Guardian Pharmacy Services, Inc S-1/A, filed Sep 16, 2024
Guardian Pharmacy Services, Inc. (GRDN)
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As filed with the Securities and Exchange Commission on September 16, 2024.
Registration No. 333-274847
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GUARDIAN PHARMACY SERVICES, INC.
(Exact name of registrant as specified in its charter)
| Delaware |
5912 | 87-3627139 | ||
| (State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
300 Galleria Parkway SE
Suite 800
Atlanta, Georgia 30339
(404) 810-0089
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Fred P. Burke
President and Chief Executive Officer
Guardian Pharmacy Services, Inc.
300 Galleria Parkway SE
Suite 800
Atlanta, Georgia 30339
(404) 810-0089
(Name, address, including zip code, and telephone number, including area code, of agent for service)
COPIES TO:
| Mark L. Hanson, Esq. Jones Day 1221 Peachtree Street NE, Suite 400 Atlanta, Georgia 30361 (404) 521-3939 |
Anna T. Pinedo, Esq. Mayer Brown LLP 1221 Avenue of the Americas New York, New York 10020-1001 (212) 506-2500 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |||
| Emerging growth company | ☒ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
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EXPLANATORY NOTE
We currently operate as Guardian Pharmacy, LLC, an Indiana limited liability company. For purposes of this offering, we formed Guardian Pharmacy Services, Inc., a Delaware corporation, which is the registrant whose name appears on the cover of this registration statement (the “Registrant”). Immediately prior to the completion of this offering, we will complete a series of internal reorganization transactions pursuant to which, among other things, Guardian Merger Corp., an Indiana corporation and wholly owned subsidiary of the Registrant, will merge with and into Guardian Pharmacy, LLC, with Guardian Pharmacy, LLC as the surviving entity. As a result of the merger, Guardian Pharmacy, LLC will become a wholly owned subsidiary of the Registrant, and the members of Guardian Pharmacy, LLC immediately prior to the consummation of this offering will become holders of shares of Class B common stock of the Registrant. We refer to these transactions throughout the prospectus as the “Corporate Reorganization.” See the section of the prospectus titled “Corporate Reorganization” for further detail regarding these transactions.
Except as disclosed in the prospectus, the consolidated financial statements, summary historical consolidated financial data and other financial information included in this registration statement are those of Guardian Pharmacy, LLC and its subsidiaries and do not give effect to the Corporate Reorganization.
Shares of the Class A common stock of Guardian Pharmacy Services, Inc. are being offered hereby.
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion Preliminary Prospectus Dated September 16, 2024
P R O S P E C T U S
6,750,000 Shares
Class A Common Stock
This is Guardian Pharmacy Services, Inc.’s initial public offering. We are selling 6,750,000 shares of our Class A common stock.
We expect the public offering price to be between $14.00 and $16.00 per share. Currently, no public market exists for the shares. We have been approved to list our Class A common stock on the New York Stock Exchange (“NYSE”) under the symbol “GRDN.”
Upon completion of this offering, we will have two classes of common stock outstanding: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock will be identical, except for certain transfer restrictions and conversion terms applicable to Class B common stock. Each share of Class A common stock and Class B common stock entitles its holder to one vote on all matters presented to our stockholders generally.
Immediately following this offering, we expect that a group of holders of Class B common stock including certain of our executive officers and directors and their affiliates, who we refer to as the “Guardian Founders,” will, pursuant to a stockholders’ agreement, collectively control a majority of the voting power of shares eligible to vote in the election of our directors. As a result, we will be a “controlled company” within the meaning of the corporate governance rules of the NYSE. See “Management—Stockholders’ Agreement and Controlled Company Exemption.”
We are an “emerging growth company” as defined under the federal securities laws and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and may elect to do so in future filings.
Investing in our Class A common stock involves risks that are described in the “Risk Factors” section beginning on page 25 of this prospectus.
| Per Share |
Total | |||||||
| Public offering price |
$ | $ | ||||||
| Underwriting discount |
$ | $ | ||||||
| Proceeds, before expenses, to us |
$ | $ | ||||||
At our request, the underwriters have reserved up to 10% of the shares of Class A common stock being offered by this prospectus for sale at the initial public offering price to our directors, officers and certain of our employees and other persons associated with us. See “Underwriting—Directed Share Program.”
The underwriters may also exercise their option to purchase up to an additional 1,012,500 shares of Class A common stock from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2024.
Raymond James
| Stephens Inc. | Truist Securities |
The date of this prospectus is , 2024
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You should rely only on the information contained in this prospectus or contained in any free writing prospectus that we have filed with the Securities and Exchange Commission (the “SEC”). Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the Class A common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of its date regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
We are offering to sell, and seeking offers to buy, our Class A common stock only in jurisdictions where such offers and sales are permitted. For investors outside the United States, neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside the United States who come into possession of this prospectus and any free writing prospectus related to this offering are required to inform themselves about, and to observe any restrictions related to, the offering of the shares of our Class A common stock and the distribution of this prospectus and any such free writing prospectus outside of the United States.
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Basis of Presentation
Guardian Pharmacy Services, Inc., a Delaware corporation formed for purposes of this offering (“Guardian Inc.”), is currently a direct, wholly owned subsidiary of Guardian Pharmacy, LLC, an Indiana limited liability company (“Guardian Pharmacy, LLC”). Immediately prior to the completion of this offering, we will complete a series of internal reorganization transactions pursuant to which, among other things, Guardian Pharmacy, LLC will become a wholly owned subsidiary of Guardian Inc. and the members of Guardian Pharmacy, LLC immediately prior to the consummation of this offering will become holders of shares of Class B common stock of Guardian Inc. We refer to these transactions throughout this prospectus as the “Corporate Reorganization.” See “Corporate Reorganization” for further detail regarding these transactions.
Except as disclosed in this prospectus, the consolidated financial statements and summary historical consolidated financial data and other financial information included in this prospectus are those of Guardian Pharmacy, LLC and its subsidiaries and do not give effect to the Corporate Reorganization. Prior to the Corporate Reorganization, Guardian Inc. has not conducted any activities other than in connection with its incorporation and in preparation for this offering. Shares of the Class A common stock of Guardian Inc. are being offered by this prospectus.
As used in this prospectus, unless otherwise indicated or the context otherwise requires, references to “we,” “us,” “our,” “Guardian,” the “Company” or similar terms refer: (i) prior to the Corporate Reorganization discussed elsewhere in this prospectus, to Guardian Pharmacy, LLC and its subsidiaries; and (ii) following the Corporate Reorganization, to Guardian Inc., the issuer of the Class A common stock offered hereby, and its subsidiaries. We also refer to Guardian Inc. as the “Issuer.” References to our certificate of incorporation and bylaws refer to our amended and restated certificate of incorporation and amended and restated bylaws, in each case to be effective upon the completion of this offering.
Statements regarding the number of residents we served as of a given date reflect the number of residents served during the last month of the period ending on such date.
Industry and Market Data
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations, market position and market opportunity, is based on our management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. Our management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. While we believe the industry, market and competitive position data included in this prospectus is reliable and based on reasonable assumptions, we have not independently verified data from third-party sources. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the third parties and by us.
Trademarks, Service Marks and Trade Names
This prospectus includes references to trademarks, service marks and trade names that we use in connection with the operation of our business, including without limitation, Guardian Pharmacy,
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Guardian Pharmacy Services, GuardianShield, Guardian Compass and our logos, which are our property and are protected under applicable intellectual property laws. This prospectus also may contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are referred to without the TM, SM and ® symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
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Dear potential investors,
I am extremely excited about the next chapter in Guardian’s life, as I believe this proposed public company structure represents a strategic turning point in our history. We believe that establishing a public market for shares of our common stock will best position Guardian to advance our business as an independent entity, while continuing our growth, providing individualized services to our constituents, capitalizing on our competitive position and opportunities, and creating value for our equityholders. Allow me to further explain.
Guardian is my third major entrepreneurial venture, and the second for this Executive Management Team. Kendall, David and I have worked together now for over 30 years, building two successful pharmacy companies. In 2004, we launched Guardian based on considerable learning from our previous ventures, with one of the key guiding principles being significant employee ownership. We have built this business with a total of $68 million of cash invested as equity capital and rollover capital from acquired pharmacies, the vast majority of which has been returned to our investors. We have achieved scale, with trailing twelve-month revenue through June 30, 2024 surpassing $1.1 billion, we have modest debt and we are continuing to create attractive growth year-to-date in 2024. We believe we have an impressive record of creating value and effectively managing capital.
Guardian has an important mission: to provide an extensive suite of services to residents of long-term care facilities to improve their adherence to their appropriate drug regimen, thereby helping reduce costs and improve clinical outcomes. We have a strong culture of service to our elderly residents who benefit greatly from our services. We believe we are the only company in our industry of national scale and purpose-built to serve the individual needs of assisted living, behavioral health and group home residents. In a large and fragmented market, we think we are exceedingly well-positioned with a compelling opportunity for continued growth.
Our employee ownership business model has been an important keystone in our business strategy. With this public offering, we believe our approximately 230 existing employee owners, most of whom have been with us for many years, will propel the company forward, motivated by:
| • | The ability to validate and quantify their investment in our business, along with the opportunity to further increase its value as we execute on our growth strategy; and |
| • | The ability to participate in a new long-term incentive program, allowing for additional employee equity ownership grants in our publicly-traded company. We have designed our long-term incentive program to be heavily weighted to our three- to five-person local pharmacy-based management teams that champion the delivery of services to our customers. |
We believe this offering will be impactful to our employee owners, our future team members and to the growth of our business as prospective acquisition partners will have enhanced visibility regarding our platform capabilities. We are excited about the future, and the opportunity to partner with new public investors whose capital we shall endeavor to deploy as good stewards with the same commitment that we have since our founding.
We appreciate this opportunity and look forward to “writing the next chapter” in Guardian’s life, now as a public company.
Fred P. Burke
President & CEO
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This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before deciding to invest in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as our historical consolidated financial statements and the related notes thereto included elsewhere in this prospectus, before making an investment decision.
Overview
We are a leading, highly differentiated pharmacy services company that provides an extensive suite of technology-enabled services designed to help residents of long-term health care facilities (“LTCFs”) adhere to their appropriate drug regimen, which in turn helps reduce the cost of care and improve clinical outcomes. We emphasize high-touch, individualized clinical, drug dispensing and administration capabilities that are tailored to serve the needs of residents in historically lower acuity LTCFs, such as assisted living facilities (“ALFs”), and behavioral health facilities and group homes (collectively “BHFs”). More than two-thirds of our annual revenue for each of the past three years has been generated from residents of ALFs and BHFs, which are our target markets, while the remainder has been generated primarily from residents of skilled nursing facilities (“SNFs”). Additionally, our robust capabilities enable us to serve residents in all types of LTCFs. We are a trusted partner to residents, LTCFs and health plan payors because we help reduce errors in drug administration, manage and ensure adherence to drug regimens, and lower overall healthcare costs. As of June 30, 2024, our 50 pharmacies served approximately 174,000 residents in approximately 6,700 LTCFs across 36 states.
Within the U.S. LTCF market, we believe the ALF and BHF sectors present the most attractive opportunity and have the highest growth potential for our business. Certain characteristics of ALFs and BHFs, which are not typical of SNFs, create additional challenges and complexities for pharmacy service providers that Guardian is well suited to address. First, residents at ALFs are typically on a variety of different pharmacy benefit plans, each with a distinct formulary and reimbursement process, covering their complex drug regimens. Second, ALFs often lack staff with formal clinical training and usually do not have an on-site medical director or full-time nurse. Because residents of ALFs rely on off-site physicians to oversee and monitor their health conditions, there is an increased need for coordination among ALF operators, each resident’s physicians and pharmacy service providers. Third, residents in these facilities have the right to choose their own pharmacy, which often leads to multiple pharmacy service providers serving a single ALF.
We believe that Guardian enjoys a strong competitive position as a large and purpose-built provider of pharmacy services to ALFs and BHFs. We offer a variety of services that we believe address the challenges that ALFs and BHFs face, and differentiate us from our competitors, providing residents, LTCFs and health plan payors with a compelling value proposition. Our centralized corporate support capabilities empower our local pharmacy operators to offer an extensive suite of high-touch, individualized, consultative pharmacy services, using a portfolio of proprietary data analytics systems and technology designed to help ensure that the right dose of the right medication is provided to the right resident at the right time. Examples of our specialized services include:
| • | Assisting residents in optimizing pharmacy benefit plan coverage of their medication by coordinating formulary interchanges with residents’ physicians; |
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| • | Proactively analyzing potential adverse drug interactions and managing potential risks in medication administration; |
| • | Providing robotic dispensing and customized compliance solutions, organized by resident and time of administration; |
| • | Integrating a resident’s drug regimen with the LTCF’s Electronic Medication Administration Records (“EMARs”) to help ensure adherence; |
| • | Providing training for LTCF caregivers to help them administer medications to residents more safely, efficiently and cost-effectively; |
| • | Partnering with LTCF operators to increase the number of residents using our services at each facility we serve, which we refer to as “resident adoption,” in order to streamline drug administration and minimize medication management risk; |
| • | Conducting mock audits of LTCFs to monitor compliance with drug administration and government regulation; and |
| • | Reviewing periodically the drug regimen for each resident by consulting pharmacists. |
Our Financial Performance and Growth
We have achieved significant and consistent growth since 2004 when we entered the ALF market with our first pharmacy in Phoenix, Arizona. As of June 30, 2024, we own 50 pharmacies and serve residents located in 36 states.
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Our revenue for the year ended December 31, 2023 was $1.046 billion, compared to $908.9 million for the year ended December 31, 2022, our net income for the year ended December 31, 2023 was $37.7 million, compared to $49.7 million for the year ended December 31, 2022, and our adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the year ended December 31, 2023 was $76.2 million, compared to $65.7 million for the year ended December 31, 2022. In addition, our operating results for the six months ended June 30, 2024 continued our strong track record of growth, with revenue of $575.4 million, net income of $22.9 million, Adjusted EBITDA of $41.9 million and residents served of approximately 174,000. See “Prospectus Summary—Summary Historical Consolidated Financial and Other Data—Adjusted EBITDA and Other Non-GAAP Financial Measures” for more information and for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”).
We have built our business since inception with $68 million of cash invested as equity capital and rollover capital from acquired pharmacies, the vast majority of which has already been returned to Guardian’s equityholders from cash we have generated. As of June 30, 2024, we have modest leverage with debt of $52.0 million. We have long believed in promoting employee ownership and immediately prior to this offering we will have approximately 230 equityholders, substantially all of whom are active officers, members of local pharmacy management or employees of the Company. Following the completion of this offering, our existing equityholders, who will become holders of our Class B common stock, will be subject to certain extended transfer restrictions. See “Description of Capital Stock—Common Stock—Transfer Restrictions and Conversion of Class B Common Stock.”
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Our Workflow Lifecycle and Pharmacy Support
Through our locally-based pharmacies, we utilize a complex, technology-enabled platform to manage the dispensing and administration of prescriptions to residents of LTCFs over the full prescription lifecycle in order to manage medication risk.
The scale of our business has enabled us to make significant investments to equip our pharmacies with dynamic technologies designed to drive superior operational efficiencies in pharmacy workflow management. Key areas of investment include logistics management, revenue cycle management, automated robotic dispensing technology, compliance packaging, pharmacy workflow software, EMAR integration capabilities, cybersecurity infrastructure and disaster recovery business continuity.
Our strategic approach is to provide centralized corporate support to our local pharmacy operators, including revenue cycle management, data analytics, IT operations, financial oversight and analysis, capital management, leadership support and training, purchasing power, legal and regulatory support and human capital management and recruiting. We believe this approach allows us to benefit from local touch and customer-centric decision making, thereby enhancing our ability to manage local, regional and national account relationships, improve resident adoption rates in individual facilities and help ensure drug regimen adherence.
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Leveraging Our Data Warehouse to Deliver Insights
Our business model is supported by our proprietary centralized data warehouse, which facilitates the delivery of our technology-enabled services to LTCFs and their residents. Our data warehouse collects and consolidates extensive data related to pharmacy operating systems, purchasing and inventory management, finance and business planning, pharmacy benefit plan reimbursement, sales and customer relationship management, human resources and payroll, and banking. Information is analyzed and interpreted on a daily or real-time basis and reports, dashboards and analytics are available to team members throughout Guardian. We have been investing in and improving our technology-enabled data warehouse and metric-driven approach for over 10 years and believe that as it continues to evolve, it represents a key competitive advantage of Guardian.
Our Guardian Compass platform offers insights to enhance efficiencies for our pharmacies, including proprietary real-time operational dashboards and metrics. Our suite of GuardianShield products offers customer and clinical services that benefit both the residents we serve and their caregivers.
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Below are select examples of the insights and analytics we are able to produce from our GuardianShield platform for the six months ended June 30, 2024 on a Company-wide basis.
GuardianShield Examples
Our Market Opportunity
We believe we have an attractive market opportunity for continued growth. IBISWorld, an independent publisher of industry research reports, estimated as of July 2024 that U.S. institutional pharmacy market revenues would be approximately $24.8 billion in 2024. The U.S. institutional pharmacy market is comprised of pharmacies that provide a range of distribution and drug administration services to residents of nursing homes and other healthcare environments that do not have on-site pharmacies. The Centers for Medicare & Medicaid Services (“CMS”) mandates 10 rules and service capabilities to qualify for participation as a Part D Network LTC Pharmacy (“NLTCP”) provider, as differentiated from traditional Part D and commercial reimbursement. CMS designates an institutional level of care as a “distinct pharmacy setting” and requires payors to compensate designated long-term care pharmacies for the specific services they are required to provide to LTCF residents. In addition, CMS requires that payors maintain network adequacy to serve LTCF residents. This LTCF institutional pharmacy market is currently served by Guardian, two national pharmacy services providers historically focused on serving the needs of SNFs, several regional providers, and over 1,200 independent pharmacies.
Industry research indicates that revenues in our target market, the U.S. ALF industry, are projected to have a compound annual growth rate (“CAGR”) of more than 5% from 2023 to 2030. Of the more than 800,000 residents residing in ALFs in the U.S. in 2024, we serve approximately 115,000, with the remainder of the residents we serve residing in other types of LTCFs. We believe that our existing market share, the size of our market opportunity, our strategic approach to high-touch, individualized services and favorable market dynamics provide Guardian with a significant opportunity for future growth.
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We believe that in long-term care settings, proper coordination of drug administration is critical to managing the overall health and wellbeing of residents. Residents of LTCFs are at high risk for adverse drug events given the complex mix of medications prescribed by the various physicians responsible for their care. Lapses in care or incorrect administration can result in serious adverse drug events, which can result in hospitalization and have significant implications on both the quality and duration of life, in addition to the overall cost of healthcare.
