome.
Moderator: I'm sorry. Our next question comes from Stewart Kimmel.
Kimmel: Hi, again. This is a follow-up question regarding
collections, and then I have one more question after that.
Since the April 2000 practice improvement meeting in
Orlando, I've instituted a way of collection that doesn't
offer the patient a payment -- a monthly payment. It either
-- it offers them either direct -- having a service direct
deposit into my account or automatically putting it on a
credit card, or we had OrthAlliance financing, which I'm not
sure whether you are going to continue that or not. And also
the other way to do it is to pay in full with a 5% discount.
Are we going to have that ability with OCA?
Tony: Michael, go ahead.
Mike: Yeah. Yeah. All of those options are options that we have.
Our discount is a little bit -- the doctor discount for
"paid in full" is flexible, but that's an option. They can
pay with credit card, and they can also have direct deposit.
Kimmel: Okay. But the credit card, they can automatically --- you
can automatically charge their credit card if they sign
something, or whatever that is.
Mike: Yes. That is available.
Kimmel: I don't know how they do it.
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Mike: The only thing that I don't know about is the OrthAlliance
finance. Tony, do you know?
Tony: I know what we want to do is understand that better. To be
honest, we have not had much of an opportunity to review
that program and -- but, if that is part of your contract
and the services are provided under that contract, then
we'll honor that. In terms of the actual program, we'll need
to look at that and see how that incorporates into our
current structure.
Kimmel: Right. Or if you don't have an in-house financing program,
another financing -- there's other orthodontics financing or
bank financing or something like that where the patient -- I
don't want to give them a way to just say, "Oh, I forgot
this month." It either comes out automatically, or they pay
up front somehow.
Mike: Yes.
Kimmel: Sometimes we have to vary that a little bit. But most of the
time since April of 2000, that's what we've been doing. And
I find delinquencies have -- are not there.
Mike: Right.
Tony: Well, and we totally agree. That's why we agree with that
strategy to provide a flexible means of payment, each
patient has a different situation, so you want to be able to
accommodate them.
Kimmel: Okay. Thank you. Now, another question about staff. I find
it very difficult when I lose staff to find an orthodontic
assistant, a trained orthodontic assistant. Actually, I lost
one staff member to New Image here in Jacksonville just last
week. Not New Image, First Impressions. And -- so, is there
a way for you to -- if you have staff that isn't used or
something like that to find staff for us?
Tony: Damien, are you on?
Damien: Yes, I am.
Tony: Do you want to make a few comments on some of the ways that
we retain our personnel?
Damien: Sure. I can make a few thing -- to answer the question first
about helping you to find staff and helping doctors to find
staff, we do have a mechanism whereby, if you are looking
for staff, we will help you. We have some ads to place. We
can even have it to where they dial into a 1-800 number so
that we can do the initial review, if you will, of that
employee. Ask them to send resumes, that way; so we can
present you with what we believe to be a few quality
candidates to help you that way.
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If you're in a large metropolitan area, Dr. Kimmel, like you
are, you could call our operations staff who will be happy
to poll and basically -- they know their offices in that
area. If you're looking to borrow somebody on occasions
until you actually are able to find a full staff --
full-time staff member or part-time, what you're looking
for. But one thing that we have seen is that the majority of
employees who work within the OCA system do tend to stay,
with the exception of being moved or transferred or a spouse
happens to be moved or for reasons like that. And we like to
think that is because of the benefit structure that we do
offer, that we make available to our employees. The health
insurance, the 401k plan, the vacation, the sick time, the
discount stock purchase plan, our profit-sharing plans, our
contract contest, stock options, and so forth. And I was
saying this at all of the town meetings that we went to, in
that, according to the JCO, which I think is a fair study to
go with since it is answered by practitioners, we clearly
surpass all the benefits offered out there by anyone. Now,
that's not to say in particular cases there isn't someone or
somewhere where there is something. But we work to make sure
that employees don't lose anything. We want to make sure
that we keep employees whole. So we operate from a
philosophy of we offer the best so that we can get the best.
And then to keep them, we have continuing programs for that
-- education -- and if you would like to do some initial
things, we can work with that. And, yes, we can help you
find staff. It is hard in some markets to find staff. I
mean, it is. But once again, just like we've been very
successful in finding replacement orthodontists, we're very
successful in finding replacement staff.
Kimmel: If we sign Option 2, we can partake in these employee
benefits, and we can pick and choose which ones we want?
