Senior Vice President - Chief Development Officer Employment Agreement

ORTHALLIANCE LETTERHEAD]


May 22, 1998


Via Federal Express and Facsimile to 423-675-9692


Mr. Steve Toon 12864 Pecos Road Knoxville, TN 37922


Dear Steve:


I am pleased to formalize and present the following employment offer for the position of Senior Vice President - Chief Development Officer of OrthAlliance, Inc. ("Company") reporting to me:


COMPENSATION:


o Initial Base Salary of $15,416.67 per month. You will be eligible for a
salary review in January 1999.


o You will receive a guaranteed management bonus in February 1999 of $92,500
for your efforts in 1998. Thereafter, subject to the approval of the
Compensation Committee of the Board of Directors, you will be eligible to
receive a bonus of up to 50% of your base salary based upon the achievement
of Company targets established by the Board of Directors and Management of
the Company.


o You are eligible for recruitment commissions in accordance with Exhibit A
attached to this letter and incorporated by this reference.


TERM:


o Two years from your first date of employment


STOCK OPTIONS:


o A stock option grant for 75,000 shares of common stock of Company will be
granted on the first date of your employment. You will be eligible for
additional options on an annual basis. Vesting will be 20% on such date of
grant and 20% on each anniversary of such date.


COMPANY BENEFITS:


o Participation in all benefits made generally available to Company employees
from time to time. The Company currently provides medical insurance and free
parking to employees.


o Four (4) weeks vacation per year.


o Moving Allowance of $40,000 will be paid to you upon signing your employment
agreement


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Steve Toon May 22, 1998 Page 2


for you to move to Southern California this summer. To the extent that you
do not submit appropriate receipts and documentation, the Moving Allowance
will be added to your taxable income. In the event you do not commence
employment with the Company, you will repay the Moving Allowance.


START DATE:


o August 31, 1998 or sooner ("Commencement Date").


SEVERANCE; CONFIDENTIALITY AND NON-COMPETITION:


o See Exhibit B attached to this letter and incorporated by this reference.


It is the policy of the Company that all employment may be discontinued at will by you or the Company, at any time and for any reason, with or without cause. If these terms are acceptable, please sign in the space provided below and return one copy of this letter to me.


I am excited about the opportunity to work with you. Please feel free to call me with any questions.


Sincerely,


/s/ Sam Westover - ---------------------- Sam Westover President and CEO


Agreed: /s/ Stephen M. Toon Date: May 22, 1998
------------------------- ------------------------


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Exhibit A


Steve Toon ("Employee") is eligible to receive recruitment for his solicitation and enrollment of new orthodontic practices ("Prospect Practices") that affiliate with the Company pursuant to the following terms:


1. Acceptance of Prospect Practices.


In order to affiliate with the Company, Prospect Practices must provide such information and documentation and execute such agreements and documentation as the Company may require from time to time. The acceptance of such information, agreements and documentation from all Prospect Practices shall be subject to the approval of Company and Company, in its sole discretion, may withhold such approval.


2. Terms of Affiliation.


Company shall have the right, in its sole discretion, to determine the terms and conditions for the Prospect Practices to affiliate with the Company and Company may change such terms and conditions in any respect at any time without prior notice to Employee.


3. Computation of Commissions.


3.1 If Employee solicits and recruits a Prospect Practice that
affiliates with the Company and is not an Excluded
Practice (as defined in Section 3.2 below), Employee shall
be paid a commission, as a percentage of combined Adjusted
Gross Revenue for all such practices recruited by Employee
during the term of this Agreement, of:


(i) One and One-Half percent (1-1/2%) of Adjusted Gross
Revenue for such Prospect Practices that affiliate
with the Company for the first $5 million of such
practices' combined Adjusted Gross Revenue.


(ii) One percent (1%) of the next combined $5 million of
such practices' Adjusted Gross Revenue.


(iii) One-Half percent (1/2%) of any additional Adjusted
Gross Revenue of such practices.


As used herein, Adjusted Gross Revenue shall mean the Prospect Practice's annual adjusted gross revenue used by the Company for valuation purposes. Provided, however, the foregoing commission percentages assume that the Purchase Price Multiple is 5.88 or less for each Prospect Practice. As used herein, the Purchase Price Multiple is defined as the consideration paid by OrthAlliance to the Prospect Practice divided by such practice's Adjusted


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Gross Revenue. Prospect Practices that are acquired by OrthAlliance at a Purchase Price Multiple of 7.06 or more shall not be eligible for any commission, but Prospect Practices that affiliate with OrthAlliance at a Purchase Price Multiple greater than 5.88 and less than 7.06 shall be interpolated and given partial credit for Pro Forma Adjusted Gross Revenue as follows: Multiply the Pro Forma Adjusted Gross Revenue for the applicable Prospect Practice by a fraction, (a) the denominator of which is 1.18 (7.06 minus 5.88) and (b) the numerator of which is 7.06 minus the Purchase Price Multiple for the applicable Prospect Practice.


As used herein, a Prospect Practice will not be deemed to have affiliated with the Company unless and until all of the information, contracts and documentation required by the Company have been accepted by the Company and all necessary government filings and approvals have been completed and obtained.


3.2 The Company shall have the right to recruit Prospect Practices through any and all avenues, including but not limited to the efforts of its affiliated practices to recruit Prospect Practices and the use of other employees and recruitment representatives. Notwithstanding anything contained herein to the contrary, in the event that the Company is required to pay any recruiting commissions, fees, stock options or other amounts (collectively "Recruiting Commission") to any other persons or entities in connection with the solicitation and recruitment of any Prospect Practice ("Excluded Practice"), Employee shall not be eligible to receive any commission for such Excluded Practice; provided, however, referral commissions (up to 1% of Adjusted Gross Revenue) paid to affiliate ...