In comparison to historically higher acuity settings such as SNFs, ALFs in particular face challenges in the pharmacy administration lifecycle. ALFs were initially conceived of as senior living facilities providing stimulation, hospitality and community for elderly individuals who no longer desired, or were capable of, independent living. However, over time, these facilities have expanded their services to increasingly address the health needs of an ever-growing number of older and higher acuity residents who need assistance with medical care and activities of daily living.
With ever increasing levels of acuity, ALF residents today require greater assistance in maintaining their drug regimens, and consistency and accuracy in drug administration is now a key service that ALFs provide to their residents. There are several specific ongoing industry trends that we believe will continue to drive the increased need for ALFs, as well as BHFs, to act as caregivers, and in turn help drive demand for the associated and critical pharmacy services that we provide:
| • | Aging demographics and increases in the number of assisted living residents; |
| • | Increasing median ages of ALF residents, requiring greater emphasis on healthcare delivery and associated coordination of complex drug regimens; |
| • | Improving life expectancy and enhanced quality of care, which increases duration and acuity of treatment required for residents in historically lower acuity settings like ALFs and BHFs; and |
| • | Highly fragile population of individuals with behavioral health needs at BHFs. |
We believe our services help to enhance drug regimen adherence, reduce costs of care and improve clinical outcomes. According to Public Health Reports, the official journal of the Office of
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the U.S. Surgeon General and the U.S. Public Health Service, up to $300 billion of avoidable health care costs can be attributed to non-adherence to prescription protocols annually. According to the National Council for Mental Wellbeing, every dollar spent on medication adherence could save $4 to $7 in overall treatment costs. In addition, formulary choice and compliance by residents can save significant expense.
Our Growth Strategy
Our core growth strategy is focused on increasing the number of residents we serve. Historically, this has been driven by both organic growth and acquired growth. Organic growth represents the increase in the number of residents served at existing locations, start-up “greenfield” locations and acquired locations subsequent to the acquisition date. Residents served increased from 52,000 as of December 31, 2014 to 174,000 as of June 30, 2024, with 77,000 residents through organic growth and 45,000 residents through acquired growth.
Our organic and acquired growth in residents served was negatively impacted by the COVID-19 pandemic as our resident count decreased from 132,000 to 123,000 during the nine-month period ended December 31, 2020. From December 31, 2020 to June 30, 2024, we increased our number of residents served from 123,000 to 174,000, with 40,000 residents through organic growth and 11,000 residents through acquired growth.
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The three key pillars that we expect to continue to drive our growth are:
| • | Increase regional and large ALF accounts. |
| Our sales teams actively engage in marketing efforts to build relationships with local, regional and national ALFs and BHFs. Our local ALF target customers typically operate a single ALF or a small number of ALFs but are generally characterized by their focus on a specific local area. Conversely, large multi-location ALFs operate with a regional or national footprint. We currently serve facilities operated by Brookdale Senior Living, Life Care Services, Sunrise Senior Living and numerous other regional and national providers. We believe that our customer-oriented business model, which is able to serve large numbers of residents across geographic regions, provides a competitive advantage as we continue to develop and expand relationships with ALF operators. In particular, we believe there are significant opportunities to expand our business serving local, regional and national ALF accounts. |
| Our ability to contract with new, and grow our business with existing, large, multi-location accounts is illustrated by our more than doubling the number of residents we served at large, multi-location accounts from approximately 15,000 residents beginning in 2018 to approximately 37,000 residents during the month ended June 30, 2024. As we continue to build out our national footprint, we believe we are an increasingly attractive provider to ALF operators that value our services and approach, but prefer a vendor with a broad geographic reach. |
| • | Increase resident adoption of our services in ALF accounts. |
| We measure, analyze and track resident adoption rates at each ALF we serve. Each of our pharmacies has a dedicated management team focused on increasing our resident adoption through targeted marketing efforts, leveraging internally generated data, and demonstrating our value proposition to ALFs, residents and caregivers. Through our direct marketing efforts to ALFs and residents, we have achieved a resident adoption rate of 88% at ALFs we serve as of June 30, 2024. We believe our success in increasing resident adoption is one of our key strengths. |
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| • | Ongoing geographic expansion. |
| For both our acquisition program and our greenfield initiatives, we focus on expanding our market share and increasing profitability through strategic evaluation and implementation of opportunities to acquire and build out new pharmacies in existing and underserved markets. |
| Our geographic expansion to date has relied on a two-pronged business development strategy comprised of (1) finding qualified local pharmacy operators to partner with and (2) growing with our existing pharmacy operators into new markets. Once we have identified a new partner, we seek to either acquire their pharmacy or develop a startup pharmacy with them. In addition, we seek to grow into new markets with our existing pharmacy partners through acquisitions or startups. |
| Upon acquisition, we are typically able to significantly enhance the profitability and margin of an acquired pharmacy by implementing our IT services and leveraging our purchasing, revenue cycle management and national sales capabilities. These synergies are often substantially realized within a 36-month period from acquisition and represent a substantial opportunity for us and our acquired pharmacy partners. We have completed 30 acquisitions since inception. |
Based on prescription volume information reported by NIC MAP Vision (“NIC MAP”) for ALFs and memory care facilities (“ALF/MC”), we believe we are the largest LTCF pharmacy in the United States in terms of market share serving ALF/MC, with an approximate 12.2% market share nationally. Of our 39 pharmacies that have been operating for at least four years, and based on the same NIC MAP data, 32 Guardian pharmacies have achieved market share leadership in the metropolitan statistical areas (“MSAs”) that they serve (“ALF/MC market share”), 35 have achieved a 20% or greater ALF/MC market share, and 13 have achieved a 30% or greater ALF/MC market share. In addition, we believe we currently have in excess of 10% ALF/MC market share in 22 states and in excess of 25% ALF/MC market share in 11 states. We also believe our growth strategy and operational focus position us to capture additional market share and believe that our total addressable market gives us the opportunity for significant further growth.
Following the completion of this offering, we intend to continue executing on our growth strategy by seeking to acquire existing pharmacies and partner with our local pharmacy operators to open greenfield start-up pharmacies. We anticipate that we may structure these acquisitions and greenfield start-ups in a manner similar to our business development strategy prior to this offering in which we typically acquire majority interests in the pharmacies. Typically, the seller of a pharmacy we acquire will retain, and the operating partner for a greenfield start-up pharmacy will purchase or be issued, a minority equity interest in the pharmacy. We expect that within three to five years after acquisition or start-up of a pharmacy, we would purchase those minority interests and become the sole owner of the pharmacy. We believe this business development model makes Guardian an attractive partner to pharmacy owners and operators considering sale alternatives and start-up opportunities, and incentivizes those partners, and the subsidiary pharmacy employees to whom incentive equity interests in the pharmacy may be issued, to promote the subsidiary pharmacy’s growth and adoption of our proven operating strategies as we complete full integration and ownership of the pharmacy. By empowering local management, we believe this structure also fosters entrepreneurial practices consistent with those that have contributed to our successful organic growth. For more information, see “Business—Our Growth Strategy.”
In addition, we believe our investments in human capital, technology, and service capabilities position us to continue to pursue rapid innovation and potentially expand our business as a health
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care service provider in the post-acute care sector. While to date we have primarily focused on serving the LTCF markets, we recognize the continued evolution of healthcare delivery in which alternate sites of care are increasingly relevant. For example, we believe that our core capabilities and value proposition are applicable to the large and expanding hospice, Intellectual and Developmental Disabilities (“IDD”), and Program of All-Inclusive Care for the Elderly (“PACE”) markets. We have initiatives ongoing in these complementary markets to identify and pursue expansion opportunities.
Guardian Pharmacy Locations
Our Experienced Management Team
We have an exceptional leadership team, both at the corporate and local levels, with a proven history of industry leadership and operational excellence.
| • | Highly experienced and entrepreneurial executive leadership. We are led by highly experienced and entrepreneurial executive officers, each of whom has more than 30 years of experience founding and leading successful companies in the pharmacy industry. Prior to our inception, Fred Burke, our President and Chief Executive Officer, David Morris, our Executive Vice President and Chief Financial Officer, and Kendall Forbes, our Executive Vice President of Sales & Operations, began working together in 1993 on a previous pharmacy venture that was acquired by Bindley Western Industries (“Bindley Western”) in 1999. |
| • | Experienced local pharmacy leadership teams. We have strong management teams in place at the local level, with the majority of local pharmacy presidents having been in their positions for over a decade. The importance and strength of our local leadership was highlighted during the |
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| COVID-19 pandemic as local management teams were empowered to make decisions in real-time that were specific to the evolving pandemic-driven conditions and regulations in their markets, in order to maintain our high service levels for our customers and residents. |
| • | Strong corporate support group. We are supported by a team of more than 100 corporate employees who collectively bring deep experience in relevant areas such as technology, pharmacy operations, supply chain, data analytics, legal, regulatory/compliance, revenue cycle management and network contracting, purchasing, marketing, real estate, human resources, leadership development and finance. |
| • | Support from a sophisticated group of investors. We have been primarily capitalized by Bindley Capital Partners, LLC, a private investment firm led by William Bindley, who serves as our Chairman of the Board and has provided significant strategic leadership. Mr. Bindley, a pioneer in the healthcare services industry, was the founder, chairman and chief executive officer of Bindley Western, a pharmaceutical distribution and services company acquired by Cardinal Health, Inc. for $2.1 billion in 2001. He also served as an executive and the chairman of Priority Healthcare Corporation, a specialty pharmacy services company that was spun-off from Bindley Western in 1998 and acquired by Express Scripts, Inc. for $1.3 billion in 2005. In addition, Cardinal Equity Partners, along with Fred Burke, David Morris and Kendall Forbes, have made significant capital investments in Guardian. Collectively, this group of investors has extensive experience and expertise in the healthcare services industry. |
Risks Associated with Our Business
Our business is subject to numerous risks, as more fully described in the section titled “Risk Factors” immediately following this prospectus summary. You should carefully consider all of the risks discussed in the “Risk Factors” section before investing in our Class A common stock. These risks include, among others:
| • | We face intense competition in our markets, which could negatively impact our business and significantly limit our growth; |
| • | Our prescription volumes may decline, and our operating results may be negatively impacted, if products are withdrawn from the market or if increased safety risk profiles of specific drugs result in utilization decreases; |
| • | If we lose relationships with one or more pharmaceutical wholesalers or key manufacturers, or if such wholesalers or manufacturers refuse to extend our relationships on the same or similar terms, our business and financial results could be materially and adversely affected; |
| • | Our operating results may suffer if we fail to maintain certain relationships and contracts with LTCFs we serve; |
| • | The COVID-19 pandemic negatively impacted LTCFs and harmed our business. Another similar public health crisis or national emergency could have a negative impact on our business; |
| • | The impact of ongoing healthcare reform efforts on our business cannot accurately be predicted; |
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| • | Continuing government and private efforts to lower pharmaceutical costs, including by limiting reimbursements, may adversely impact our profitability, results of operations and financial condition; |
| • | Our operations are subject to extensive governmental regulation and oversight, and our failure to comply with applicable requirements could harm our business; |
| • | Further modifications to the Medicare Part D program may reduce our revenue and impose additional costs to our industry, which could adversely affect our operating results; |
| • | We are highly dependent on our senior management team, our local pharmacy management teams and our pharmacy professionals, and the loss of key personnel could cause our business to suffer; |
| • | We could be adversely affected by product liability, product recall, personal injury or other health and safety issues, including as a result of errors in the dispensing and packaging of pharmaceuticals; |
| • | Supply chain and other manufacturing disruptions related to the pharmaceuticals we dispense could adversely impact our business; |
| • | We will be a holding company and, accordingly, we will depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments, if any; and |
| • | After the completion of this offering, pursuant to the Stockholders’ Agreement (as defined below), a group of holders of Class B common stock including certain of our executive officers and directors and their affiliates, who we refer to as the “Guardian Founders” will control a majority of the voting power of shares of our common stock eligible to vote in the election of our directors and on other matters submitted to a vote of our stockholders, and their interests may conflict with yours in the future. |
Implications of Being an Emerging Growth Company
We are an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, for as long as we qualify as an EGC, we are entitled to take advantage of certain exemptions from various reporting requirements that are applicable to other publicly-traded entities that are not EGCs. These exemptions include:
| • | The option to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus; |
| • | Not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended; |
| • | Not being required to comply with new or revised accounting standards applicable to public companies at required public company adoption dates; |
| • | Not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; |
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| • | Not being required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes”; and |
| • | Not being required to disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. |
We currently intend to take advantage of all of the exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you invest. As a result, we do not know if some investors will find our Class A common stock less attractive. The result may be a less active trading market for our Class A common stock, and the price of our Class A common stock may become more volatile.
We could remain an EGC for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common equity that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (c) the date on which we have issued more than $1.0 billion in non-convertible debt securities during any three-year period.
Corporate Reorganization
We currently operate as Guardian Pharmacy, LLC, an Indiana limited liability company (“Guardian Pharmacy, LLC”). The membership interests of Guardian Pharmacy, LLC currently consist of common units (“Common Units”) and preferred units (“Preferred Units”). Guardian Inc., which will issue the shares offered hereby, is currently a direct, wholly owned subsidiary of Guardian Pharmacy, LLC and was formed to complete the Corporation Reorganization and the offering being made hereby.
Prior to this offering, we have conducted our business through our majority owned and wholly owned subsidiaries. Immediately prior to the completion of this offering, we will complete the following transactions, which we refer to throughout this prospectus as the “Corporate Reorganization”:
| • | All Preferred Units will convert into Common Units, resulting in Guardian Pharmacy, LLC having only Common Units outstanding; |
| • | The membership interests held by members other than Guardian Pharmacy, LLC of our subsidiaries (other than certain subsidiaries that will not be parties to the Corporate Reorganization, as discussed below) will convert into Common Units of Guardian Pharmacy, LLC. The subsidiaries participating in the Corporate Reorganization are referred to as the “Converting Subsidiaries”; |
| • | Guardian Pharmacy, LLC will merge with a transitory merger subsidiary and will survive the merger as a wholly owned subsidiary of Guardian Inc. Pursuant to the merger, each Common Unit of Guardian Pharmacy, LLC will be converted into (i) one share of Class B common stock of Guardian Inc. and (ii) the right to receive $1.02 in cash, without interest (collectively, the “Merger Consideration”). The aggregate cash portion of the Merger Consideration will be $55.2 million. We will use a portion of the net proceeds from this offering to pay such amount. See “Use of Proceeds.” |
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As a result of the Corporate Reorganization, Guardian Inc. will be a holding company and the sole manager of Guardian Pharmacy, LLC, with no material assets other than its 100% interest in Guardian Pharmacy, LLC; and Guardian Pharmacy, LLC will wholly own and be the sole member of each of the Converting Subsidiaries. In addition, Guardian Pharmacy, LLC will continue to be the majority owner of each of the subsidiaries that are not participating in the Corporate Reorganization (the “Non-Converting Subsidiaries”).
Giving effect to the Corporate Reorganization and this offering (assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock), holders of our Class A common stock, who will initially consist of investors purchasing such shares in this offering, will own approximately 11% of our outstanding shares of common stock in aggregate. Holders of our Class B common stock will consist of the legacy unitholders of Guardian Pharmacy, LLC prior to the Corporate Reorganization and the former members of our Converting Subsidiaries other than Guardian Pharmacy, LLC. Such holders of Class B common stock will own approximately 89% of our outstanding shares of common stock in aggregate. The aggregate number of shares of Class B common stock to be issued in connection with the Corporate Reorganization, including the number of such shares to be issued to each individual member of Guardian Pharmacy, LLC, will be impacted by the public offering price of shares of Class A common stock in this offering. Accordingly, the share information presented herein is based on an assumed public offering price of $15.00 per share, and may be subject to adjustment. Any such adjustments are not expected to be material.
The Non-Converting Subsidiaries collectively own nine pharmacies that are (i) greenfield start-up pharmacies in various stages of development and integration with Guardian and do not currently have material operations or (ii) pharmacies that we recently acquired. After a period of time sufficient to allow such pharmacies to adopt our operating practices and experience meaningful growth in residents served and earnings, we expect to acquire the minority membership interests of such Non-Converting Subsidiaries.
While the shares of Class A common stock offered hereby are being registered with the SEC and are expected to trade on the NYSE, our shares of Class B common stock will not be registered or traded on the NYSE. The certificate of incorporation of Guardian Inc. will provide that shares of Class B common stock will automatically convert on a one-for-one basis into shares of Class A common stock over a two-year period. With respect to each holder being issued shares of Class B common stock in the Corporate Reorganization, 25% of such holder’s shares of Class B common stock will convert into shares of Class A common stock on each of the following dates: (i) the date that is 6 months after the date of the closing of this offering (the “closing date”); (ii) the date of the one-year anniversary of the closing date; (iii) the date that is 18 months after the closing date; and (iv) the date of the two-year anniversary of the closing date. See “Description of Capital Stock—Common Stock—Transfer Restrictions and Conversion of Class B Common Stock” for more information.
Corporate Information
We were originally formed as Guardian Pharmacy, LLC, an Indiana limited liability company, on July 21, 2003. On November 16, 2021, we formed Guardian Pharmacy Services, Inc., or Guardian Inc., as a direct, wholly owned subsidiary of Guardian Pharmacy, LLC. As a result of the Corporate Reorganization, Guardian Inc. will be a holding company and the sole manager of Guardian Pharmacy, LLC, with no material assets other than its 100% interest in Guardian Pharmacy, LLC; and Guardian Pharmacy, LLC will wholly own and be the sole member of each of the Converting Subsidiaries. In addition, Guardian Pharmacy, LLC will continue to be the majority owner of each of the Non-Converting Subsidiaries. See “Corporate Reorganization” for additional information.
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Our principal executive offices are located at 300 Galleria Parkway SE, Suite 800, Atlanta, Georgia 30339. Our telephone number is (404) 810-0089. Our corporate website address is www.guardianpharmacy.com. Information contained on, or that may be accessed through, our website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.
