EXHIBIT 10.27
ACKNOWLEDGEMENT AND CLARIFICATION
OF REPURCHASE RIGHTS AGREEMENT
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THIS ACKNOWLEDGEMENT AND CLARIFICATION OF REPURCHASE RIGHTS AGREEMENT dated
as of October 31, 1997, is executed by and among GMS Dental Group, Inc., a
Delaware corporation (the "Company") and Xxxxx X. Xxxxxx and Xxxxxxx X. Xxxxx
("Shareholders"), with reference to the following facts:
RECITALS
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A. On August 31, 1996, the Company and Shareholders entered into Founder
Stock Purchase Agreements (the "Founder Stock Purchase Agreements") pursuant to
which Xx. Xxxxxx acquired 957,041 shares and Xx. Xxxxx acquired 410,160 shares
of the Company's Common Stock (the "GMS Common Stock").
B. Pursuant to Section 5 of the Founder Stock Purchase Agreements and
pursuant to that certain Common Stock Escrow Agreement by and among the Company
and the Shareholders dated October 11, 1996 (the "Escrow Agreement"), 495,431
shares of GMS Common Stock purchased by Xx. Xxxxxx and 266,770 shares of GMS
Common Stock purchased by Xx. Xxxxx (collectively, the "Shares") are subject to
certain repurchase rights of the Company (the "Repurchase Rights").
C. In September, 1996, the Company entered into certain employment offer
letters by and between the Company and each Shareholder, respectively (the
"Employment Letters").
D. On or about January 17, 1997, the Board of Directors of the Company
approved a modification to Exhibit A to the Escrow Agreement, a copy of which is
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attached hereto as Exhibit A, revising the Repurchase Right milestones (the
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"Revised Milestones").
E. On October 17, 1997 the Board of Directors of the Company approved a
merger (the "Merger") of the Company with and into Gentle Dental Service
Corporation, a Washington corporation ("GDSC") pursuant to which all shares of
GMS Common Stock outstanding immediately prior to the Merger will be exchanged
for shares of the common stock of GDSC (the "GDSC Common Stock").
F. The parties to this Agreement wish to hereby supplement the Founder
Stock Purchase Agreements and the Escrow Agreement in order to clarify that
notwithstanding anything to the contrary provided in the Founder Stock Purchase
Agreements, the Shares are subject to the Repurchase Rights as described in the
Escrow Agreement and to clarify that following the Merger, the shares of GDSC
Common Stock the Shareholders will receive in the Merger in exchange for the
Shares will be subject to the Repurchase Rights as clarified hereby.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agrees as
follows:
1. Repurchase Rights Clarification. The parties hereby agree that
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notwithstanding anything to the contrary provided in the Founder Stock Purchase
Agreements, the Escrow Agreement or the Employment Letters, the Shares are
subject to the Repurchase Rights as described in the Escrow Agreement, in
particular that the Repurchase Rights with respect to the
Vesting Stock (as defined in the Escrow Agreement and which include 393,250
shares of GMS Common Stock and 211,750 shares of GMS Common Stock, respectively,
for Xx. Xxxxxx and Xx. Xxxxx) shall continue to be governed by the Founder Stock
Purchase Agreements and that the Repurchase Rights with respect to the
Repurchase Rights Stock (as defined in the Escrow Agreement and which include
495,431 and 266,770 Shares, respectively, for Xx. Xxxxxx and Xx. Xxxxx) shall be
governed by the Escrow Agreement, as modified by the Revised Milestones, and
shall be exercisable regardless of whether Shareholder ceases to be a Service
Provider (as defined in the Founder Stock Purchase Agreements); provided,
however, the parties hereby acknowledge and agree that the Repurchase Rights
with respect to the Repurchase Rights Stock shall not become exercisable by the
Company unless and until there is a failure of the Company to achieve the
Revised Milestones in the time periods indicated in the Escrow Agreement. The
parties further agree that following the Merger the shares of GDSC Common Stock
the Shareholders will receive in the Merger in exchange for the Shares will be
subject to the Repurchase Rights as clarified hereby.
2. Counterparts. This Agreement may be executed in multiple counterparts,
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each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
3. Successors and Assigns. This Agreement shall be binding upon and inure
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to the benefit of the parties' successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Acknowledgement and
Clarification of Repurchase Rights Agreement as of the date first above written.
COMPANY:
GMS DENTAL GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx, President and
Chief Executive Officer
SHAREHOLDERS:
/s/ Xxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx
EXHIBIT A
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Financial Performance Objectives
The repurchase right as to the Performance Option Shares subject to
vesting based on financial performance objectives (the "Performance Objectives")
will expire in 1997 with respect to up to one-half (1/2) of the Performance
Option shares (the "Initial Amount") and in 1998 with respect to the remaining
half of the Performance Option Shares (the "Second Amount"), but only if the
following conditions are met:
(i) the aggregate consideration paid by the Company for acquired
dental practices from (x) inception through December 31, 1997 (with respect to
the Initial Amount) and (y) from inception through December 31, 1998 (with
respect to the Second Amount) does not exceed an amount equal to six (6)
multiplied by the aggregate of the earnings before interest, taxes, depreciation
and amortization ("EBITDA") for such practices for the immediately preceding
twelve (12) month period; and
(ii) Adjusted EBITDA (as defined below) exceeds seventy-five percent
(75%) of Target EBITDA (as defined below) for (x) the Company's fiscal year
ended December 31, 1997 (with respect to the Initial Amount) and (y) the
Company's fiscal year ended December 31, 1998 (with respect to the Second
Amount).
For purposes of this Exhibit A, the term "Target EBITDA" shall mean
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$6,298,000 for the fiscal year ended December 31, 1997 and $16,911,000 for the
fiscal year ended December 31, 1998. For purposes of this Exhibit A, the term
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"Adjusted EBITDA" shall mean the Company's EBITDA less corporate general and
administrative expenses (but excluding direct expenses incurred in connection
with the employment of a CEO, such as salary, bonus, travel and entertainment,
car allowance and costs of administrative assistant). All computation of EBITDA,
Target EBITDA and Adjusted EBITDA shall be based on audited financial statements
of the Company.
Vesting Formula
If the conditions set forth above are met, that number of shares of
the Initial Amount and Second Amount shall vest as of the dates indicated above
as follows:
Percentage of Target Percentage of Initial Amount or
EBITDA Achieved by Company Second Amount Shares Which Will Vest
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75% or less of Target EBITDA 0%
100% of Target EBITDA or greater 100%
Greater than 75%, but less than 100% The percentage which will vest shall decrease
linearly to 0% as the percentage of Target EBITDA
achieved decreases from 100% to 75%
A-1
