EXHIBIT 10.22
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 between GMS Dental Group, Inc., a
Delaware corporation (the "Company") and Xxxxxxx X. Xxxxx ("Shareholder"), with
reference to the following facts:
RECITALS
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A. On April 1, 1997, the Company granted to Shareholder performance stock
options for 75,000 shares of the Company's Common Stock (the "GMS Common Stock")
pursuant to that certain Incentive Stock Option Agreement, dated April 1, 1997,
by and between the Company and Shareholder (the "Incentive Stock Option
Agreement") and Shareholder exercised such options on the same date and acquired
75,000 shares of GMS Common Stock (the "Shares").
B. Pursuant to the Incentive Stock Option Agreement, the Shares are
subject to certain repurchase rights of the Company (the "Repurchase Rights").
C. 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").
D. The parties to this Agreement wish to hereby supplement the Incentive
Stock Option Agreement in order to clarify that following the Merger, the shares
of GDSC Common Stock the Shareholder will receive in the Merger in exchange for
the Shares will be subject to the Repurchase Rights.
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. Following the Merger, the shares
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of GDSC Common Stock the Shareholder will receive in the Merger in exchange for
the Shares will be subject to the Repurchase Rights; provided, however, the
parties hereby acknowledge and agree that the Repurchase Rights shall not become
exercisable by the Company unless and until there is a failure of the Company to
achieve the milestones in the time periods indicated in the Incentive Stock
Option Agreement and attached hereto as Exhibit A.
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2. Counterparts. This Agreement may be executed in multiple
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counterparts, 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
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inure 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
SHAREHOLDER:
/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) or (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