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THE OFFERING
| Issuer |
Guardian Pharmacy Services, Inc. |
| Class A common stock offered by us |
6,750,000 shares. |
| Underwriters’ option to purchase additional shares of Class A common stock |
The underwriters have a 30-day option to purchase up to 1,012,500 additional shares of Class A common stock at the public offering price, less the underwriting discount. |
| Class A common stock to be outstanding after giving effect to this offering |
6,750,000 shares (or 7,762,500 shares, if the underwriters exercise in full their option to purchase additional shares of Class A common stock). |
| Class B common stock to be outstanding after giving effect to this offering |
54,094,123 shares. |
| Voting rights |
Each share of our Class A common stock and Class B common stock will entitle its holder to one vote on all matters to be voted on by our stockholders generally. |
| Holders of our Class A common stock and Class B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law. |
| Voting power held by holders of Class A common stock after giving effect to this offering |
Outstanding shares of Class A common stock will represent approximately 11% of the combined voting power of our common stock (or 13% if the underwriters exercise in full their option to purchase additional shares of Class A common stock). |
| Voting power held by holders of Class B common stock after giving effect to this offering |
Outstanding shares of Class B common stock will represent approximately 89% of the combined voting power of our common stock (or 87% if the underwriters exercise in full their option to purchase additional shares of Class A common stock). |
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| Stockholders’ Agreement |
In connection with the Corporate Reorganization and this offering, the Guardian Founders, including certain of our executive officers and directors and their affiliates, will enter into a stockholders’ agreement (the “Stockholders’ Agreement”), which will be effective upon the consummation of the Corporate Reorganization and this offering. Pursuant to the Stockholders’ Agreement, the Guardian Founders will agree to vote all of their shares of common stock in favor of the election of certain director nominees designated by Guardian Founders and the other individuals nominated by our board of directors, and otherwise in the manner determined by a majority of the votes represented by shares of common stock held by the Guardian Founders. |
| As a result, the Guardian Founders will control a majority of the voting power of shares of our common stock eligible to vote in the election of our directors and on other matters submitted to a vote of our stockholders. |
| Controlled company exemption |
Upon completion of this offering, we expect to be a “controlled company” for purposes of NYSE listing standards. As a “controlled company,” we will not be subject to certain corporate governance requirements. See “Management—Stockholders’ Agreement and Controlled Company Exemption.” |
| Use of proceeds |
We estimate that the net proceeds to us from this offering will be approximately $89.8 million (or approximately $103.9 million if the underwriters exercise in full their option to purchase 1,012,500 additional shares of Class A common stock), assuming a public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discount and estimated offering expenses payable by us. |
| We intend to use $55.2 million of the net proceeds we receive from this offering to fund the aggregate cash portion of the Merger Consideration and $20.0 million to repay certain borrowings on the line of credit under our existing credit facility. We intend to use the balance of the net proceeds for general corporate purposes and working capital. See “Corporate Reorganization” and “Use of Proceeds” for additional information. |
| Dividend policy |
We have no current plans to pay dividends on our Class A common stock or our Class B common stock. See “Dividend Policy.” |
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| Directed Share Program |
At our request, the underwriters have reserved up to 10% of the shares of Class A common stock being offered by this prospectus for sale at the initial public offering price to our directors, officers and certain of our employees and other persons associated with us who have expressed an interest in purchasing shares in the offering. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available for sale to the general public. Any reserved shares not purchased by these persons will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. |
| The sales of shares pursuant to the directed share program will be made by Raymond James & Associates, Inc., an underwriter of this offering. See “Underwriting—Directed Share Program.” |
| Trading Symbol |
We have been approved to list our Class A common stock on NYSE under the symbol “GRDN.” |
| Risk Factors |
Investing in our Class A common stock involves a high degree of risk. You should carefully read and consider the information set forth under “Risk Factors” and all other information in this prospectus before deciding whether to invest in our Class A common stock. |
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth our summary historical consolidated financial and operating data, as well as certain unaudited pro forma financial information giving effect to the completion of the Corporate Reorganization. The consolidated statements of income data for the years ended December 31, 2019, 2020 and 2021 and the consolidated balance sheet data as of December 31, 2019, 2020 and 2021 are derived from the audited consolidated financial statements of Guardian Pharmacy, LLC and its subsidiaries and related notes not included in this prospectus. The consolidated statements of income data for the years ended, and the consolidated balance sheet data as of, December 31, 2022 and 2023 are derived from the audited consolidated financial statements of Guardian Pharmacy, LLC and its subsidiaries and related notes included elsewhere in this prospectus. The condensed consolidated statements of income data for the three and six months ended June 30, 2023 and 2024 and the condensed consolidated balance sheet data as of June 30, 2024 are derived from the unaudited interim condensed consolidated financial statements of Guardian Pharmacy, LLC and its subsidiaries and related notes included elsewhere in this prospectus.
We have prepared the unaudited condensed consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal adjustments, which in our opinion are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and our results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other period. In addition, the unaudited pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the Corporate Reorganization been completed on the dates indicated. This information is qualified in its entirety by reference to, and should be read in conjunction with, our consolidated financial statements and related notes, and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included in this prospectus.
| (in thousands, except prescriptions dispensed and per share data) |
Year Ended December 31, |
Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2019 | 2020 | 2021 | 2022 | 2023 | 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||||||||||
| Consolidated Statements of Income Data: |
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| Revenue |
$ | 698,287 | $ | 735,958 | $ | 792,072 | $ | 908,909 | $ | 1,046,193 | $ | 253,439 | $ | 300,037 | $ | 502,385 | $ | 575,447 | ||||||||||||||||||
| Cost of goods sold |
554,826 | 588,958 | 630,807 | 723,043 | 837,883 | 203,117 | 238,749 | 400,845 | 459,058 | |||||||||||||||||||||||||||
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| Gross profit |
143,461 | 147,000 | 161,265 | 185,866 | 208,310 | 50,322 | 61,288 | 101,540 | 116,389 | |||||||||||||||||||||||||||
| Operating expenses: |
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| Selling, general, and administrative(1) |
109,362 | 114,936 | 131,115 | 133,876 | 167,364 | 25,027 | 44,283 | 69,788 | 91,451 | |||||||||||||||||||||||||||
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| Operating income |
34,099 | 32,064 | 30,150 | 51,990 | 40,946 | 25,295 | 17,005 | 31,752 | 24,938 | |||||||||||||||||||||||||||
| Other expense: |
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| Interest expense |
2,251 | 2,156 | 1,637 | 1,926 | 2,859 | 702 | 1,066 | 1,404 | 1,831 | |||||||||||||||||||||||||||
| Other expense, net |
475 | 248 | 187 | 403 | 367 | 151 | 91 | 192 | 164 | |||||||||||||||||||||||||||
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| Total other expense |
2,726 | 2,404 | 1,824 | 2,329 | 3,226 | 853 | 1,157 | 1,596 | 1,995 | |||||||||||||||||||||||||||
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| Net income |
31,373 | 29,660 | 28,326 | 49,661 | 37,720 | 24,442 | 15,848 | 30,156 | 22,943 | |||||||||||||||||||||||||||
| Less net income attributable to non-controlling interest(2) |
(9,628 | ) | (9,717 | ) | (12,012 | ) | (14,240 | ) | (13,818 | ) | (2,972 | ) | (5,224 | ) | (6,982 | ) | (9,533 | ) | ||||||||||||||||||
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| Net income attributable to Guardian Pharmacy, LLC |
$ | 21,745 | $ | 19,943 | $ | 16,314 | $ | 35,421 | $ | 23,902 | $ | 21,470 | $ | 10,624 | $ | 23,174 | $ | 13,410 | ||||||||||||||||||
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| (in thousands, except prescriptions dispensed and per share data) |
Year Ended December 31, |
Six Months Ended June 30, |
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| 2019 | 2020 | 2021 | 2022 | 2023 | 2023 | 2024 | ||||||||||||||||||||||
| Consolidated Balance Sheet Data (at period end): |
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| Cash and cash equivalents |
$ | 275 | $ | 6,499 | $ | 15,012 | $ | 607 | $ | 752 | $ | 669 | $ | 1,538 | ||||||||||||||
| Total assets |
$ | 196,515 | $ | 217,867 | $ | 235,850 | $ | 256,114 | $ | 271,165 | $ | 265,259 | $ | 305,118 | ||||||||||||||
| Total liabilities |
$ | 139,472 | $ | 150,798 | $ | 182,532 | $ | 180,185 | $ | 211,306 | $ | 188,480 | $ | 247,905 | ||||||||||||||
| Members’ equity |
$ | 29,955 | $ | 39,154 | $ | 24,112 | $ | 42,729 | $ | 28,209 | $ | 44,013 | $ | 17,877 | ||||||||||||||
| Total equity |
$ | 57,043 | $ | 67,069 | $ | 53,318 | $ | 75,929 | $ | 59,859 | $ | 76,779 | $ | 57,213 | ||||||||||||||
| Selected Other Data: |
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| Residents served(3) |
128 | 123 | 136 | 151 | 163 | 156 | 174 | |||||||||||||||||||||
| Prescriptions dispensed(4) |
16.2 | 16.6 | 17.6 | 20.2 | 22.2 | 10.7 | 12 | |||||||||||||||||||||
| Adjusted EBITDA |
$ | 52,982 | $ | 53,590 | $ | 56,475 | $ | 65,714 | $ | 76,175 | $ | 37,155 | $ | 41,931 | ||||||||||||||
| Year Ended December 31, |
Six Months Ended June 30, |
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| 2023 | 2024 | |||||||
| Pro forma Net Income and Per Share Information (unaudited) (5) |
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| Pro forma provision for income taxes: |
$ | 9,787 | $ | 5,854 | ||||
| Pro forma net income (loss): (6) |
($ | 104,813 | ) | $ | 23,161 | |||
| Pro forma net income (loss) per share: |
||||||||
| Basic |
$ | (1.94 | ) | $ | 0.43 | |||
| Diluted |
$ | (1.94 | ) | $ | 0.43 | |||
| Pro forma weighted-average shares used to compute net income per share: |
||||||||
| Basic |
54,094 | 54,094 | ||||||
| Diluted |
54,094 | 54,094 | ||||||
| Pro forma as-adjusted Net Income and Per Share Information (unaudited) (7) |
||||||||
| Pro forma as-adjusted provision for income taxes: |
$ | 9,787 | $ | 5,854 | ||||
| Pro forma as-adjusted net income (loss): (8) |
($ | 117,401 | ) | $ | 23,161 | |||
| Pro forma as-adjusted net income (loss) per share: |
||||||||
| Basic |
$ | (1.93 | ) | $ | 0.38 | |||
| Diluted |
$ | (1.93 | ) | $ | 0.38 | |||
| Pro forma weighted-average shares used to compute net income per share: |
||||||||
| Basic |
60,844 | 60,844 | ||||||
| Diluted |
60,844 | 60,844 | ||||||
| (1) | Included in selling, general, and administrative expenses is share-based compensation expense (income), which primarily represents non-cash recognition of changes in the value of employee Restricted Interest Units (“units”), and has historically been recorded as a liability using a cash settlement methodology as calculated on a quarterly basis. In connection with the Corporate Reorganization and the completion of this offering, all outstanding units, other than those issued by Non-Converting Subsidiaries, will convert into shares of Class B common stock and will no longer be considered a liability. We will implement a new equity plan that is expected to be accounted for as equity awards under GAAP, having no requirement to revalue and recognize the granted awards at their fair value each quarter. As a result, we expect volatility in net income from material changes in the liability associated with units will be substantially lessened following this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations—Selling, general, and administrative” and “Executive Compensation—2024 Equity and Incentive Compensation Plan.” |
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| (2) | These figures reflect minority membership interests in our subsidiaries. Such minority membership interests in the Converting Subsidiaries (but not in the Non-Converting Subsidiaries) will be eliminated immediately prior to the completion of this offering pursuant to the Corporate Reorganization. The income attributable to non-controlling interests of Non-Converting Subsidiaries for all periods presented is immaterial to the consolidated financial statements. |
| (3) | These figures reflect residents served during the last month of each respective period. |
| (4) | In millions. |
| (5) | On a pro forma basis to give effect to the completion of the Corporate Reorganization, which will occur immediately prior to the completion of this offering, without giving effect to the issuance of shares of Class A common stock in this offering. |
| (6) | In addition to pro forma provision for income taxes, pro forma net income (loss) is adjusted by $(133.2) million expense and $5.7 million income for the pro forma periods ended December 31, 2023 and June 30, 2024, respectively, due to a one-time compensation expense adjustment associated with conversion of units into shares of Class B Common Stock, and a $14.3 million income and $9.9 million income adjustment for the pro forma period ended December 31, 2023 and June 30, 2024, respectively, due to the conversion of certain non-controlling interests holders into the controlling interest holders of Guardian Inc. |
| (7) | On a pro forma and as-adjusted basis to give effect to the completion of the Corporate Reorganization and the completion of this offering. |
| (8) | Pro forma as-adjusted net income (loss) or the pro forma period ended December 31, 2023 is further adjusted by a $(12.6) million expense due to the payment of the Merger Consideration that will be paid, and is considered compensatory in nature. |
Adjusted EBITDA and Other Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with GAAP, we also present Adjusted EBITDA and Adjusted SG&A, which are financial measures not based on any standardized methodology prescribed by GAAP.
We define Adjusted EBITDA as net income before interest expense and depreciation and amortization, as adjusted to exclude the impact of items and amounts that we view as not indicative of our core operating performance, including share-based compensation, acquisition accounting adjustments, and certain legal and regulatory items. We define Adjusted SG&A as GAAP selling, general, and administrative expense adjusted to exclude the impact of share-based compensation and expenses relating to certain legal and regulatory items. Adjusted EBITDA and Adjusted SG&A do not have a definition under GAAP, and our definition of Adjusted EBITDA and Adjusted SG&A may not be the same as, or comparable to, similarly titled measures used by other companies.
We use Adjusted EBITDA and Adjusted SG&A to better understand and evaluate our core operating performance and trends. We believe that presenting Adjusted EBITDA and Adjusted SG&A provides useful information to investors in understanding and evaluating our operating results, as it permits investors to view our core business performance using the same metrics that management uses to evaluate our performance.
There are a number of limitations related to the use of Adjusted EBITDA and Adjusted SG&A rather than the most directly comparable GAAP financial measure, including:
| • | Adjusted EBITDA does not reflect interest payments that represent a reduction in cash available to us; |
| • | depreciation and amortization are non-cash charges and the assets being depreciated may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; |
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| • | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| • | Adjusted EBITDA and Adjusted SG&A do not consider the impact of share-based compensation; and |
| • | Adjusted EBITDA and Adjusted SG&A exclude the impact of certain legal and regulatory items, which can affect our current and future cash requirements. |
Because of these limitations, Adjusted EBITDA and Adjusted SG&A should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. You should consider Adjusted EBITDA and Adjusted SG&A alongside other financial measures, including net income, GAAP selling, general, and administrative expense and our other financial results presented in accordance with GAAP.
A reconciliation of Adjusted EBITDA to net income, and a reconciliation of Adjusted SG&A to GAAP selling, general, and administrative expense, the most directly comparable GAAP financial measures, are set forth below.
| (in thousands) | Year Ended December 31, |
Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2019 | 2020 | 2021 | 2022 | 2023 | 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||||||||||
| Net Income |
$ | 31,373 | $ | 29,660 | $ | 28,326 | $ | 49,661 | $ | 37,720 | $ | 24,442 | $ | 15,848 | $ | 30,156 | $ | 22,943 | ||||||||||||||||||
| Add: |
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| Interest expense |
2,251 | 2,156 | 1,637 | 1,926 | 2,859 | 702 | 1,066 | 1,404 | 1,831 | |||||||||||||||||||||||||||
| Depreciation and amortization |
15,850 | 17,258 | 16,530 | 16,563 | 18,234 | 4,423 | 4,874 | 8,882 | 9,625 | |||||||||||||||||||||||||||
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| EBITDA |
$ | 49,474 | $ | 49,074 | $ | 46,493 | $ | 68,150 | $ | 58,813 | $ | 29,567 | $ | 21,788 | $ | 40,442 | $ | 34,399 | ||||||||||||||||||
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| Share-based compensation(1) |
1,927 | 3,208 | 13,029 | (3,381 | ) | (6,090 | ) | (11,997 | ) | (272 | ) | (4,068 | ) | 5,673 | ||||||||||||||||||||||
| Acquisition accounting adjustments(2) |
1,124 | 636 | (8 | ) | 128 | — | — | — | — | — | ||||||||||||||||||||||||||
| Certain legal & other regulatory matters(3) |
457 | 672 | 1,514 | 3,615 | 23,452 | 559 | 1,830 | 781 | 3,529 | |||||||||||||||||||||||||||
| Other(4) |
— | — | (4,553 | ) | (2,798 | ) | — | — | (1,670 | ) | — | (1,670 | ) | |||||||||||||||||||||||
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| Adjusted EBITDA |
$ | 52,982 | $ | 53,590 | $ | 56,475 | $ | 65,714 | $ | 76,175 | $ | 18,129 | $ | 21,676 | $ | 37,155 | $ | 41,931 | ||||||||||||||||||
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| GAAP selling, general, and administrative expense |
$ | 109,362 | $ | 114,936 | $ | 131,115 | $ | 133,876 | $ | 167,364 | $ | 25,027 | $ | 44,283 | $ | 69,788 | $ | 91,451 | ||||||||||||||||||
| Subtract: |
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| Share-based compensation(1) |
1,927 | 3,208 | 13,029 | (3,381 | ) | (6,090 | ) | (11,997 | ) | (272 | ) | (4,068 | ) | 5,673 | ||||||||||||||||||||||
| Acquisition accounting adjustments(2) |
1,124 | 636 | (8 | ) | 128 | — | — | — | — | — | ||||||||||||||||||||||||||
| Certain legal & other regulatory matters(3) |
457 | 672 | 1,514 | 3,615 | 23,452 | 559 | 1,830 | 781 | 3,529 | |||||||||||||||||||||||||||
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| Adjusted SG&A |
$ | 105,854 | $ | 110,420 | $ | 116,580 | $ | 133,514 | $ | 150,002 | $ | 36,465 | $ | 42,725 | $ | 73,075 | $ | 82,249 | ||||||||||||||||||
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| GAAP selling, general, and administrative expense as a percentage of revenue |
15.7 | % | 15.6 | % | 16.6 | % | 14.7 | % | 16.0 | % | 9.9 | % | 14.8 | % | 13.9 | % | 15.9 | % | ||||||||||||||||||
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| Adjusted SG&A as a percentage of revenue |
15.2 | % | 15.0 | % | 14.7 | % | 14.7 | % | 14.3 | % | 14.4 | % | 14.2 | % | 14.5 | % | 14.3 | % | ||||||||||||||||||
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| (1) | Our share-based compensation expense (income) primarily represents non-cash recognition of changes in the value of units, which has historically been recorded as a liability using a cash settlement methodology as calculated on a quarterly basis. In connection with the completion of this offering, we will implement a new equity plan that is expected to be accounted for as equity awards under GAAP. As a result, we expect volatility in net income from material changes in the liability associated with units will be substantially lessened following this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations—Selling, general, and administrative” and “Executive Compensation—2024 Equity and Incentive Compensation Plan.” |
| (2) | Represents fair value adjustments of expected contingent payments related to acquisitions. |
| (3) | Represents non-recurring attorney’s fees, settlement costs and other expenses associated with certain legal proceedings. The Company was served with a qui tam complaint in 2019, relating to allegedly unlawful practices under the False Claims Act at one of its pharmacy subsidiaries. The U.S. Department of Justice declined to intervene, and the relator elected to proceed with the litigation. The Company entered into a settlement agreement, which is accounted for in the year ended December 31, 2023, and formally resolved the matter in 2024. For more information, see “Business—Legal Proceedings.” The Company excludes such charges when evaluating operating performance because it does not incur such charges on a predictable basis and exclusion allows for consistent evaluation of operations. |
| (4) | Represents the proceeds from settlements related to payor reimbursement. |
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Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before deciding whether to invest in our Class A common stock. Any of the following risks could materially and adversely affect our business, financial condition, results of operations and prospects. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business
Intense competition may erode our profit margins.
