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Exhibit 10.17
Date
Name
Address
City, State, Zip
Dear Doctor:
I am pleased to confirm the terms of the OrthAlliance Practice Improvement
Program Guarantee. Your new professional corporation ("New PC") will not have to
pay any Service Fee to OrthAlliance under the Service Agreement [or Consulting
and Business Services Agreement] ("Service Agreement") between OrthAlliance and
the New PC for as long as all of the conditions set forth below are met.
Capitalized terms are defined on Exhibit 1. By way of example and not
limitation, a sample calculation is attached as an Example.
CONDITIONS. Commencing two years after the close of the Merger, the Service
Fee [or Consulting Fee] will be eliminated for each month in which all of the
conditions set forth below are met.
1. Your Adjusted Merger Consideration is less than the New PC's Cumulative
Practice Net Income Reduction.
2. The New PC reports the necessary information to OrthAlliance promptly each
month to facilitate the calculation of condition 1.
3. The New PC participates in OrthAlliance Practice Improvement Programs in
effect from time to time, which include monthly benchmark information
reporting.
4. Throughout the term of the Service Agreement, orthodontists will work the
same number of hours for the New PC that orthodontists worked for your
existing practice ("Previous Practice") during the Base Period.
If circumstances change and the foregoing conditions are no longer met, then the
New PC will pay the Service Fee [or Consulting Fee] in accordance with the terms
of the Service Agreement. Notwithstanding anything herein to the contrary, the
New PC will always be responsible for paying for all Center Expenses, as defined
in the Service Agreement.
TRANSFERABILITY. This Supplement to the Service Agreement may not be assigned
and is not transferable without the express written consent of OrthAlliance and
terminates when and if the stockholders of the New PC at the Merger date cease
to own a majority of the stock of the New PC.
If you are in agreement with the foregoing, please sign and return a copy of
this letter to me and it will serve as a supplement to the Service Agreement
Sincerely, Agreed:
Sam Westover _______________________________
President and CEO
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EXAMPLE
This example assumes a practice with no practice improvements, Monthly Base
Period Net Income before taxes of $_______ ($_______ in 199_) and Merger
Consideration of $_________ (consisting of cash of $________ and OrthAlliance
Class A Common Stock of $________). It is also assumed that in 200_ the Current
Stock Price of OrthAlliance Class A Common Stock is $_____ and that the practice
has had Monthly Practice Net Income before taxes of $______ ($_______
annualized) from 199__ through 200_.
Original stock price $__________
Current Stock Price in 200_ $__________
Merger Consideration
Cash $__________
Stock (______ shares at ____ ) $__________
Total $__________
Adjusted Merger Consideration in 200_
Cash (plus interest at _%, after taxes) $__________
Stock (______ shares at $____) $__________
Total $__________
After-tax (20% capital gains,
Except interest at ordinary income rates) $__________
Cumulative Practice Net Income Reduction * ($__________)
Negative value - No Service Fee [or Consulting Fee] due ($__________)
MONTHLY PRACTICE NET INCOME
Year Current Base Yr. Difference Taxed @ 40%
199_ _______ _______ (_______) (_______)
199_ _______ _______ (_______) (_______)
199_ _______ _______ (_______) (_______)
200_ _______ _______ (_______) (_______)
200_ _______ _______ (_______) (_______)
Cumulative Practice Net Income Reduction * (_______)
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EXHIBIT 1
DEFINITIONS. For convenience, the following definitions are used. All references
to taxes are to state and federal income taxes and rates at the Merger Date. All
accounting terms are according to Generally Accepted Accounting Principals.
- - Adjusted Merger Consideration: The sum of (i) the after-tax value of the
cash paid as Merger Consideration (using the capital gains rate) plus
interest at _% per annum(after-taxes at ordinary income rates and (ii) the
after-tax value (using the capital gains rate) of the shares of
OrthAlliance Class A Common Stock paid as Merger Consideration, adjusted
for any stock splits, dividends or other adjustments multiplied by the
Current Stock Price. The capital gains rate is used to determine the
Adjusted Merger Consideration. You should consult your own tax advisor,
since OrthAlliance is not providing any tax advice and is not making any
representation or warranty with respect to your taxes.
- - Base Period: The last complete tax year, which was the tax year ended
December 31, 199_.
- - Calculation Date: The last date of each month during the term of the
Service Agreement.
- - Cumulative Practice Net Income Reduction: The sum of the differences
between the Monthly Practice Net Income and the Monthly Base Period Net
Income for the period from the Merger through the Calculation Date. The
Cumulative Practice Net Income Reduction is a positive number for this
calculation when the Monthly Practice Net Income is less than the Monthly
Base Period Net Income and negative when it is not.
- - Current Stock Price: The higher of (i) the average closing price of
OrthAlliance Class A Common Stock for the 20 trading days preceding the
Calculation Date or (ii) if you or another owner of New PC have sold all
or part of the Common Stock paid as part of the Merger Consideration, the
sales price that was received when the Common Stock was sold.
- - Merger: The Merger described in the Merger Agreement.
- - Merger Agreement: The Agreement and Plan of Reorganization by and among
OrthAlliance, the Previous Practice and you.
- - Merger Consideration: The Merger Consideration described in the Merger
Agreement.
- - Monthly Base Period Net Income: The average after-tax monthly income
(using the maximum ordinary income rate) earned by the Previous Practice
from patient revenues less practice expenses, excluding the Service Fee
and orthodontist compensation, during the Base Period.
- - Monthly Practice Net Income: The after-tax income (using the maximum
ordinary income rate) earned by the New PC including the Service Fee [or
Consulting Fee] and excluding any non-business, non-practice and personal
expenses. Expenses must be reasonable and appropriate for the operation of
an orthodontic practice. All patient revenues earned by the New PC are
included and all orthodontist compensation is excluded in determining
Monthly Practice Net Income. Any interest earned through OrthAlliance bank
accounts or investment management will be included.
- - Service Agreement: The Service Agreement [or Consulting and Business
Services Agreement] between the New PC and OrthAlliance.
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