Damien: Well, part of the OCA system -- and we had this discussion
this morning -- part of the -- you would basically accept
the OCA benefit structure. Now, if you had a particular
question where you're surpassed, then I'd work with you on
it. Or if you had a particular problem with a benefit that
was offered, I could take that on a case-by-case basis and
talk with you about it. But I can't imagine -- in most
cases, having talked to people, we may offer an extra week
of vacation somewhere. If you have a particular problem with
that, we can take care of it. But basically, the health
insurance, the 401k plan, the discount stock purchase --
those are rather compulsory programs. But once again, I
think the benefit the employee receives and the amount that
it costs is nominal compared to the benefit that you get for
the employees. And I'd be happy to discuss those
individually with you or anyone who would like to give me a
call. Even -- I'm sure there is some concern about pricing
for insurance, and I'll let you know that our insurance plan
is a Cadillac plan. We offer a PPO, we do not offer an HMO
or an appoint-a-service. We like to make it really easy for
our employees to obtain first class care. For 401k, to let
you know, I know many people offer -- may offer a 401k plan,
and there's no
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match. And they say well, I really can't afford the match.
Our match is a maximum of $600 per year. And in all honesty,
most of your employees age 40 and older take advantage of
the 401k. Let's say an average staff is eight employees. And
you would have -- not all eight will participate. And not
only will not all eight participate, those that do may not
meet the full match. You'd be looking at $600 per person.
But I will mention this in that, if you do feel that you
have a rather high hourly rate, and for that reason you've
recognized that -- some practitioners have -- I recognize
that individual benefits I may not offer, and I compensate
for that in an hourly rate. I'll be more than happy to work
with someone to say, "Okay. Now you get insurance, you're
able to get prescriptions for $5.00, and you're able to take
care of this. So you're hourly rate will now be $18.50."
And, yes, that will be a pill to swallow, but I will present
on a monetary basis a recognition for someone in an
illustration to show them where they are clearly surpassing
that $1.50 or whatever it is that they're taking as a
reduction. But once again, I don't mean to steer anyone to
take it off. Our benefits are -- they're just varied out
there. And it depends on the participation rate. I have some
offices that have no one who participates in our health
insurance program. Not every employee in your office will
participate in that program simply because they have
coverage through their spouse or however, through their
parents or whatever it happens to be. So, worst case
scenarios just usually don't happen.
Kimmel: Mike asked you to call me last week, and maybe you didn't
get the message or maybe you just were too busy. Could you
call me?
Damien: Sure. Obviously, I did not get the message. I'll be more
than happy to call you.
Kimmel: Okay. And I'll be at my Arlington office tomorrow.
Damien: Okay. Any particular time is better for you?
Kimmel: It doesn't matter.
Damien: Okay. I'm going to come in. I'll be tied up in the morning;
so it will probably be an afternoon call. But I'll
definitely call you tomorrow, Dr. Kimmel.
Kimmel: Okay. Thank you very much.
Damien: You're welcome.
Denny: Tony, before we go to the next question, it's 10:30 on the
East Coast. We've been going for two hours. Why don't we
take the next question in line as our last question. And
then we want everyone to know that you can feel free to call
OCA's office or call OrthAlliance, and we'll answer any
further questions tomorrow.
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Tony: All right. That's a good idea, Denny.
Moderator: Very well. Our final question for the night comes from Cary
Williams.
Tony: Hey, Cary.
Williams: Hi. There've been a lot of questions tonight about how we
can't pay things out of our office and how we have to do the
papers or this or that. Right now, I have two checking
accounts: one where all truly legit expenses go through, and
then the other one is where fluff or things like that may go
through. Could we not do the same thing once we go with
Option 2? Could we not have where you're paying all
legitimate bills, and if there's anything else that we kind
of want to run through the corporation under somewhat fluff,
could we not use a second checking book to do that?
Tony: Well, you will retain your PC, if you have a checkbook
through your PC, any monies after payment of expenses and
fees will obviously be deposited into the PC as you request.
At that point, you can run all these expenses of that type
through that checkbook. So I think -- I mean, I think I'm
answering your question. The answer is yes.
Williams: Yeah. So some of the people are so concerned about that. I
don't see how that's a big deal.
Tony: It's really not. It's just a matter of structure. It's just
a little bit different structure. And hopefully you'll find
it, if anything, a convenience.
Damien: And too, let me mention that to -- this is Damien again. Let
me mention with that -- Doctor, as practitioners, we will
work with you to make sure that -- it's not that we will
provide the remainder to you after payments in 17% at the
end of a quarter. We'll set something up that's usually on a
biweekly basis, a monthly basis. If you'd like to have it
directly deposited to a PC account, if you'd like to have it
split between a few accounts, I can work with you. That's
one of the things that I do in my department. I'll be happy
to work with you to make sure that money is sent to you on a
fairly frequent basis so that there's no lack in cash flow
for you.
Tony: That's a great point, Damien. I understand that the doctors
currently are paid on a monthly basis. So this, now, would
increase to a biweekly basis.