The business of providing pharmacy services to LTCF residents is highly competitive, and we face competition from multiple sources. There are national, regional and local institutional pharmacies, as well as numerous local retail pharmacies, that provide pharmaceutical dispensing services comparable to those that we offer. Many of these pharmacies have strong relationships with the LTCFs they serve and their residents. In addition, some of our competitors have greater financial resources than we do and may be more established in the markets they serve than we are, making our ability to compete more difficult. Some of our larger competitors have indicated that they plan to focus more on the ALF market, which could further increase the competition we face. Consolidation within the long-term care pharmacy industry may also lead to increased competition. We compete on the basis of the services we offer as well as price. To attract new and retain existing LTCFs and residents, we must continually meet service expectations of LTCFs and residents. There can be no assurance that we will continue to remain competitive, which would cause our business and operating results to suffer. Competitive pricing pressures may adversely affect our earnings and cash flow. If we cannot compete effectively, our business and operating results would be materially and adversely affected.
In addition, LTCF residents have the ability to choose among pharmacy providers. Certain states have a “freedom of choice” requirement as part of their state Medicaid programs or in separate legislation that enable a resident to select his/her provider. These laws may prevent LTCFs from requiring their residents to purchase pharmacy services or pharmaceuticals from particular providers that have a supplier relationship with the LTCF. Such “freedom of choice” requirements increase the competition we face in providing services to LTCF residents. The ability of a resident to select the pharmacy that supplies him or her with prescription drugs could adversely affect our business, financial condition and results of operations because there can be no assurance that such resident will select us as a provider.
Our prescription volumes may decline, and our operating results may be negatively impacted, if products are withdrawn from the market or if increased safety risk profiles of specific drugs result in utilization decreases.
If the volumes of dispensed pharmaceuticals from our pharmacies decline, our business and operating results would suffer. When increased safety risk profiles of specific drugs or classes of drugs result in utilization decreases, physicians may cease writing or reduce the numbers of prescriptions written for these drugs. Additionally, negative press regarding drugs with higher safety risk profiles may result in reduced resident demand for such drugs.
Unexpected safety or efficacy concerns with respect to pharmaceuticals can also lead to product recalls or withdrawals. In cases where there are no acceptable prescription drug
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equivalents or alternatives for these recalled or withdrawn pharmaceuticals, our volumes of dispensed pharmaceuticals and our operating results may decline.
If we lose relationships with one or more pharmaceutical wholesalers or key manufacturers, or if such wholesalers or manufacturers refuse to extend our relationships on the same or similar terms, our business and financial results could be materially and adversely affected.
We maintain contractual relationships with pharmaceutical wholesalers and manufacturers that provide us with, among other things, discounts for drugs we purchase to be dispensed from our pharmacies. Our contracts with pharmaceutical wholesalers and manufacturers often provide us with, among other things, discounts on drugs we purchase and rebates and service fees. Our contracts with pharmaceutical wholesalers and manufacturers generally are terminable on relatively short notice by either party and we have limited contractual protections with them. If any of these contractual relationships are terminated, materially altered, or renewed on terms that are less favorable to us, our business and operating results could be materially adversely affected.
Our operating results may suffer if we fail to maintain certain relationships and contracts with LTCFs we serve.
We have a number of contracts with companies that own or operate numerous LTCFs. If we are not able to maintain these relationships and contracts or are only able to maintain them on less favorable terms than those currently in place, our ability to provide our services to residents of those LTCFs would be materially impacted and our operating results could suffer. Our agreements with SNFs generally range from one to three years in duration and typically renew automatically for subsequent renewal terms. The SNF contracts can be terminated by either party generally upon 60 days’ notice. Our relationships with ALFs and BHFs are generally memorialized in written agreements between Guardian and the owner of the respective community that designate Guardian as the “preferred provider” of that community owner. Unlike a SNF contract where virtually all of the residents in the skilled facility would be served by us, the ALF and BHF contract does not automatically grant us the right to serve those residents. Instead, our sales team must market our pharmacy services to the individual residents in that community, each of whom has the right to choose their pharmacy provider. These contracts generally range from one to three years in duration and typically renew automatically for subsequent renewal terms. These contracts can be terminated by either party generally upon 30 days’ notice. There can be no assurance that these parties will not terminate all or a portion of their contracts with us.
We also provide direct and indirect services to LTCFs, and our failure to provide services at optimal quality may impair our relationship with these LTCFs and could result in losing access to residents in these LTCFs.
The COVID-19 pandemic negatively impacted LTCFs and harmed our business. Another similar public health crisis or national emergency could also have a negative impact on our business.
The COVID-19 pandemic caused disruptions to our business and operational plans. Among other effects, the pandemic impacted our labor supply and marketing efforts. In addition, due to the older average age of LTCF residents and prevalence of chronic medical conditions affecting their demographics, LTCFs and their residents were disproportionately impacted by COVID-19, all of which resulted in a significant disruption in demand for senior living communities and a corresponding decrease in demand for our pharmacy services. We recognize that our business may continue to be susceptible to the impact of another public health crisis or national emergency including, without limitation, a global pandemic on the scale of COVID-19, which adversely affected economies and financial markets worldwide, and adversely affected our business and
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financial condition. We could experience disruptions to our operations as a result of any such public health crisis or national emergency. In the case of another pandemic or other public health crisis, our business and operations may be negatively impacted.
The impact of ongoing healthcare reform efforts on our business cannot accurately be predicted, and continuing government and private efforts to lower pharmaceutical costs, including by capping the prices for certain drugs and by limiting reimbursements, may adversely impact our profitability, results of operations and financial condition.
The healthcare industry in the United States is subject to fundamental changes due to ongoing federal and state healthcare reform efforts and related political, economic, and regulatory influences. Notably, the Affordable Care Act resulted in expanded healthcare coverage and has resulted in significant changes to the United States healthcare system. The Affordable Care Act outlines certain reductions for Medicare reimbursed services, which may affect skilled nursing, home health, hospice, and outpatient therapy services, as well as certain other changes to Medicare payment methodologies. In addition, there have been legislative initiatives with respect to pharmaceutical pricing practices, and we could be adversely affected by the impact of such legislation and the continuing efforts of government and private health plan payors to lower pharmaceutical costs. For example, the Inflation Reduction Act of 2022 contains several provisions that could have the effect of reducing the prices we can charge and the reimbursement we receive for the drugs we dispense, thereby reducing our profitability, and could adversely affect our financial condition and results of operations. These provisions include the establishment of a Medicare Drug Price Negotiation Program, which requires the government to negotiate and set a “maximum fair price” for select high-expenditure drugs covered under Medicare Part D (starting in 2026) and Part B (starting in 2028), and the implementation of changes to Medicare Part D benefits designed to limit patient out-of-pocket drug costs and shift program liabilities from patients to other stakeholders, including health plans, manufacturers and the government. These comprehensive healthcare reform efforts have resulted and will likely continue to result in extensive rulemaking and policy decisions by regulatory authorities, and applicable legislation and regulations may be altered, amended, repealed, or replaced. Moreover, there have been legal and political challenges to the Affordable Care Act and the Inflation Reduction Act since their passage and there may be future challenges. Therefore, it is difficult to predict the full impact of the Affordable Care Act, the Inflation Reduction Act, or other healthcare reform efforts due to the complexity of the law and implementing regulations, as well our inability to foresee how CMS and other participants in the healthcare industry will respond to the choices available to them under the law. The provisions of the legislation and other regulations implementing the Affordable Care Act, the Inflation Reduction Act, any amended or replacement legislation, or other healthcare reform efforts may increase our costs, materially and adversely affect our revenues and profitability, expose us to expanded liability, or require us to significantly alter the ways in which we conduct our business.
In addition, to reduce pharmaceutical costs, health plan payors may seek to lower reimbursement rates, limit the scope of covered services and negotiate reduced or capped pricing arrangements. Given the significant competition in the industry, we have limited bargaining power to counter health plan payor demands for reduced reimbursement rates. If we, or other entities acting on our behalf, are unable to negotiate for acceptable reimbursement rates, our profitability, results of operations and financial condition could be adversely affected.
In response to rising prescription drug prices, health plan payors may also demand that we satisfy certain quality metrics, enhanced service levels or cost efficiencies to help mitigate the increase in pharmaceutical costs. Our inability or failure to meet health plan payor imposed quality metrics, service requirements or cost efficiencies could adversely impact a health plan payor’s willingness to engage us or could result in payor-specific audits and recoupments.
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We cannot assure you that reimbursement payments under governmental and private health plan payor programs will remain at levels comparable to present levels or will be sufficient to cover the costs allocable to LTCF residents eligible for reimbursement under these programs. Any changes that lower reimbursement rates under Medicare, Medicaid or private payor programs could result in a substantial reduction in our revenues. Our operating results may be adversely affected due to deterioration in reimbursement, changes in payor mix and growth in operating expenses in excess of increases, if any, in payments by health plan payors. We also anticipate that federal and state governments will continue to review and assess alternate pharmaceutical delivery systems, payment methodologies and operational requirements for pharmaceutical providers, including LTCFs and pharmacies.
In addition, CMS and other governmental agencies have advocated for the creation of a national average acquisition cost benchmark, which states may use to set pharmacy payment rates. Formulary fee programs have been the subject of debate in federal and state legislatures and various other public and governmental forums. If these benchmarks and programs were adopted, our operating results could be materially adversely affected.
Over the long term, funding for federal and state healthcare programs may be impacted by the aging of the population, the growth in enrollees as eligibility is potentially expanded, the escalation in drug costs owing to higher drug utilization among seniors, the impact of the Medicare Part D benefit for seniors, the introduction of new, more efficacious but also more expensive medications and the long-term financing of the Medicare program. We are unable to predict the impact on our business of any changes in healthcare policy relating to the future funding of the Medicare and Medicaid programs. Further, Medicare, Medicaid and private health plan payor rates for pharmaceutical products and supplies may change from current methodologies and present levels. Any future healthcare legislation or regulation impacting these reimbursement rates may materially and adversely affect our business.
If we fail to comply with Medicare and Medicaid regulations, we may be subjected to reduction in reimbursement, overpayment demands, or loss of eligibility to participate in these programs.
The Medicare and Medicaid programs are highly regulated. These programs are also subject to changes in regulations and guidance. If we fail to comply with applicable reimbursement laws and regulations, reimbursement under these programs and participation in these programs could be adversely affected. Federal or state governments may also impose other sanctions on us for failure to comply with the applicable reimbursement regulations, including but not limited to recovering an overpayment. Failure to comply with these or future laws and regulations could result in our inability to provide pharmacy services to LTCF residents or to participate in these payor programs.
CMS mandates 10 rules and service capabilities to qualify for participation as a Part D Network LTC Pharmacy provider. These required capabilities currently involve extended drug control and distribution systems that include items such as special packaging, 24/7 support and delivery, provision of certain reports, forms, and prescription ordering supplies, maintaining a comprehensive inventory of Part D drugs, and maintaining emergency kits and retrospective billing for patient copays and coverage gaps, known as the “donut hole.” CMS designates an institutional level of care as a “distinct pharmacy setting” and requires payors to compensate designated long-term care pharmacies for the specific services they are required to provide LTCF residents. In addition, CMS requires that payors maintain network adequacy to serve LTCF residents. If we were to lose our right to participate as a NLTCP, our business and operating results could be materially adversely affected.
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Further modifications to the Medicare Part D program may reduce revenue and impose additional costs to the industry.
The Medicare Prescription Drug Improvement and Modernization Act of 2003, included a major expansion of the Medicare program with the addition of a prescription drug benefit under the Medicare Part D program. The continued impact of these regulations depends upon a variety of factors, including our ongoing relationships with the Part D Plans (as defined below) and the resident mix of the LTCFs we serve.
We cannot predict how future modifications to the Medicare Part D program, including through new legislation, may reduce revenue and impose additional costs to the industry, which could materially adversely affect our operating results. We cannot assure you that any changes to Medicare Part D and the regulations promulgated under Medicare Part D will not have a material adverse effect on our business.
Further consolidation of managed care organizations and other health plan payors, and changes in the terms of our agreements with these parties, may adversely affect our profits.
Managed care organizations and other health plan payors have continued to consolidate in order to enhance their ability to influence the delivery and cost structure of healthcare services. Consequently, the healthcare needs of a large percentage of the U.S. population are increasingly served by a smaller number of managed care organizations. If this consolidation continues, we could face additional pricing and service pressures from these organizations, which are increasingly demanding discounted fee structures. To the extent these organizations engage our competitors as a preferred or exclusive provider, demand discounted fee structures or limit the residents eligible for our services, our liquidity and results of operations could be materially and adversely affected.
In addition, a significant percentage of our health plan payor reimbursements derive from our participation in the MHA Managed Care Network (“MHA”). In the event that we were to have a contractual dispute with MHA or fail to renew our agreement upon acceptable terms, our reimbursements may decrease. We also participate in the MHA group purchasing organization (“GPO”), for purposes of drug purchasing. In the event that our relationship were to suffer with MHA under either the network participation agreement or the MHA GPO agreement, our reimbursements could be further impacted and our business and operating results could be materially and adversely affected.
We are highly dependent on our senior management team, our local pharmacy management teams and our pharmacy professionals and the loss of such persons could cause our business to suffer and materially adversely affect our operating results.
Our business is managed by a small number of senior management personnel, the loss of which could cause our business to suffer and materially adversely affect our operating results. There is a limited pool of senior management personnel with significant experience in our industry. Accordingly, if we are unable to retain members of our current management team, we could experience significant difficulty in replacing key management personnel and our business could be materially and adversely affected. Moreover, any newly-hired members of our senior management team would need time to fully assess and understand our business and operations. We can offer no assurance as to how long our senior management will choose to remain with us.
In addition, our business model of empowering our local pharmacy management teams with significant autonomy makes us highly dependent on the local pharmacy’s ability to effectively
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manage and develop relationships with the LTCFs that they serve. If we experience substantial turnover in our local pharmacy management teams and these persons are not replaced by individuals with comparable skills, experience and industry knowledge, our business and operating results could be materially adversely impacted. Prior to the Corporate Reorganization and this offering, our local pharmacy teams currently have an equity interest in their respective local pharmacies. After giving effect to the Corporate Reorganization, these equity interests in the Converting Subsidiaries (but not in the Non-Converting Subsidiaries) will be converted into Common Units of Guardian Pharmacy, LLC, and upon the merger of a transitory merger subsidiary with and into Guardian Pharmacy, LLC, into shares of Class B common stock. Following the consummation of this offering, we plan to offer the local pharmacy teams incentive opportunities to receive equity awards of Guardian Inc. If the local pharmacy teams are not satisfied with these arrangements, our ability to retain the local pharmacy teams may be adversely impacted, which would harm our business.
Further, our success depends on our ability to attract and retain pharmacists and other pharmacy professionals. Competition for qualified pharmacists and other pharmacy professionals is intense. The loss of pharmacy personnel or the inability to attract or retain sufficient numbers of qualified pharmacy professionals could materially adversely affect our business. Our inability to meet our staffing requirements for pharmacists and other pharmacy professionals in the future could have a material adverse effect on our business and operating results.
Continued inflation and increases in labor costs may reduce our profitability.
We are currently experiencing inflationary pressures on our operating costs. Among other things, competition for labor is becoming more acute and we expect our labor costs to increase as a result. We expect that as we rebound from labor shortages and our staffing levels increase, we will also experience a corresponding increase to our labor costs. Because labor costs are and will continue to be a major component of our operating expenses, higher labor costs, whether as a result of increased wages or increased staffing levels, could reduce our profitability and gross margins.
In addition, we have experienced increased costs for supplies, and rising fuel costs have resulted in increased costs for the transportation of drugs. We generally are not able to sufficiently raise our pricing to offset these increased costs. Continuing increased costs and prolonged inflation could materially and adversely affect our business, operating results and profitability.
Government efforts to combat inflation, along with other interest rate pressures arising from an inflationary economic environment, could lead to us to incur even higher interest rates and financing costs and may reduce our profitability.
Inflation has risen on a global basis, the United States has been experiencing historically high levels of inflation, and government entities have taken various actions to combat inflation, such as raising interest rate benchmarks. Government entities may continue their efforts, or implement additional efforts, to combat inflation, which could include among other things continuing to raise interest rate benchmarks and/or maintaining interest rate benchmarks at elevated levels. Such government efforts, along with other interest rate pressures arising from an inflationary economic environment, could lead to us to incur even higher interest rates and financing costs and have material adverse effect on our business, operating results and profitability.
Labor shortages could harm our ability to implement our growth strategy.
Our success and our ability to grow our business depends in large part on our ability to attract and retain employees. We have experienced labor shortages in the past, including as a result of the
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COVID-19 pandemic which negatively affected the labor market for employers. During the ongoing recovery from the COVID-19 pandemic, labor shortages have also impaired our ability to attract, hire and re-hire employees. To the extent we are unable to hire and retain a sufficient number of employees, our business and growth could be adversely affected. Additionally, labor shortages or labor disruptions experienced by our third-party contractors and subcontractors could disrupt our operations, increase our costs and adversely affect our profitability.
If we or the LTCFs we serve fail to comply with state licensure requirements, we could be prevented from providing pharmacy services or be required to make significant changes to our operations.
Our pharmacies must be licensed by the state boards of pharmacy in the states in which they operate. States also regulate out-of-state pharmacies that fill prescriptions for residents in their states. The failure to obtain or renew any required regulatory approvals or licenses could adversely impact the operation of our business. In addition, the LTCFs we service are also subject to extensive federal, state and local regulations, including a requirement to be licensed in the states in which they operate. A negative action on our licenses or the failure by the LTCFs we service to obtain or renew any required licenses could result in our inability to provide pharmacy services to these LTCFs and their residents and could have a material adverse effect on our financial condition, results of operations and liquidity.
Complex and rapidly evolving laws and regulations could cause us to make significant changes to our operations or incur substantial costs or penalties.
As a participant in the healthcare industry in the United States, we are subject to numerous federal and state regulations. Further, there are various political, economic and regulatory influences that are placing our industry under intense scrutiny and which seek to implement fundamental changes. We cannot predict which reform proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us. Any changes to the current regulatory and legal paradigm could increase the overall regulatory burden and costs associated with our business and materially adversely affect our business and operating results. If we fail to comply with existing or future applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses to operate our pharmacies and our ability to participate in federal and state healthcare programs. The U.S. Drug Enforcement Administration (the “DEA”), the U.S. Food and Drug Administration (the “FDA”) and various state regulatory authorities have broad enforcement powers, including the ability to seize or recall products and impose significant criminal, civil and administrative sanctions for violations of these laws and regulations. As a consequence of the severe penalties we could face, we must devote significant operational and managerial resources to complying with these laws and regulations. Different legal interpretations and enforcement policies could subject our current practices to allegations of noncompliance or illegality, or could require us to make significant changes to our operations. In addition, we cannot predict the impact of future legislation and regulatory changes on our business or assure that we will be able to obtain or maintain the regulatory approvals required to operate our business. The costs associated with complying with federal and state laws and regulations could be significant and the failure to comply with any such legal requirements could have a material adverse effect on our financial condition, results of operations and liquidity.
If we fail to comply with fraud and abuse laws, false claims provisions or other applicable laws, we may need to curtail operations, and could be subject to significant penalties.
We are subject to federal and state fraud and abuse laws that prohibit payments intended to induce or encourage the referral of patients to, or the recommendation of, a particular provider of
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items or services. Violation of these laws can result in loss of licensure, civil and criminal penalties, damages and exclusion from the Medicaid, Medicare and other federal healthcare programs. The Office of Inspector General (“OIG”) and U.S. Department of Justice (“DOJ”) have, from time to time, established national enforcement initiatives, targeting all providers of a particular type, that focus on specific billing practices or other suspected areas of abuse. Under the qui tam or “whistleblower” provisions of the federal and various state false claims acts, private citizens may bring lawsuits alleging that a violation of the federal Anti-Kickback Statute (“AKS”) or similar laws has resulted in the submission of “false” claims to federal and/or state healthcare programs, including Medicare and Medicaid. Since the private plaintiff in this type of proceeding is generally entitled to share in any damages a court orders the defendant to pay to federal and state governments under these laws, financial incentives exist for individuals to allege that particular practices or activities constitute a violation of these statutes. A determination that we have violated these laws, or the initiation of lawsuits alleging violations of these laws, could adversely affect our business and financial condition.
As part of our ongoing operations, we are subject to various inspections, audits, inquiries, investigations and similar actions by third parties, as well as governmental/regulatory authorities responsible for enforcing the laws and regulations to which we are subject. From time to time we are subject to whistleblower complaints. Federal and state government agencies have increased their focus on and coordination of civil and criminal efforts in the healthcare area, and the ACA and other recent legislation has expanded federal healthcare fraud enforcement authority. There can be no assurance that the ultimate resolution of any such claims, inquiries or investigations, individually or in the aggregate, will not have a material adverse effect on our consolidated results of operations, financial position or cash flows. Moreover, we cannot predict our future costs associated with compliance with such laws.
Federal and state privacy and security regulations may increase our cost of operations and expose us to civil and criminal sanctions, damages, and penalties.
In the ordinary course of our business, we process, store and transmit data, which may include sensitive personal information of the residents we serve. We must comply with extensive federal and state requirements regarding the use, transmission and maintenance of protected health information (“PHI”) under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and the Health Information Technology for Economic and Clinical Health Act (“HITECH”), which expanded certain sections of HIPAA, including imposing certain liability on business associates, for example, with respect to impermissible uses and disclosures of PHI and Security Rule obligations, strengthening enforcement activities, and increasing penalties for violations. The requirements of federal and state privacy and security laws such as HIPAA and HITECH are complicated and are subject to interpretation and modification. In addition to HIPAA and HITECH, we must adhere to state privacy laws, including those that provide greater privacy protection for individuals than HIPAA. Failure to comply with HIPAA and HITECH or similar state equivalent laws could subject us to loss of customers, denial of the right to conduct business, civil damages, fines, criminal penalties, class action or other litigation, and other enforcement actions.
In addition, there are numerous federal and state laws and regulations addressing patient and consumer privacy concerns, including unauthorized access or theft of personal information. State statutes and regulations vary from state to state and could impose additional penalties. Violations of these, or other applicable federal or state laws or regulations could subject us to significant criminal or civil penalties, including significant monetary penalties, and class action or other litigation. There are costs and administrative burdens associated with ongoing compliance with HIPAA’s Privacy and Security Rules, as well as HITECH and state equivalents, and other
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applicable federal and state regulations. Failure to comply carries with it the risk of significant penalties, damages, and sanctions. We cannot predict at this time the costs associated with compliance, or the impact of such laws and regulations on our results of operations, cash flows or financial condition. There can be no assurance that the cost of compliance with such laws and regulations will not increase significantly in the future, which could result in an adverse effect on our operations or profitability.
The increasing enforcement environment in the U.S. healthcare industry may negatively impact our business.
Federal and state government agencies have increased their focus on and coordination of civil and criminal enforcement efforts in the healthcare industry, and recent legislation has expanded federal healthcare enforcement authority. Both federal and state government agencies have appeared to increase their focus on and coordination of civil and enforcement efforts in the healthcare industry, including under the AKS, the False Claims Act (“FCA”), the Civil Monetary Penalty Law (“CMP Law”), and corollary state enforcement schemes. The OIG and the DOJ have, from time to time, established national enforcement initiatives, targeting all providers of a particular type, that focus on specific billing practices or other suspected areas of abuse.
Our pharmacies are registered with the appropriate state and federal authorities pursuant to statutes governing the regulation of pharmaceuticals and controlled substances. The DEA increased scrutiny and enforcement of long-term care pharmacy practices under the federal Controlled Substances Act. We believe that this increased scrutiny and, in some cases, stringent interpretation of existing regulations, effectively changed long-standing practices for dispensing controlled substances in the long-term care facility setting. Heightened enforcement of controlled substances regulations could increase the overall regulatory burden and costs associated with our pharmacy services, and there can be no assurance that this heightened level of enforcement and DEA or other investigations, or any fines or other penalties resulting therefrom, will not materially adversely affect our results of operations, financial condition or cash flows.
Courts across the United States have provided interpretations, sometimes conflicting, of these laws. In the future, different interpretations or enforcement of these laws and regulations could subject our current or past practices to allegations of impropriety or illegality, or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses. A determination that we have violated these laws, or the public announcement that we are being investigated for possible violations of these laws, could have a material adverse effect on our business, operations and financial condition and our reputation could suffer significantly. If we fail to comply with applicable laws and regulations, we could be subjected to liabilities, including criminal penalties, civil penalties (including the loss of our licenses to operate one or more of our pharmacies), damages, and exclusion of one or more of our pharmacies from participation in the Medicare, Medicaid and other federal healthcare programs. In addition, we are unable to predict future legislation or regulations at the federal or state level and what impact they may have.
Furthermore, the OIG and the U.S. Department of Justice have established national enforcement initiatives that may focus on specific billing practices or other suspected areas of fraud, waste, and abuse. In addition, under the federal FCA and state equivalents, the government and private parties, by qui tam complaints, continue to pursue enforcement activities, resulting in potentially increasing awards of damages and penalties. If we are unable to adjust to an increasingly enforcement-focused environment, it could have a material adverse effect on our financial condition, results of operations and liquidity.
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Adverse results in material litigation matters or governmental inquiries could have a material adverse effect upon our business.
We may from time to time become subject in the ordinary course of business to material legal action related to, among other things, intellectual property disputes, professional liability and employee-related matters, as well as inquiries from governmental agencies and Medicare or Medicaid carriers requesting comment and information on allegations of billing irregularities and other matters that are brought to their attention through billing audits, third parties or other sources. The pharmaceutical industry is subject to substantial federal and state government regulation and audit. Legal actions could result in substantial monetary damages, including civil or criminal penalties, as well as damage to our reputation with customers, which could have a material adverse effect upon our financial condition and operating results.
Interruptions to our information systems may materially and adversely affect our operating results.
We rely on information systems to obtain, rapidly process, analyze, and manage data to facilitate the dispensing of prescription and non-prescription pharmaceuticals in accordance with physician orders and to deliver those medications to LTCF residents on a timely basis. We also use information systems to manage the accuracy of our billings and collections for thousands of LTCF residents and to process payments to suppliers.
In addition, we rely on computer and software systems owned and operated by third parties that we do not control. We depend on these third-party systems to be functioning and available to operate our business. It is possible that a third party that we rely on could experience interruptions, including as a result of a cybersecurity attack, data security breach or otherwise. These third-party providers also may decide to discontinue operating these systems.
Our business and operating results may be materially and adversely affected if any of these systems are interrupted for any reason (including cybersecurity threats or third-party provider failures), damaged or if they fail for an extended period of time. Significant disruptions to our infrastructure or any of our facilities due to failure of technology could adversely impact our business.
Our business success and results of operations depend in part on our ability to use technology effectively in our dispensing of prescriptions, and if we cannot keep pace with technological developments or continue to innovate and provide new programs, products and services, the use of our services and our revenue could decline.
To remain competitive, we must continually maintain and upgrade our technologies to meet the evolving preferences, needs and expectations of LTCFs and residents and to improve our productivity and reduce our operating expenses. We cannot predict the effect of technological changes on our business, and new services and technologies in the future could be superior to, or render obsolete, the technologies we currently use in our business. Incorporating new technologies into our products and services may require substantial expenditures and take considerable time, and ultimately may not be successful. In addition, our ability to adopt and develop new technologies may be inhibited by industry-wide standards, new laws and regulations and other factors. Our success will depend on our ability to develop new technologies and adapt to technological changes and evolving industry standards. We rely in part on third parties for the development of and access to new technologies, which may adversely impact our ability to integrate new technologies into our business. If we fail to effectively maintain and upgrade our technology, our ability to sustain and grow our business and our results of operations may be materially adversely affected.
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Cybersecurity attacks or other data security incidents could disrupt our operations and expose us to regulatory fines or penalties, liability or reputational harm.
In the ordinary course of our business, we process, store and transmit data, which may include sensitive personal information as well as proprietary or confidential information relating to our business or third parties. We have been subject to a ransomware attack, and may in the future be subject to various cyber or ransomware attacks or data breaches. Although the ransomware attack we experienced did not have a material impact to our business, such future incidents could disrupt and materially adversely affect our business. A cybersecurity attack or other data security incident could result in the misappropriation of confidential or personal information, create system interruptions or deploy malicious software that attacks our information technology security systems. Such an attack or incident could result in business interruptions from the disruption of our information technology systems or those of our third-party information systems providers, or negative publicity resulting in reputational harm with our customers, stockholders and other stakeholders. In addition, the unauthorized dissemination of sensitive personal information or proprietary or confidential information could expose us to regulatory fines or penalties, litigation and potential liability or otherwise harm our business.
We could be adversely affected by product liability, product recall, personal injury or other health and safety issues, and our insurance coverage may not be adequate to protect us against all potential risks and claims against us.
Pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals. We could be adversely impacted by the supply of defective or expired pharmaceuticals, including the infiltration of counterfeit products into the supply chain, errors in labeling of products, product tampering, product recall and contamination or product mishandling issues. Through our pharmacies and compliance packaging services, we are also exposed to potential risk of errors in the dispensing and packaging of pharmaceuticals, including related counseling, and in the provision of other healthcare services could lead to serious injury or death. Product liability or personal injury claims may be asserted against us with respect to any of the products or pharmaceuticals we dispense or services we provide.
Although we maintain various forms and levels of insurance to protect us against potential loss exposures, our available insurance coverage, and indemnification amounts available to us, may not be adequate to protect us against all potential risks, allegations and claims against us. We cannot assure you that the scope of our insurance coverage, or limitations or exclusions on availability thereunder that may exist now or in the future, will protect us against all potential future claims, or that we will be able to maintain our existing insurance on acceptable terms in the future.
We could suffer significant reputational harm and financial liability if we experience any of the foregoing health and safety issues or incidents or if our insurance coverage proves to be inadequate, any of which could have a material adverse effect on our business operations, financial condition and operating results.
Supply chain and other manufacturing disruptions related to the pharmaceuticals we dispense could adversely impact our business.
We may be exposed to risks related to disruptions in the pharmaceutical supply chain, such as shortages of medications, recall events, or disruptions caused by manufacturing issues or regulatory actions. These events may impact our ability to procure and deliver medications to our residents and in turn, adversely impact our business.
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Acquisitions and strategic alliances that we have made or may make in the future could require significant resources, may be unsuccessful and could expose us to unforeseen liabilities.
We have made and anticipate that we may continue to make acquisitions of and strategic alliances with complementary businesses to expand our business. At any particular time, we may be in various stages of assessment, discussion and negotiation with regard to one or more potential acquisitions or strategic alliances, which may or may not be completed. Our growth plans rely, in part, on the successful completion of future acquisitions. If we are unsuccessful, our business would suffer.
Acquisitions may involve significant cash expenditures, debt incurrence, operating losses, amortization of certain intangible assets of acquired companies, and expenses that could have a material adverse effect on our financial condition, results of operations and liquidity. Acquisitions involve numerous risks and uncertainties, including, without limitation:
| • | difficulties integrating acquired operations, personnel and information systems, or in realizing projected efficiencies and cost savings; |
| • | failure to operate acquired facilities profitably or to achieve improvements in their financial performance; |
| • | diversion of management’s time from existing operations; |
| • | potential loss of key employees or customers of acquired companies; |
| • | inaccurate assessment of assets and liabilities and exposure to undisclosed or unforeseen liabilities of acquired companies, including liabilities for failure to comply with healthcare laws; and |
| • | increases in our indebtedness. |
Some of the pharmaceuticals we dispense are warehoused with a single logistics provider for warehouse and distribution services to our pharmacies, and our business could be harmed if our logistics provider performs poorly, fails to comply with its licensing requirements or is unavailable and we are unable to replace it.
Some of the pharmaceuticals we dispense are warehoused with one third-party logistics provider prior to receipt by the pharmacy. We depend on this provider’s warehousing services for efficient and cost effective delivery of a portion of our products to our pharmacies. Our logistics provider must hold appropriate licenses issued by state and federal regulators, especially due to its warehousing and distribution services of pharmaceuticals. If our logistics provider is not compliant with these licensing requirements, we could be subject to fines and penalties from governmental agencies, which could have a material adverse effect on our business and operating results. Additional risks associated with our relationship with our logistics provider include service interruptions or errors. In the event we lose these services or their services are ineffective and we are unable to transition efficiently and effectively to a new logistics provider, we could incur increased costs or experience a material disruption in our operations.
We may be exposed to potential liability and reputational harm if LTCF caregivers fail to properly administer the pharmaceuticals we dispense.
While we offer training sessions to inform LTCF caregivers about the proper administration of the pharmaceutical products we dispense, we cannot guarantee that the LTCFs and caregivers will
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utilize these training opportunities, or that the pharmaceuticals we dispense will be administered properly. The lack of required training for administration of the pharmaceutical products we dispense may result in product misuse, adverse treatment outcomes or errors in administration, which we might not anticipate and which could harm our reputation and expose us to potential liability and consequently harm our business and operating results.
The misuse or off-label use of the pharmaceuticals we dispense may harm our image in the marketplace, result in injuries that lead to product liability suits or result in costly investigations and sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.
The pharmaceuticals we dispense have been approved by the FDA for specific indications. We cannot however, prevent a physician from prescribing pharmaceuticals for uses outside of the FDA-approved indications for use, known as “off-label uses,” when in the physician’s independent professional medical judgment he or she deems it appropriate. There may be increased risk of injury to LTCF residents if physicians attempt to use the pharmaceuticals off-label.
LTCF caregivers may also misuse pharmaceuticals that we dispense, ignore or disregard information provided in training or fail to obtain adequate training, potentially leading to injury and an increased risk of product liability. If pharmaceuticals that we dispense are misused, we may become subject to liability and costly litigation. It is also possible that federal or state enforcement authorities might take action if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations. Any of these events could significantly harm our business and operating results.
We may be exposed to potential liability and reputational harm if we make errors in the course of providing medication reconciliation, duplicate therapy resolution, clinical issue resolution and related services.
We provide full medication reconciliation, duplicate therapy resolution, clinical issue resolution and other services designed to help improve resident outcomes and reduce costs. In the course of these services, we review residents’ medication regimens, check for instances where multiple medications of the same therapeutic class have been prescribed to a single resident, which can result from a resident’s treatment by multiple physicians, and recommend corrective action where appropriate. These and other related services we offer are complex, and if and to the extent we make errors in the provision of these services, we may be subject to claims and potential liability, any of which could harm our reputation, operating results and financial condition.
Our future success depends upon our ability to maintain and manage our growth. If we are unable to manage our growth effectively, we may incur unexpected expenses and be unable to meet the demands of our customers and other constituents.
We aim to continue to expand the scope of our operations, both organically and through strategic acquisitions. Growth in our operations will place significant demands on our management, financial and other resources. We cannot be certain that our current systems, procedures, controls, and space will adequately support expansion of our operations, and we may be unable to expand or upgrade our systems or infrastructure to accommodate future growth. Our future operating results will depend on the ability of our management and key employees to successfully maintain our independence and corporate culture, preserve the effectiveness of our high-touch resident care model, manage changing business conditions and to implement and
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improve our technical, administrative, financial control and reporting systems. Our inability to finance future growth, manage future expansion or hire and retain the personnel needed to manage our business successfully could have a material adverse effect on our business and prospects.
Our revenues and volume trends may be adversely affected by certain factors relevant to the markets in which we have pharmacies, including weather conditions and other natural disasters, some of which may not be covered by insurance.
Our revenues and volume trends will be predicated on many factors, including physicians’ pharmaceutical decisions on patients (residents), health plan payor programs, seasonal and severe weather conditions including the effects of extreme low temperatures, hurricanes and tornadoes, earthquakes, current local economic and demographic changes, some of which may not be covered by insurance. Any of these factors could have a material adverse effect on our revenues and volume trends, and many of these factors will not be within the control of our management. These factors may also have an effect on the LTCFs we serve and their ability to continue to operate.
Risks Related to Our Class A Common Stock and this Offering
Upon the completion of the Corporate Reorganization and this offering, the Guardian Founders will be able to exercise significant control over us, including through the election of all of our directors.
Upon the completion of the Corporate Reorganization and this offering, and without giving effect to any purchases of shares of Class A common stock that these persons may make through our directed share program, the Guardian Founders will beneficially own 42,124,310 shares of our Class B common stock, representing approximately 69.2% of the combined voting power of our common stock (assuming the underwriters do not exercise their overallotment option). Pursuant to the terms of the Stockholders’ Agreement, upon the completion of the Corporate Reorganization and this offering, the Guardian Founders will have the ability to elect all of the members of our board of directors and thereby control our management and affairs. In addition, upon the completion of the Corporate Reorganization and this offering, the Guardian Founders will be able to determine the outcome of substantially all matters requiring action by our stockholders, including amendments to our certificate of incorporation and bylaws, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions even if such actions are not favored by our other stockholders. This concentration of ownership may also prevent a change in the composition of our board of directors or a change in control of our company that could deprive our stockholders of an opportunity to receive a premium for their Class A common stock as part of a sale of our company and might ultimately affect the market price of our Class A common stock.