Damien: We have started that, Tony, in fact, with our own doctors.
That's right. So in this particular case, let's say the
majority of doctors would have the 17%. Let's just assume
that because I would assume that is the majority. All the
money, of course, would be deposited into that one
depository account, swept on a biweekly or weekly basis to
pay the bills. We would go with past history to see exactly
what it is and make that distribution on a biweekly basis or
monthly basis or even quarterly basis if someone
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would prefer. It just really depends on however they'd like
to have it. Whatever's left over after that 17% and the and
the bills are paid.
Tony: Thanks, Damien.
Damien: Uh-huh.
Tony: Now, does that answer your questions, Doctor?
Williams: Yes, I think it does. Or what it says to me is what I
thought, that after the sweep is done, the second sweep to
our account, then whatever we want to do with it at that
point is up to us. So if you still want to write additional
checks out of the offices or that, it's not going to affect
the 17%, and yet you've still got checks there you can pay
things with.
Damien: A little bit and maybe Tony -- maybe you can help me through
here, the whole account is swept.
Tony: Right. Except that we would deposit -- in other words, we
would sweep the initial depository account where all of the
deposits that are -- all the collections for the practice
are kept. Then, out of that account, we would pay all of the
bills that you submit to us. And then we would calculate
your retention after our fees, and provide that to you. And,
again, we'll provide that in a biweekly amount to be, let's
just say in this instance, directly deposited. So you will
have these direct deposits going into, say, your second
account which would be, I would assume, your PCs account,
and then on that account you would have a checkbook out of
which you would pay these other bills.
Williams: Correct.
Damien: Let me mention this also. And we would, of course, do at a
minimum a quarterly complete reconciliation of this,
complete comprehensive financial statements. So that we
would, say, on a quarterly basis -- we've been sending you
so much every two weeks. And in the amount that we've been
deficient, at a minimum we would provide that to you on a
quarterly basis. What we'd like to do is so that it ends up
being zero at the end of that quarter. So if we see there's
a large amount at the end of the quarter, we'll work with
you so that we can get more to you on that biweekly or that
monthly basis. We'd love for that amount to be zero for that
reconciliation. We don't want to hold any more money that
belongs to the practitioner than what we have to.
Tony: And what frequently happens as practices grow, we don't know
what that extra retention is until we get to the end of the
quarter. So we'll assess that with the doctor at that time,
and we'll project out going forward from that basis; and
then we can increase the biweekly draw from there.
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Damien: Exactly. And that biweekly draw, to let everyone know, or
the monthly, is not a static number. It's nothing that's
said; it's nothing that -- we work on an individual case
basis. We also take into account that there are different
quarters that individuals have which may not be as good as
some. But in the -- but, let's say the third quarter happens
to be particularly good. We'd like to stretch that on an
annual basis to help you out so that you can estimate a more
even cash flow than possibly the ups and downs of the
revenues of the practice based on the profitability of the
practice's trends for the past year or so. We'd work with
that.
Williams: All right. Thank you.
Tony: You're welcome. And thanks to everyone for joining in
tonight. And I'm sorry we couldn't answer all of your
questions directly tonight. But as Denny mentioned, we'll be
around all week. And, to the extent that you have called
already, I promise you we'll get to those calls. If you
haven't, you're welcome to contact us here in New Orleans.
Again, don't forget the website at
www.orthodon.com/orthalliance. And you'll see, if you go to
our website, there's a new greeting on there for
OrthAlliance doctors. You can click on that, and then there
are various information items in there from the Q & A
portion to a detailed description of the incentives to a
slide presentation that I gave on the incentives in
Baltimore. And then we'll will be adding things as we go
along. So don't forget that. And again, Friday is our open
house here in New Orleans. If anyone wants to come in and
spend the day with us, we'll be happy to go over all of
these services with you, financial review, anything you
like. So please come and see us. With that, thanks to all of
my guys for being on the call, and thanks to all you
doctors. Denny, any other words?
Denny: Yes. What we have set up -- we've recorded this call, and
we've set up a voicemail playback for the call. And I'll
give you the number now, or you can call us tomorrow; but
the number for the playback is (888) 891-8036. That's (888)
891-8036. And I want to say thanks to Tony and all of the
OCA team for the informative call, and let us know if we can
answer any other questions. Thank you and good night.
Tony: Thanks, Denny. Thanks, everyone.
Kathy: Yeah.
Mike: Good night.
Kathy: Good night.
Damien: Good night.
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B. Email Message Sent By OrthAlliance Director Dr. Rand Bennett to
OrthAlliance Members
Dear members,
I owe an apology to Dr. Greg Scott. He has worked hard to try and include me in
the Orally listbot but for some reason I haven't been able to connect. I have
had problems with listbots before so I am sure that it is probably something on
my end. I did not mean to imply that he had not included me. Greg is a great
part of our group and I value his expertise. I have just been frustrated that I
can't participate in the group discussions on the Orally listbot as I value
knowing everyone's opinion and input.
I just returned from visiting OCA's home office in New Orleans. Frankly I wasn't
sure what to expect given how we have all portrayed OCA for the last few years.
Like all of you I believed all the rumors and claims of OCA orthodontists having
no choices, no autonomy, and essentially being forced into slave labor. I
wondered if in visiting their headquarters if I would see anything that would
change my positive feelings about the merger.
I believe that OCA's CEO and management team have bent over backwards in their
attempts to give our members the very best options possible.
Every person I met in New Orleans seemed focused on one thing and one thing only
- - serving their orthodontists. Time after time I discovered that their
orthodontists are just like us and have total freedom in how they choose to
practice. I was very impressed with OCA's commitment to their orthodontists, the
services that they currently offer, the services that are currently in
development and their global vision for the future.
In New Orleans I witnessed a real commitment to help orthodontists run more
effective businesses and become more profitable. It was also clear that OCA is
also deeply committed to helping their members become more effective and
efficient clinicians and render the very best treatment possible for their
patients.
The one criticism I hear over and over again from our members is that we
OrthAlliance members are quality oriented and OCA doctors are not. I don't
agree. We had the same comments when Premier and USOC merged and then when
OrthAlliance and New Image merged. Each group felt that their members were more
committed to quality and more qualified to treat patients than the other group.
We have found that the doctors in every group we have encountered all want the
same things and are equally committed to quality and we will find the same thing
in this transaction. The OCA doctors I have met and talked with, are on average,
no different than us. I think that it is time to be inclusive in our behavior,
rather than exclusive.
I think that most of us have results that aren't ideal from time to time. Every
group I have ever lectured to in our profession feels that their group is
somehow the best group of clinicians in the world. The truth is that every
doctor has great results and poor results and no group has a higher percentage
of great or bad doctors than any other group. I have met non-OrthAlliance
doctors who are members of some of the most "prestigious" groups in our
profession, and some of them routinely turn out some of the poorest and
unacceptable orthodontic results imaginable. Membership in a group does not
correlate with quality no matter who the group is. I am not convinced that OCA
has a higher percentage of one kind of orthodontist than any other group and I
think that going forward, it is highly unfair of us to continue to negatively
generalize about the nature of an "OCA" doctor.
I think that it is time to get over ourselves. I am not saying this accusingly,
it is just an observation. I recently ended my relationship with one study club
to which I have belonged because of their "exclusive arrogance" and feeling
somehow that they are an elite group of gifted orthodontists.
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The other argument I hear is that "OCA has a poor reputation in my community".
The truth is that none of my patients or my referring dentists will know or care
about this merger or my affiliation with OCA. I had competing orthodontists in
my community try to use my affiliation with OrthAlliance against me when I
joined OrthAlliance. All it took was a brief conversation with each of my
referring dentists and that was the end of it. None of them cared. In fact some
of them were jealous that I had an opportunity to join such a group. This
transaction, in reality, will not hurt any of our relationships with our
patients or our referring dentists.
Our new vision should be to use the tremendous expertise that we do have amongst
our members and share that expertise with our new partners to help ensure that
we continue to improve the quality of care for all of our patients. I plan to
share whatever I can with our new and improved larger group of orthodontists.
The bottom line for me is that the main issue when this merger was announced was
my pride. My concerns were emotional. The numbers made sense but I had to work
through my feelings about being associated with an entity that I had helped
portray as the enemy for so long. If we feel that OCA has a "bad" reputation, we
need to realize that we did a lot to help create that reputation, as undeserved
as I now think that it was.
I read a true story recently which seems to fit. An American soldier and a
German soldier were in opposing foxholes shooting at each other during a WW2
battle. Years after the war they met, recognized each other and soon forged a
friendship which lasted over the years until each passed away. They were human
beings, they were husbands and fathers and they discovered that they had far
more similarities than differences and learned to love each other.
Synergy results when members of a group make use of each others strengths and
also compensate for each others weaknesses. I believe that a real opportunity
for true synergy exists here.
Anyway, in summary I wanted to report to you after my visit to New Orleans. I am
very very optimistic for the future. I am committed to help do whatever I can to
help OCA become a force for good in the profession and to help create a new
group of doctors that can make a real difference. Without us OCA will continue
to be phenomenally successful but with us OCA will be even better.
It is late and I hope that all of this makes sense. Please forgive any errors.
If you disagree, I respect your opinion. If you agree, please speak up. I would
love to know who else believes that we can create a new and better vision for
the future.
Sincerely
Your friend
Rand Bennett
Salt Lake City
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