Upon the anticipated listing of our Class A common stock on the NYSE, we expect to be a “controlled company” within the meaning of the corporate governance standards of NYSE. As a result, we will qualify for exemptions from certain corporate governance standards. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Upon completion of the Corporate Reorganization and this offering, and without giving effect to any purchases of shares of Class A common stock that these persons may make through our directed share program, the Guardian Founders will own more than 50% of the total voting power of our outstanding common stock and we will be a “controlled company” under NYSE corporate governance standards. As a controlled company, we will not be required by NYSE, for continued listing of our Class A common stock, to (i) have a majority of our board of directors consist of independent directors, (ii) maintain a nominating and governance committee that is composed
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entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities or (iii) maintain a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. For so long as we qualify as a “controlled company,” we may rely on some or all of these exemptions from NYSE listing requirements. Accordingly, our stockholders will not have the same protection afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements and the ability of our independent directors to influence our business policies and affairs may be reduced. As a result, our status as a “controlled company” could make our Class A common stock less attractive to some investors or could otherwise harm our Class A common stock price.
Our future issuance of Class A common stock, Class B common stock, preferred stock or debt securities could dilute our common stockholders and adversely affect the market value of our Class A common stock.
The future issuance of shares of Class A common stock, Class B common stock, preferred stock or debt securities may dilute the economic and voting rights of our stockholders and reduce the market price of the Class A common stock. Preferred stock, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our Class A common stock and adversely affect the market price of the Class A common stock.
From time to time in the future, we may also issue additional shares of our Class A common stock or securities convertible into Class A common stock pursuant to a variety of transactions, including acquisitions. We also anticipate that we may issue shares of our Class B common stock as consideration in the buyout of minority owners in our future greenfield start-up pharmacies and future acquired pharmacies, as well as in the buyout of minority owners of the Non-Converting Subsidiaries. See “Business—Our Growth Strategy.” The issuance by us of additional shares of our Class A common stock, Class B common stock or securities convertible into our Class A common stock would dilute your ownership of us and the sale of a significant amount of such shares in the public market could adversely affect prevailing market prices of our Class A common stock.
We will have broad discretion in the use of a significant portion of the net proceeds from this offering and may not use them effectively.
Our management currently intends to use the net proceeds from this offering in the manner described in “Use of Proceeds” and will have broad discretion in the application of a significant portion of the net proceeds from this offering. The failure by our management to apply these funds effectively could result in financial losses that could harm our business, cause the market price of our Class A common stock to decline, and delay the development of our operations. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and NYSE rules, including those promulgated in response to the Sarbanes-Oxley Act. These requirements will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act
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requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. In addition, sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join our organization and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We cannot assure you that management’s past experience will be sufficient to successfully develop and implement these systems, policies and procedures and to operate our company. Failure to do so could jeopardize our status as a public company, and the loss of such status could materially and adversely affect us and our stockholders.
We expect to incur significant additional annual expenses related to these steps associated with, among other things, director fees, reporting requirements, transfer agent fees, additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We also expect that the new rules and regulations that we will be subject to as a result of being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage for such directors and officers. Any of these factors could make it more difficult for us to attract and retain qualified members of our board of directors.
Future sales, or the perception of future sales of Class A common stock, by us or our existing stockholders in the public market following this offering could cause the market price for our common stock to decline.
The sale of substantial amounts of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Upon completion of this offering, we will have outstanding a total of 6,750,000 shares of our Class A common stock (or 7,762,500 shares if the underwriters exercise in full their overallotment option), assuming a public offering price of $15.00 per share of Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, and 54,094,123 shares of Class B common stock convertible into Class A common stock on a one-to-one basis. Shares of Class A common stock sold or issued in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale”, and any shares sold pursuant to our directed share program would be subject to a 180-day lock-up as described in “Underwriting—Directed Share Program.”
The 54,094,123 shares of Class B common stock outstanding immediately following this offering will be subject to certain transfer restrictions and conversion terms, including with respect to sales. These transfer restrictions will cease to apply as shares of Class B common stock automatically convert into shares of Class A common stock, which will be occur over the two-year period immediately following the completion of this offering. In addition, our board of directors may accelerate the conversion of Class B common stock into Class A common stock at their discretion. See “Description of Capital Stock—Common Stock—Transfer Restrictions and Conversion of Class B Common Stock.” In addition, in connection with this offering we and all of
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our directors and executive officers, and certain of our existing equityholders, will sign lock-up agreements with the underwriters that will, subject to certain customary exceptions, restrict the sale of the shares of our common stock and certain other securities held by them for 180 days following the date of this prospectus. The underwriters may, in their sole discretion and at any time, release all or any portion of the shares or securities subject to any such lock-up agreements. See “Shares Eligible for Future Sale” and “Underwriting” for a description of these lock-up agreements.
If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock may decline.
As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with our second Annual Report on Form 10-K, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act. The process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation is time consuming, costly, and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could decline, and we could also become subject to investigations by the stock exchange on which our Class A common stock is listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
We have no operating history as a publicly-traded company, and our inexperience could materially and adversely affect us and our stockholders.
We have no history of operating as a publicly-traded company. Our senior management team lacks experience in operating a public company. As a publicly-traded company, we will be required to develop and implement substantial control systems, policies and procedures in order to satisfy our periodic SEC reporting and NYSE obligations. We cannot guarantee that management’s past experience will be sufficient to successfully develop and implement these systems, policies and procedures and to operate our company. Failure to do so could jeopardize our status as a public company, and the loss of such status may materially and adversely affect us and our stockholders.
While we currently qualify as an “emerging growth company” under the JOBS Act, taking advantage of the reduced disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors. Once we lose emerging growth company status, the costs and demands placed upon our management are expected to increase.
The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies. As long as we qualify as an emerging growth company, we would be permitted, and we intend to, omit the auditor’s attestation on internal control over financial reporting that would otherwise be required by the Sarbanes-Oxley Act, as described above. We intend to take advantage of the extended transition period to comply with new or revised accounting standards applicable to public companies. We also intend to take advantage of the
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exemption provided under the JOBS Act from the requirements to submit say-on-pay, say-on-frequency and say-on-golden parachute votes to our stockholders and we will avail ourselves of reduced executive compensation disclosure that is already available to smaller reporting companies.
We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common equity that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (c) the date on which we have issued more than $1.0 billion in non-convertible debt securities during any three-year period.
Until such time that we lose “emerging growth company” status, it is unclear if investors will find our Class A common stock less attractive because we may rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile and could cause our stock price to decline.
We may lose emerging growth status within a relatively short period of time on account of our public float exceeding $700 million or our annual gross revenues exceeding $1.235 billion. Once we lose emerging growth company status, we expect the costs and demands placed upon our management to increase, as we would have to comply with additional disclosure and accounting requirements.
An active market for our Class A common stock may not develop.
We cannot assure you that a regular trading market of our Class A common stock will develop on NYSE or elsewhere or, if developed, that any such trading market will be sustained. Accordingly, we cannot assure you of your ability to sell your Class A common stock when desired, or at all, or the prices that you may obtain for such Class A common stock.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our Class A common stock, the Class A common stock price and trading volume could decline.
The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrades our Class A common stock or publishes inaccurate or unfavorable research about our business, our Class A common stock price may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our Class A common stock trading volume to decline and our Class A common stock to be less liquid and result in a decline in the stock price of our Class A common stock.
The price of our Class A common stock may be volatile and could decline substantially from the public offering price.
Even if a trading market develops, the market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our Class A common
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stock in spite of our operating performance. In addition, we could fail to meet the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results, additions or departures of key management personnel, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our Class A common stock could decrease significantly.
Volatility in the market price of a company’s securities can result in institution of securities class action litigation against the company. Any such litigation brought against us could result in substantial costs and the diversion of our management’s attention and our resources.
We do not intend to pay any cash dividends on our common stock in the foreseeable future.
Following the completion of this offering, we do not expect to pay any dividends on our common stock in the foreseeable future. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual limitations on our ability to pay dividends. As a result, capital appreciation in the price of our Class A common stock, if any, may be your only source of gain on an investment in our Class A common stock.
Guardian Inc. will be a holding company with no operations of its own and, accordingly, it will depend on its subsidiaries for cash to fund its operations and expenses, including future dividend payments, if any.
Guardian Inc., the issuer of the Class A common stock offered hereby, will be a holding company and will have no material assets other than its ownership of equity interests in its subsidiaries, including Guardian Pharmacy, LLC. As a holding company, Guardian Inc. will have no independent means of generating revenue, and its principal source of cash flow will be distributions from its direct and indirect subsidiaries. Therefore, Guardian Inc.’s ability to fund and conduct our business, service our debt, and pay dividends, if any, in the future will depend on the ability of our subsidiaries to generate sufficient cash flow to make upstream cash distributions to us. Our subsidiaries are separate legal entities, and although they will be wholly owned or majority owned and controlled by us following the Corporate Reorganization, they have no obligation to make any funds available to us, whether in the form of loans, dividends, or otherwise. The ability of our subsidiaries to distribute cash to us will also be subject to, among other things, restrictions that may be contained in our subsidiary agreements (as entered into from time to time), availability of sufficient funds in such subsidiaries and applicable laws and regulatory restrictions. Claims of any creditors of our subsidiaries generally will have priority as to the assets of such subsidiaries over our claims and claims of our creditors and stockholders. To the extent the ability of our subsidiaries to distribute dividends or other payments to us is limited in any way, our ability to fund and conduct our business, pay our expenses, service our debt, and pay dividends, if any, could be harmed.
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Our certificate of incorporation and bylaws and provisions of Delaware law may discourage or prevent certain strategic transactions, including a takeover of our company, even if such a transaction would be beneficial to our stockholders.
Provisions contained in our certificate of incorporation and bylaws and provisions of the Delaware General Corporation Law (the “DGCL”), could delay or prevent a third party from entering into a strategic transaction with us, even if such a transaction would benefit our stockholders. For example, our certificate of incorporation and bylaws:
| • | provide that our board of directors is classified into three classes of directors with staggered three-year terms; |
| • | authorize the issuance of “blank check” preferred stock that could be issued by our board of directors without further action by our stockholders to increase the number of outstanding shares of capital stock, making a takeover more difficult and expensive; |
| • | do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates; |
| • | do not permit stockholders to take action by written consent other than during the period following this offering in which we qualify as a “controlled company” within the meaning of NYSE rules; |
| • | provide that special meetings of the stockholders may be called only by or at the direction of the chair of our board or a majority of the directors; |
| • | vacancies on our board of directors will be able to be filled only by our board of directors (subject to the provisions set forth in the Stockholders’ Agreement) and not by stockholders; |
| • | restrict the forum for certain litigation against us to Delaware; and |
| • | provide for advance notice procedures, which apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders. |
In addition, we are subject to the provisions of Section 203 of the DGCL which limits, subject to certain exceptions, the right of a corporation to engage in a business combination with a holder of 15% or more of the corporation’s outstanding voting securities, or certain affiliated persons.
These restrictions and provisions could keep us from pursuing relationships with strategic partners and from raising additional capital, which could impede our ability to expand our business and strengthen our competitive position.
Our certificate of incorporation will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders and the federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) will be the sole
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and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws (as either may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine.
Furthermore, our certificate of incorporation will also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be, to the fullest extent permitted by law, the sole and exclusive forum for any action asserting a claim arising under the Securities Act. However, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce a duty or liability created by the Securities Act or the rules and regulations thereunder and accordingly, we cannot be certain that a court would enforce such provision. We believe this provision would not apply to any action or proceeding asserting a claim under the Exchange Act.
Our certificate of incorporation will further provide that, to the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our certificate of incorporation described above. However, our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. The forum selection provisions in our certificate of incorporation may have the effect of discouraging lawsuits against us or our directors, officers or employees and may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees, and may increase the costs associated with bringing a claim, which may disadvantage a stockholder in any such lawsuit. If the enforceability of our forum selection provision were to be challenged, we may incur additional costs associated with resolving such a challenge. While we currently have no basis to expect any such challenge would be successful, if a court were to find our forum selection provision to be inapplicable or unenforceable, we may incur additional costs associated with having to litigate in other jurisdictions, which could have an adverse effect on our business, financial condition and results of operations and result in a diversion of the time, resources and attention of our management.
Investors in this offering will experience immediate and substantial dilution.
Based on assumed public offering price of $15.00 per share (the midpoint of the range set forth on the cover of this prospectus), purchasers of our Class A common stock in this offering will experience an immediate and substantial dilution of $14.47 per share in the as adjusted net tangible book value per share of common stock from the public offering price, and our as adjusted net tangible book value as of June 30, 2024 after giving effect to this offering would be $0.53 per share. See “Dilution.”
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are all statements other than those of historical fact. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “believes,” “expects,” “may,” “will,” “should,” “would,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” “contemplates,” “aims,” “continues,” “anticipates” and similar expressions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond our control. For more information regarding these risks and uncertainties, as well as certain additional risks that we face, refer to “Risk Factors” and the factors more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. Among the factors that could cause actual results to differ materially from those suggested by forward-looking statements are:
| • | our ability to effectively execute our business strategies, implement new initiatives and improve efficiency; |
| • | our ability to effectively market and sell, customer acceptance of, and competition for, our pharmaceutical services in new and existing markets; |
| • | our relationships with pharmaceutical wholesalers and key manufacturers, LTCFs and health plan payors; |
| • | our ability to maintain and expand relationships with LTCF operators on favorable terms; |
| • | the impact of the outbreak of a national emergency, public health crisis or global pandemic, such as COVID-19, on our employees and business and on our supply chain and the LTCFs we serve; |
| • | continuing government and private efforts to lower pharmaceutical costs, including by limiting pharmacy reimbursements; |
| • | changes in, and our ability to comply with, healthcare laws, regulations or interpretations; |
| • | further consolidation of managed care organizations and other health plan payors and changes in the terms of our agreements with these parties; |
| • | our ability to retain members of our senior management team, our local pharmacy management teams and our pharmacy professionals; |
| • | our exposure to, and the results of, claims, legal proceedings and governmental inquiries; |
| • | our ability to maintain the security of our operating and information technology systems and infrastructure (e.g., against cyber-attacks); |
| • | product liability, product recall, personal injury or other health and safety issues related to the pharmaceuticals we dispense; |
| • | supply chain and other manufacturing disruptions related to the pharmaceuticals we dispense; |
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| • | the sufficiency of our existing cash and cash equivalents to fund our future operating expenses and capital expenditure requirements, and our ability to raise additional capital, if needed; and |
| • | the misuse or off-label use, or errors in the dispensing or administration, of the pharmaceuticals we dispense. |
New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in, or implied by, the forward-looking statements. Therefore, we caution you not to place undue reliance on any forward-looking statements or information. Any forward-looking statements only speak as of the date of this prospectus. We undertake no obligation to update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law, whether as a result of any new information, future events or otherwise.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.
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We currently operate as Guardian Pharmacy, LLC, an Indiana limited liability company. The membership interests of Guardian Pharmacy, LLC currently consist of Common Units and Preferred Units. Guardian Inc., which will issue the shares offered hereby, is currently a direct, wholly owned subsidiary of Guardian Pharmacy, LLC and was recently formed to complete the Corporation Reorganization described below and the offering being made hereby.
Prior to this offering, we have conducted our business through our majority owned and wholly owned subsidiaries. Immediately prior to the completion of this offering, we will complete the following transactions, which we refer to throughout this prospectus as the “Corporate Reorganization”:
| • | Pursuant to the operating agreement of Guardian Pharmacy, LLC, all Preferred Units will convert into Common Units, resulting in Guardian Pharmacy, LLC having only Common Units outstanding; |
| • | The membership interests held by members other than Guardian Pharmacy, LLC of our subsidiaries (other than certain subsidiaries that will not be parties to the Corporate Reorganization, as discussed below) will convert into Common Units of Guardian Pharmacy, LLC. The subsidiaries participating in the Corporate Reorganization are referred to as the “Converting Subsidiaries”; and |
| • | Guardian Merger Corp., an Indiana corporation and wholly owned subsidiary of Guardian Inc. (“Merger Sub”), will merge with and into Guardian Pharmacy, LLC, with Guardian Pharmacy, LLC surviving the merger as a wholly owned subsidiary of Guardian Inc., which will become a holding company for all of our operations. Pursuant to the merger, each Common Unit of Guardian Pharmacy, LLC will be converted into (i) one share of Class B common stock of Guardian Inc. and (ii) the right to receive $1.02 in cash, without interest (collectively, the “Merger Consideration”). We intend to use $55.2 million of the net proceeds from this offering to fund the aggregate cash portion of the Merger Consideration. See “Use of Proceeds.” |
As a result of the Corporate Reorganization, Guardian Inc. will be a holding company and the sole manager of Guardian Pharmacy, LLC, with no material assets other than its 100% interest in Guardian Pharmacy, LLC; and Guardian Pharmacy, LLC will wholly own and be the sole member of each of the Converting Subsidiaries. In addition, Guardian Pharmacy, LLC will continue to be the majority owner of each of the Non-Converting Subsidiaries.
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Giving effect to the Corporate Reorganization and this offering (assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock), the diagram below reflects our simplified corporate structure.
| (1) | Class A stockholders will initially consist of investors purchasing shares of Class A common stock in this offering. |
| (2) | Class B stockholders will initially consist of the legacy unitholders of Guardian Pharmacy, LLC prior to the Corporate Reorganization and the former members of our Converting Subsidiaries other than Guardian Pharmacy, LLC. |
| (3) | After the Corporate Reorganization, Guardian Inc. will operate its business through Guardian Pharmacy, LLC, its wholly owned Converting Subsidiaries and the majority-owned Non-Converting Subsidiaries. |
The aggregate number of shares of Class B common stock to be issued in connection with the Corporate Reorganization, including the number of such shares to be issued to each individual member of Guardian Pharmacy, LLC, will be impacted by the public offering price of shares of Class A common stock in this offering. Accordingly, the share information presented herein is based on an assumed public offering price of $15.00 per share, and may be subject to adjustment. Any such adjustments are not expected to be material.
The Non-Converting Subsidiaries collectively own nine pharmacies that are (i) greenfield start-up pharmacies in various stages of development and integration with Guardian and do not
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currently have material operations or (ii) pharmacies that we recently acquired. After a period of time sufficient to allow such pharmacies to adopt our operating practices and experience meaningful growth in residents served and earnings, we expect to acquire the minority membership interests of such Non-Converting Subsidiaries. Upon such acquisition, these subsidiaries will become wholly owned by us. The consideration paid for the equity we acquire will be determined by reference to the subsidiary’s value using a multiple of its earnings, and we anticipate that the acquisitions would occur within three to five years from the completion of this offering.
While the shares of Class A common stock offered hereby are being registered with the SEC and are expected to trade on the NYSE, our shares of Class B common stock will not be registered or traded on the NYSE. The certificate of incorporation of Guardian Inc. will provide that shares of Class B common stock will automatically convert on a one-for-one basis into shares of Class A common stock over a two-year period. With respect to each holder being issued shares of Class B common stock in the Corporate Reorganization, 25% of such holder’s shares of Class B common stock will convert into shares of Class A common stock on each of the following dates: (i) the date that is 6 months after the date of the closing of this offering (the “closing date”); (ii) the date of the one-year anniversary of the closing date; (iii) the date that is 18 months after the closing date; and (iv) the date of the two-year anniversary of the closing date. See “Description of Capital Stock—Common Stock—Transfer Restrictions and Conversion of Class B Common Stock” for more information.
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We estimate that the net proceeds from our issuance and sale of shares of our Class A common stock in this offering will be approximately $89.8 million, assuming a public offering price of $15.00 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting the underwriting discount and estimated offering expenses payable by us. If the underwriters exercise in full their option to purchase additional shares of Class A common stock, we estimate that the net proceeds from this offering will be approximately $103.9 million.
A $1.00 increase (decrease) in the assumed public offering price of $15.00 per share would increase (decrease) the amount of proceeds available to us from this offering by approximately $6.3 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.
Each 1,000,000 share increase (decrease) in the number of shares offered in this offering would increase (decrease) the net proceeds to us from this offering by approximately $14.0 million, assuming that the price per share for this offering remains at $15.00 (which is the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the underwriting discount and estimated offering expenses payable by us.
In connection with the Corporate Reorganization, each outstanding Common Unit of Guardian Pharmacy, LLC will be converted into (i) one share of Class B common stock of Guardian Inc. and (ii) the right to receive $1.02 in cash (without interest), which we collectively refer to as the Merger Consideration. See “Corporate Reorganization.” We intend to use $55.2 million of the net proceeds from this offering to fund the aggregate cash portion of the Merger Consideration and $20.0 million to repay certain borrowings on the line of credit under our existing credit facility. We intend to use the balance of the net proceeds for general corporate purposes and working capital.
The line of credit under our existing credit facility bears interest at a rate equal to the one-month Secured Overnight Financing Rate plus an additional rate of 1.80% to 2.80% based on certain financial ratios maintained by the Company. The maturity date of the credit facility is April 23, 2027. As of June 30, 2024, we had $9.0 million in borrowings outstanding under the line of credit. Subsequent to June 30, 2024 and prior to the completion of this offering, we expect to borrow additional amounts under the line of credit primarily to fund the payment of attorney’s fees, settlement costs and other expenses associated with certain legal proceedings, which constitute the amounts that will be repaid using a portion of the net proceeds from this offering.
Pending the use of proceeds from this offering, we may invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
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We do not currently intend to pay any cash dividends on our common stock. Any determination to declare dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including our financial condition, results of operations, legal requirements, restrictions in the agreements governing any indebtedness we may enter into and other factors that our board of directors deems relevant.
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The following table sets forth our cash, cash equivalents, long-term debt and capitalization as of June 30, 2024:
| • | for Guardian Pharmacy, LLC, on an actual basis; |
| • | for Guardian Inc., on a pro forma basis to give effect to the Corporate Reorganization, as if such event had occurred on June 30, 2024; and |
| • | for Guardian Inc., on a pro forma and as-adjusted basis to reflect (i) the Corporate Reorganization, (ii) our receipt of estimated net proceeds from the sale of 6,750,000 shares of our Class A common stock in this offering at the initial public offering price of $15.00 per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducting the underwriting discount and estimated offering expenses payable by us, and (iii) the application of $55.2 million of the net proceeds from this offering to fund the aggregate cash portion of the Merger Consideration and $20.0 million of the net proceeds from this offering to repay certain borrowings on the line of credit under our existing credit facility (as described in “Corporate Reorganization” and “Use of Proceeds”), in each case as if such events had occurred on June 30, 2024. |
The information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of the offering determined at the pricing of this offering. You should read this table together with the sections of this prospectus titled “Summary Historical Consolidated Financial and Other Data,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our historical consolidated financial statements and related notes thereto included elsewhere in this prospectus.
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| (in thousands, except share and per share data) | As of June 30, 2024 | |||||||||||
| Actual (unaudited) |
Pro forma (unaudited) |
Pro forma and as- adjusted (unaudited) |
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| Cash and cash equivalents |
$ | 1,538 | $ | 1,538 | $ | 16,162 | (1) | |||||
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| Long-term debt |
$ | 51,964 | (2) | $ | 51,964 | (2) | $ | 51,964 | (3) | |||
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| Members’ equity: |
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| Members’ equity |
$ | 17,877 | $ | — | $ | — | ||||||
| Members’ preferred return |
$ | — | $ | — | $ | — | ||||||
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| Total Guardian Pharmacy, LLC equity |
$ | 17,877 | $ | — | $ | — | ||||||
| Stockholders’ equity: |
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| Class A common stock, $0.001 par value per share: no shares authorized, issued and outstanding, actual; 700,000,000 shares authorized, no shares issued and outstanding, pro forma; and 700,000,000 shares authorized, 6,750,000 shares issued and outstanding, pro forma and as-adjusted |
$ | — | $ | — | $ | 7 | ||||||
| Class B common stock, $0.001 par value per share: no shares authorized, issued and outstanding, actual; 100,000,000 shares authorized, 54,094,123 shares issued and outstanding, pro forma; and 100,000,000 shares authorized, 54,094,123 shares issued and outstanding, pro forma and as-adjusted |
$ | — | $ | 54 | $ | 54 | ||||||
| Additional paid-in capital(4) |
$ | — | $ | 5,660 | (5) | $ | 101,703 | (6) | ||||
| Retained earnings (deficits) |
$ | — | $ | 60,757 | (7) | $ | 5,581 | (8) | ||||
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| Non-controlling interest(9) |
$ | 39,336 | $ | 6,235 | (10) | $ | 6,235 | (10) | ||||
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| Total members’/stockholders’ equity |
$ | 57,213 | $ | 72,706 | $ | 113,580 | ||||||
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| Total capitalization |
$ | 109,177 | $ | 124,670 | $ | 165,544 | ||||||
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| (1) | Represents pro forma cash and cash equivalents plus $89.8 million in net proceeds less $55.2 million of Merger Consideration and $20.0 million repayment on the line of credit. |
| (2) | Consists of $5,428 of long-term debt-current; $3,891 of finance leases-current; $30,027 of long-term debt-non-current; $3,618 of finance leases-non-current; and line of credit of $9,000. |
| (3) | Consists of $5,428 of long-term debt-current; $3,891 of finance leases-current; $30,027 of long-term debt-non-current; $3,618 of finance leases-non-current; and line of credit of $9,000. Gives effect to the application of $20.0 million in net proceeds from this offering that will be applied at closing to repay $20.0 million of additional amounts borrowed under the line of credit subsequent to June 30, 2024 primarily to fund the payment of attorney’s fees, settlement costs and other expenses associated with certain legal proceedings. |
| (4) | Each $1.00 increase or decrease in the public offering price per share of Class A common stock from the midpoint of the estimated price range set forth on the cover page of this prospectus would increase or decrease the paid-in capital and total members’/stockholders’ equity by approximately $6.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Each 1,000,000 share increase or decrease in the number of shares of Class A common stock issued and sold at the midpoint of the estimated price range set forth on the cover of this prospectus would increase or decrease the paid-in capital and total members’/stockholders’ equity by approximately $14.0 million. |
| (5) | Reflects reclassification of $155.1 million deficit from members’ equity and a $4.7 million decrease from deferred tax liabilities created in the conversion from a limited liability company to a C-corporation, offset by increases from incremental share-based compensation expense of $112.2 million arising from the Corporate Reorganization, $33.1 million in non-controlling interest attributable to Converting Subsidiaries whose interests will convert to Class B common stock as part of the Corporate reorganization, and a $20.2 million reclassification from liability-classified to equity-classified share-based payments. |
| (6) | Reflects pro forma additional paid-in capital plus $89.8 million in net offering proceeds less $7.5 million in capitalized offering costs and an increase of $13.8 million for deferred tax assets arising from the Merger Consideration payment. |
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| (7) | Reflects the reclassification of $173.0 million of retained earnings from members’ equity and incremental share-based compensation expense of $112.2 million arising from the Corporate Reorganization. |
| (8) | Reflects pro forma retained earnings, adjusted for the payment of $55.2 million in Merger Consideration. |
| (9) | Non-controlling interest reflects minority membership interests in our subsidiaries. Such minority membership interests in the Converting Subsidiaries (but not in the Non-Converting Subsidiaries) will be eliminated immediately prior to the completion of this offering pursuant to the Corporate Reorganization. The income attributable to non-controlling interests of Non-Converting Subsidiaries for all periods presented is immaterial to the consolidated financial statements. |
| (10) | Pro forma and pro forma and as-adjusted non-controlling interest represents actual non-controlling interest less $33.1 million in non-controlling interest attributable to Converting Subsidiaries whose interests will convert to Class B common stock as part of the Corporate Reorganization. |
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Dilution represents the difference between the amount per share paid by investors in this offering and the pro forma and as-adjusted net tangible book value per share of our common stock immediately after this offering. The data in this section is derived from our balance sheet as of June 30, 2024 and is presented on a pro forma basis after giving effect to the Corporate Reorganization. The pro forma net tangible book value per share is equal to our total tangible assets less the amount of our total liabilities, divided by the sum of the number of our shares of common stock that will be outstanding immediately prior to the closing of this offering after giving effect to the Corporate Reorganization. Our pro forma net tangible book value as of June 30, 2024 was $(8.8) million, or $(0.16) per share.
After giving effect to our receipt of the estimated net proceeds from our sale of Class A common stock in this offering, based on an assumed public offering price of $15.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting the underwriting discount and other estimated offering expenses payable by us, our pro forma and as-adjusted net tangible book value as of June 30, 2024 would have been $32.1 million, or $0.53 per share. This represents an immediate dilution to new investors in this offering of $14.47 per share. The following table illustrates this per share dilution:
| Assumed public offering price per share |
$ | 15.00 | ||||||
| Pro forma net tangible book value per share as of June 30, 2024 |
$ | (0.16 | ) | |||||
| Increase in net tangible book value per share attributable to new investors |
$ | 0.69 | ||||||
|
|
|
|||||||
| Pro forma and as-adjusted net tangible book value per share after this offering |
$ | 0.53 | ||||||
|
|
|
|||||||
| Dilution per share to new investors |
$ | 14.47 | ||||||
|
|
|
|||||||
A $1.00 increase (decrease) in the assumed public offering price of $15.00 per share would increase (decrease) our pro forma and as-adjusted net tangible book value by $6.3 million, the pro forma and as-adjusted net tangible book value per share after this offering by $0.10 and the dilution per share to new investors by $0.90, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each increase of 1,000,000 shares in the number of shares offered by us would increase our pro forma and as-adjusted net tangible book value by $14.0 million, increase the pro forma and as-adjusted net tangible book value per share after this offering by $0.22 and decrease the dilution per share to new investors by $(0.22), assuming the assumed public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. Each decrease of 1,000,000 shares in the number of shares offered by us would decrease our pro forma and as-adjusted net tangible book value by $(14.0) million, decrease the pro forma and as-adjusted net tangible book value per share after this offering by $(0.22) and increase the dilution per share to new investors by $0.22, assuming the assumed public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.
If the underwriters fully exercise their option to purchase additional shares, pro forma and as-adjusted net tangible book value after this offering would increase by approximately $0.22 per share, and there would be an immediate dilution of approximately $(0.22) per share to new investors.
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The following table presents, on a pro forma as-adjusted basis, as described above, the differences between the Class B stockholders on a pro forma basis and the purchasers of shares of Class A common stock in this offering with respect to the number of shares of Class A common stock purchased from us, the total consideration paid, and the average price paid per share at an assumed public offering price of $15.00 per share (the midpoint of the range set forth on the cover page of this prospectus):
| Shares Purchased |
Total Consideration |
Average Price | ||||||||||||||||||
| Number |
Percent |
Amount |
Percent |
Per Share |
||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||
| Class B stockholders on a pro forma basis |
54,094 | 89 | % | $ | 731,212 | 88 | % | $ | 13.52 | |||||||||||
| New investors |
6,750 | 11 | 101,250 | 12 | 15.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
60,844 | 100 | % | $832,462 | 100 | % | $ | 13.68 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in further dilution to holders of our Class A common stock.
To the extent that any equity awards are issued under our incentive plan, investors participating in this offering will experience further dilution.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our historical consolidated financial statements and related notes thereto included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions, that are based on the beliefs of our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this prospectus entitled “Risk Factors.” See “Special Note Regarding Forward-Looking Statements.”
Overview
We are a leading, highly differentiated pharmacy services company that provides an extensive suite of technology-enabled services designed to help residents of LTCFs adhere to their appropriate drug regimen, which in turn helps reduce the cost of care and improve clinical outcomes. We enter into contracts directly with LTCFs to serve as the principal pharmacy provider for their residents. In this capacity, we offer high-touch, individualized clinical, drug dispensing and administration capabilities that are tailored to serve the needs of residents in historically lower acuity LTCFs, such as ALFs and BHFs. Additionally, our robust capabilities enable us to serve residents in all types of LTCFs. Our services include prescription intake and adjudication management, packaging drugs into unit dose and/or multi-dose compliance packaging that are organized by date and time of administration, and electronically tracking each drug from delivery through administration to LTCF residents. We also offer training to caregivers and conduct mock audits to ensure compliance with pharmacy administration requirements, billing claims processing, government regulation and other matters. As of June 30, 2024, our 48 operating pharmacies served approximately 174,000 residents in approximately 6,700 LTCFs across 36 states. Additionally, we currently have two greenfield pharmacies that we expect to become operational during 2024.
While our national competitors have primarily focused on SNFs, we believe we enjoy a strong competitive position as a large and purpose-built provider of pharmacy services to ALFs and BHFs. More than two-thirds of our annual revenue for each of the past three years has been generated from residents of ALFs and BHFs, while the remainder has been generated primarily from residents of SNFs. LTCF industry trends, including aging demographics, increases in the number of assisted living residents, improving life expectancies and enhanced quality of care, have resulted in ALF and BHF resident populations that require assistance with their increasingly acute and complex healthcare needs. Through our value-added capabilities and local management model, we have been able to pass on to residents, LTCFs and health plan payors the benefits of our scale without compromising on the high-touch, localized customer service traditionally associated with an independent pharmacy. For this reason, we are well positioned to continue to serve ALFs and BHFs, which we believe to be the most attractive and highest growth sector of the LTCF market.
Our core growth strategy focuses on increasing the number of residents we serve through a combination of organic and acquired growth. Acquired growth represents growth in the number of residents served resulting from acquiring an operating pharmacy, which we measure using the number of residents served by the acquired pharmacy as of the acquisition date. Organic growth represents the increase in the number of residents served at existing pharmacies, our greenfield pharmacies, and acquired pharmacies subsequent to the acquisition date. We have generated
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organic growth through new and expanded LTCF relationships as well as increased resident adoption of our services in the facilities we already serve.
Prior to this offering, our local pharmacy operators have historically maintained minority membership interests in the Company’s subsidiary limited liability companies. In connection with this offering, we will complete the Corporate Reorganization, pursuant to which, among other things, the membership interests in the Converting Subsidiaries and in Guardian Pharmacy, LLC will be converted into shares of Class B common stock of Guardian Inc., and as a result, these minority interests (other than those in the Non-Converting Subsidiaries) will be eliminated.
Acquisitions
The Company’s growth strategy involves periodically acquiring institutional pharmacies servicing LTCFs and their residents as well as residents in other care settings. The Company’s strategy includes the acquisition of freestanding institutional pharmacy businesses as well as other assets, generally less significant in size, which are combined with existing pharmacy operations to augment internal growth.
During April 2024, the Company completed the acquisition of four operating pharmacy locations (collectively, the “Acquisitions”). The operating results of the Acquisitions were a contributing factor in certain changes in the results of operations for the three and six months ended June 30, 2024 compared to the corresponding periods in 2023.
Seasonality
We generally do not experience significant seasonality in our business results.
Components of Results of Operations
Revenue. We recognize revenue at the time of delivery of prescriptions and other pharmacy services to the LTCF, at which time control has been transferred. Revenue recognized reflects the consideration we expect to receive in exchange for these goods and services.
Cost of goods sold. Cost of goods sold consists primarily of expenses associated with the fulfillment and delivery of the prescription. Cost of goods sold also includes associated pharmacy personnel-related expenses, including salaries and benefits, delivery charges and other supporting overhead costs (such as rent and depreciation and amortization of assets used in the fulfillment and delivery of the prescription).
Selling, general, and administrative. Selling, general, and administrative consists primarily of personnel-related expenses, including share-based compensation, salaries and benefits, for our employees at the pharmacies and support services engaged in other pharmacy related activities including sales and marketing, finance, legal, human resources, purchasing and other administrative functions. Selling, general, and administrative also includes facilities-related expenses, software expenses, sales and marketing expenses, insurance premiums, professional services expenses, including for outside legal and accounting services, and other overhead costs. This also includes changes in the fair value of contingent payments related to acquisitions, depreciation related to long lived assets, and amortization of intangible assets.
Share-based compensation expense (income) primarily represents non-cash recognition of changes in the value of units. These units contain a cash settlement feature and are accounted for as a liability in accordance with GAAP. These units remain in place until they are (a) forfeited
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(which occurs when the employee leaves before the units are fully vested), (b) paid out (we purchase the units at a calculated value upon termination of employment) or (c) converted into shares as a result of a major capital event such as a sale or public offering. These units vest in their entirety on the third anniversary of their grant date. The value of the units is recognized ratably over the vesting period and is remeasured and reported at the end of each quarter based on the change in calculated value pursuant to our Restricted Interest Purchase Agreements. The primary inputs used to value the units include the accumulated vesting status of the issued units, the trailing four quarters of our adjusted earnings, inclusive of share-based compensation expense (income), and our outstanding capital and debt obligations as of the quarterly measurement date. The liability and corresponding expense are adjusted on a quarterly basis.
Based on the number of participants and units outstanding, trailing earnings, forfeitures and other factors, we have experienced volatility in our share-based compensation liability. This calculation has in turn had a significant impact on our net income for the periods presented. In connection with the Corporate Reorganization and this offering, all outstanding Restricted Interest Units, other than those issued by Non-Converting Subsidiaries, will be converted into shares of Class B common stock and will no longer be considered a liability. We do anticipate, however, that new subsidiaries formed to acquire or open new pharmacies after this offering, which will be majority but not wholly owned by us, will issue units from time to time, and those interests will remain outstanding until we acquire the minority interests of those subsidiaries. See “Business—Our Growth Strategy.” As to all of our management and support employees not associated with a particular pharmacy and all employees of our wholly owned subsidiaries (which will be the majority of our subsidiaries after this offering), we will issue stock-based equity incentive compensation awards under a new long-term incentive plan. Awards issued under this plan are currently expected to be accounted for as equity awards under GAAP, having no requirement to revalue and recognize the granted awards at their fair value each quarterly period. See “Executive Compensation—2024 Equity and Incentive Compensation Plan.” As a result of these anticipated changes, we expect the volatility in net income we have previously experienced from changes in this equity-based liability will be substantially lessened following this offering.
Interest expense. Interest expense consists of interest on our long-term debt and line of credit under our credit facility and finance leases.
Other expense, net. Other expense, net consists primarily of franchise tax payments for the states in which we operate and gain (loss) on asset disposals.
Adjusted EBITDA. We define Adjusted EBITDA as net income before interest expense and depreciation and amortization, as adjusted to exclude the impact of items and amounts that we view as not indicative of our core operating performance, including share-based compensation, acquisition accounting adjustments, and certain legal and regulatory items. Adjusted EBITDA does not have a definition under GAAP, and our definition of Adjusted EBITDA may not be the same as, or comparable to, similarly titled measures used by other companies. See “Prospectus Summary—Summary Historical Consolidated Financial and Other Data—Adjusted EBITDA and Other Non-GAAP Financial Measures” for more information.
Financial and Operational Highlights for the Three and Six Months Ended June 30, 2024
For the three and six months ended June 30, 2024, we generated revenue of $300.0 million and $575.4 million, compared to $253.4 million and $502.4 million for the same periods in 2023, representing year-over-year growth of 18.4% and 14.5%, respectively. The increases were primarily due to the organic growth of our business, coupled with revenues from the Acquisitions. For the three and six months ended June 30, 2024, we generated net income of $15.8 million and
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$22.9 million, compared to net income of $24.4 million and $30.2 million for the same periods in 2023, respectively. The decreases in net income were primarily due to share-based compensation expense (income) for the three and six months ended June 30, 2024, compared to the corresponding periods in 2023. Adjusted EBITDA was $21.7 million and $41.9 million for the three and six months ended June 30, 2024, compared to $18.1 million and $37.2 million for the same periods in 2023, respectively.
During June 2024, we served approximately 174,000 residents, compared to approximately 156,000 residents during June 2023, representing year-over-year growth of 11.5%. For the three and six months ended June 30, 2024, we also dispensed 6.2 million and 12.0 million prescriptions, compared to 5.4 million and 10.7 million prescriptions for the same periods in 2023, representing year-over-year growth of 14.8% and 12.1%, respectively. The increases were primarily due to increasing resident adoption and new facility contracts, which are fundamental drivers of organic growth in our business, and the Acquisitions.
Financial and Operational Highlights for the Year Ended December 31, 2023
For the year ended December 31, 2023, we generated revenue of $1.046 billion, compared to $908.9 million for the year ended December 31, 2022, representing year-over-year growth of 15.1%. The increase was primarily due to the organic growth of our business. For the year ended December 31, 2023, we generated net income of $37.7 million, compared to net income of $49.7 million for the year ended December 31, 2022, representing a year-over-year decrease of 24.1%. The decrease in net income was primarily due to the impact of non-recurring attorneys’ fees, settlement costs and other expenses associated with certain legal proceedings accounted for in 2023 when compared to the year ended December 31, 2022. Adjusted EBITDA was $76.2 million for the year ended December 31, 2023, compared to $65.7 million for the year ended December 31, 2022.
During December 2023, we served approximately 163,000 residents, compared to approximately 151,000 residents during December 2022, representing a year-over-year increase of 7.9%. For the year ended December 31, 2023, we also dispensed approximately 22.2 million prescriptions, compared to approximately 20.2 million prescriptions for the same period in 2022, representing year-over-year growth of 9.9%. The increases were primarily due to increasing resident adoption and new facility contracts, which are fundamental drivers of organic growth in our business.
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Results of Operations for the Three and Six Months Ended June 30, 2023 and 2024
The following table sets forth our consolidated statements of income data for the three and six months ended June 30, 2023 and 2024, respectively. The year-over-year comparison of results of operations is not necessarily indicative of results for future periods.
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| (in thousands) | 2023 | 2024 | 2023 | 2024 | ||||||||||||
| Revenues |
$ | 253,439 | $ | 300,037 | $ | 502,385 | $ | 575,447 | ||||||||
| Cost of goods sold |
203,117 | 238,749 | 400,845 | 459,058 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
50,322 | 61,288 | 101,540 | 116,389 | ||||||||||||
| Selling, general, and administrative(1) |
25,027 | 44,283 | 69,788 | 91,451 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating income |
25,295 | 17,005 | 31,752 | 24,938 | ||||||||||||
| Other expenses: |
||||||||||||||||
| Interest expense |
702 | 1,066 | 1,404 | 1,831 | ||||||||||||
| Other expense, net |
151 | 91 | 192 | 164 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total other expense |
853 | 1,157 | 1,596 | 1,995 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income |
24,442 | 15,848 | 30,156 | 22,943 | ||||||||||||
| Less: net income attributable to non-controlling interest(2) |
(2,972 | ) | (5,224 | ) | (6,982 | ) | (9,533 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income attributable to Guardian Pharmacy, LLC |
$ | 21,470 | $ | 10,624 | $ | 23,174 | $ | 13,410 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted EBITDA(3) |
$ | 18,129 | $ | 21,676 | $ | 37,155 | $ | 41,931 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Included in selling, general, and administrative expenses is share-based compensation expense (income) of ($11,997) and ($272) during the three months ended June 30, 2023 and 2024, respectively, and ($4,068) and $5,673 during the six months ended June 30, 2023 and 2024, respectively. This share-based compensation expense and income primarily represents non-cash recognition of changes in the value of units, and has historically been recorded as a liability using a cash settlement methodology as calculated on a quarterly basis. In connection with the completion of this offering, we will implement a new equity plan that is expected to be accounted for as equity awards under GAAP. As a result, we expect volatility in net income from material changes in the liability associated with units will be substantially lessened following this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations—Selling, general, and administrative” and “Executive Compensation—2024 Equity and Incentive Compensation Plan.” |
| (2) | These figures reflect minority membership interests in our subsidiaries. Such minority membership interests in the Converting Subsidiaries (but not in the Non-Converting Subsidiaries) will be eliminated immediately prior to the completion of this offering pursuant to the Corporate Reorganization. The income attributable to non-controlling interests of Non-Converting Subsidiaries for all periods presented is immaterial to the consolidated financial statements. |
| (3) | See “Prospectus Summary—Summary Historical Consolidated Financial and Other Data—Adjusted EBITDA and Other Non-GAAP Financial Measures” for more information and for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
Revenue
| Three Months Ended June 30, |
% Change | Six Months Ended June 30, |
% Change | |||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | |||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||
| Revenue |
$ | 253,439 | $ | 300,037 | 18.4 | % | $ | 502,385 | $ | 575,447 | 14.5 | % | ||||||||||||
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Revenue for the three months ended June 30, 2024 increased by $46.6 million or 18.4% compared to the three months ended June 30, 2023. $15.9 million of the increase was attributable to revenue from the Acquisitions, with the remaining $30.7 million of the increase attributable to the organic growth of our business. Further, the increase was attributable to increases in the number of residents served from 156,000 residents during June 2023 to 174,000 residents during June 2024 and prescriptions dispensed from 5.4 million during the three months ended June 30, 2023 to 6.2 million during the three months ended June 30, 2024, as well as annual drug price inflation.
Revenue for the six months ended June 30, 2024 increased by $73.1 million or 14.5% compared to the six months ended June 30, 2023. $15.9 million of the increase was attributable to revenue from the Acquisitions, with the remaining $57.2 million of the increase attributable to the organic growth of our business. Further, the increase was attributable to increases in the number of residents served from 156,000 residents during June 2023 to 174,000 residents during June 2024 and prescriptions dispensed from 10.7 million during the six months ended June 30, 2023 to 12.0 million during the six months ended June 30, 2024, as well as annual drug price inflation.
Cost of goods sold
| Three Months Ended June 30, |
% Change | Six Months Ended June 30, |
% Change | |||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | |||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||
| Cost of goods sold |
$ | 203,117 | $ | 238,749 | 17.5 | % | $ | 400,845 | $ | 459,058 | 14.5 | % | ||||||||||||
| Percentage of revenue |
80.1 | % | 79.6 | % | 79.8 | % | 79.8 | % | ||||||||||||||||
Cost of goods sold for the three months ended June 30, 2024 increased by $35.6 million or 17.5% compared to the three months ended June 30, 2023. $13.9 million of the increase was attributable to the Acquisitions, with the remaining $21.7 million of the increase attributable to the organic growth of our business. Cost of goods sold as a percentage of revenue decreased from 80.1% to 79.6% during the three months ended June 30, 2024.
Cost of goods sold for the six months ended June 30, 2024 increased by $58.2 million or 14.5% compared to the six months ended June 30, 2023. $13.9 million of the increase was attributable to the Acquisitions, with the remaining $44.3 million increase attributable to the organic growth of our business. Cost of goods sold as a percentage of revenue remained consistent, at 79.8% for both periods.
Selling, general, and administrative
| Three Months Ended June 30, |
% Change | Six Months Ended June 30, |
% Change | |||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | |||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||
| Selling, general, and administrative |
$ | 25,027 | $ | 44,283 | 76.9 | % | $ | 69,788 | $ | 91,451 | 31.0 | % | ||||||||||||
| Percentage of revenue |
9.9 | % | 14.8 | % | 13.9 | % | 15.9 | % | ||||||||||||||||
Selling, general and administrative expenses increased $19.3 million or 76.9% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily due to share-based compensation expense (income), which was an income of ($0.3) million for the three months ended June 30, 2024, compared to ($12.0) million for the three months ended June 30, 2023. Additionally, $7.6 million of the increase in selling, general, and administrative expenses was driven by an increase in average employee headcount, with $5.6 million resulting from organic growth and $2.0 million resulting from the Acquisitions. Selling, general and administrative expense as a percentage of revenue increased from 9.9% to 14.8% based primarily on decreases to share-based compensation income described above.
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Selling, general and administrative expenses increased $21.7 million or 31.0% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily due to share-based compensation expense (income), which was an expense of $5.7 million for the six months ended June 30, 2024, compared to an income of ($4.1) million for the six months ended June 30, 2023. Additionally, $11.9 million of the increase in selling, general, and administrative expenses was driven by an increase in average employee headcount, with $9.9 million resulting from organic growth and $2.0 million resulting from the Acquisitions. Selling, general, and administrative expense as a percentage of revenue increased from 13.9% to 15.9% based primarily on increases in share-based compensation expense described above.
Interest expense
| Three Months Ended June 30, |
% Change | Six Months Ended June 30, |
% Change | |||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | |||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||
| Interest expense |
$ | 702 | $ | 1,066 | 51.9 | % | $ | 1,404 | $ | 1,831 | 30.4 | % | ||||||||||||
Interest expense increased $0.4 million or 51.9% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily due to increased utilization of the Credit Facility (see Liquidity and Capital Resources below), coupled with higher interest rates on the Company’s outstanding indebtedness.
Interest expense increased $0.4 million or 30.4% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily due to increased utilization of the Credit Facility (see Liquidity and Capital Resources below), coupled with higher interest rates on the Company’s outstanding indebtedness.
Net income and Adjusted EBITDA
| Three Months Ended June 30, |
% Change | Six Months Ended June 30, |
% Change | |||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | |||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||
| Net income |
$ | 24,442 | $ | 15,848 | (35.2 | )% | $ | 30,156 | $ | 22,943 | (23.9 | )% | ||||||||||||
| Percentage of revenue |
9.6 | % | 5.3 | % | 6.0 | % | 4.0 | % | ||||||||||||||||
| Adjusted EBITDA |
$ | 18,129 | $ | 21,676 | 19.6 | % | $ | 37,155 | $ | 41,931 | 12.9 | % | ||||||||||||
| Percentage of revenue |
7.2 | % | 7.2 | % | 7.4 | % | 7.3 | % | ||||||||||||||||
Net income for the three and six months ended June 30, 2024 was $15.8 million and $22.9 million, respectively, compared to net income of $24.4 million and net income of $30.2 million for the three and six months ended June 30, 2023, respectively, and Adjusted EBITDA for the three and six months ended June 30, 2024 was $21.7 million and $41.9 million, respectively, compared to $18.1 million and $37.2 million for the three and six months ended June 30, 2023, respectively, due to the factors described above. For the three months ended June 30, 2024 and 2023, net income as a percentage of revenue decreased from 9.6% to 5.3%. For the six months ended June 30, 2024 and 2023, net income as a percentage of revenue decreased from 6.0% to 4.0%. For the three months ended June 30, 2024 and 2023, Adjusted EBITDA as a percentage of revenue remained consistent at 7.2%. For the six months ended June 30, 2024 and 2023, Adjusted EBITDA as a percentage of revenue decreased from 7.4% to 7.3%. See “Prospectus Summary—Summary Historical Consolidated Financial and Other Data—Adjusted EBITDA and Other Non-GAAP Financial Measures” for more information and for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
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Results of Operations for the Years Ended December 31, 2022 and 2023
The following table sets forth our consolidated statements of income data for the years ended December 31, 2022 and 2023, respectively. The year-over-year comparison of results of operations is not necessarily indicative of results for future periods.
| (in thousands) | Year Ended December 31, | |||||||
| 2022 | 2023 | |||||||
| Revenue |
$ | 908,909 | $ | 1,046,193 | ||||
| Cost of goods sold |
723,043 | 837,883 | ||||||
|
|
|
|
|
|||||
| Gross profit |
185,866 | 208,310 | ||||||
| Selling, general, and administrative(1) |
133,876 | 167,364 | ||||||
|
|
|
|
|
|||||
| Operating income |
51,990 | 40,946 | ||||||
| Other expense: |
||||||||
| Interest expense |
1,926 | 2,859 | ||||||
| Other expense, net |
403 | 367 | ||||||
|
|
|
|
|
|||||
| Total other expense |
2,329 | 3,226 | ||||||
|
|
|
|
|
|||||
| Net income |
49,661 | 37,720 | ||||||
| Less net income attributable to non-controlling interest(2) |
(14,240 | ) | (13,818 | ) | ||||
|
|
|
|
|
|||||
| Net income attributable to Guardian Pharmacy, LLC |
$ | 35,421 | $ | 23,902 | ||||
|
|
|
|
|
|||||
| Adjusted EBITDA(3) |
$ | 65,714 | $ | 76,175 | ||||
|
|
|
|
|
|||||
| (1) | Included in Selling, general, and administrative expenses is share-based compensation expense (income) of ($3,381) and ($6,090) during the year ended December 31, 2022 and 2023, respectively. This share-based compensation income primarily represents non-cash recognition of changes in the value of units, which has historically been recorded as a liability using a cash settlement methodology as calculated on a quarterly basis. In connection with the completion of this offering, we will implement a new equity plan that is expected to be accounted for as equity awards under GAAP. As a result, we expect volatility in net income from material changes in the liability associated with units will be substantially lessened following this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations—Selling, general, and administrative and “Executive Compensation—2024 Equity and Incentive Compensation Plan.” |
| (2) | These figures reflect minority membership interests in our subsidiaries. Such minority membership interests in the Converting Subsidiaries (but not in the Non-Converting Subsidiaries) will be eliminated immediately prior to the completion of this offering pursuant to the Corporate Reorganization. The income attributable to non-controlling interests of Non-Converting Subsidiaries for all periods presented is immaterial to the consolidated financial statements. |
| (3) | See “Prospectus Summary—Summary Historical Consolidated Financial and Other Data—Adjusted EBITDA and Other Financial Measures” for more information and for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
Revenue
| Year Ended December 31, |
% Change | |||||||||||
| 2022 | 2023 | |||||||||||
| (in thousands) | ||||||||||||
| Revenue |
$ | 908,909 | $ | 1,046,193 | 15.1 | % | ||||||
Revenue for the year ended December 31, 2023 increased by $137.3 million or 15.1% compared to the year ended December 31, 2022. The increase was primarily due to the organic growth of our business, including an increase in the number of residents served from 151,000
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residents during December 2022 to 163,000 residents during December 2023, prescriptions dispensed from 20.2 million during 2022 to 22.2 million during 2023 and annual drug price inflation.
Cost of goods sold
| Year Ended December 31, |
% Change | |||||||||||
| 2022 | 2023 | |||||||||||
| (in thousands) | ||||||||||||
| Cost of goods sold |
$ | 723,043 | $ | 837,883 | 15.9 | % | ||||||
| Percentage of revenue |
79.6 | % | 80.1 | % | ||||||||
Cost of goods sold for the year ended December 31, 2023 increased by $114.8 million or 15.9% compared to the year ended December 31, 2022. The increase was primarily due to the organic growth of our business and higher personnel and delivery costs related to the effects of economic inflation in 2023. As a percentage of revenue, costs of goods sold was 80.1% in the year ended December 31, 2023 compared to 79.6% for the year ended December 31, 2022. Costs outpaced the revenue increase primarily as a result of prescription cost and labor inflationary pressure not fully realized in price increases, however, we were able to manage our pharmacy based labor and overhead cost to achieve only moderate increases in costs of goods sold in relation to revenue.
Selling, general, and administrative
| Year Ended December 31, |
% Change | |||||||||||
| 2022 | 2023 | |||||||||||
| (in thousands) | ||||||||||||
| Selling, general, and administrative |
$ | 133,876 | $ | 167,364 | 25.0 | % | ||||||
| Percentage of revenue |
14.7 | % | 16.0 | % | ||||||||
Selling, general, and administrative expenses increased $33.5 million or 25.0% for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to recognition in 2023 of $23.5 million in non-recurring attorneys’ fees, settlement costs and other expenses associated with certain legal proceedings compared to $3.6 million in 2022. Additionally, increases in 2023 of $16.3 million relate to the organic growth of our business and economic inflation, which drove higher operating expenses (including costs associated with increased sales activity, travel, and facility-related expenses). These increases in 2023 were offset by share-based compensation expense (income) of ($6.1) million, compared to share-based compensation expense (income) in 2022 of ($3.4) million. As a percentage of revenue, selling, general and administrative expenses increased from 14.7% in 2022 to 16.0% in 2023, respectively, which is primarily a result of the non-recurring legal expenses described above.
Interest expense
| Year Ended December 31, |
% Change | |||||||||||
| 2022 | 2023 | |||||||||||
| (in thousands) | ||||||||||||
| Interest expense |
$ | 1,926 | $ | 2,859 | 48.4 | % | ||||||
Interest expense increased $0.9 million or 48.4% for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to higher interest rates on the Company’s outstanding indebtedness.
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Net income and Adjusted EBITDA
| Year Ended December 31, |
% Change | |||||||||||
| 2022 | 2023 | |||||||||||
| (in thousands) | ||||||||||||
| Net income |
$ | 49,661 | $ | 37,720 | (24.0 | )% | ||||||
| % of revenue |
5.5 | % | 3.6 | % | ||||||||
| Adjusted EBITDA |
$ | 65,714 | $ | 76,175 | 15.9 | % | ||||||
| % of revenue |
7.2 | % | 7.3 | % | ||||||||
Net income for the year ended December 31, 2023 was $37.7 million, compared to $49.7 million for the year ended December 31, 2022, and Adjusted EBITDA for the year ended December 31, 2023 was $76.2 million compared to $65.7 million for the year ended December 31, 2022, due to the factors described above. As a percentage of revenue, net income decreased from 5.5% to 3.6% and Adjusted EBITDA increased from 7.2% to 7.3%. See “Prospectus Summary—Summary Historical Consolidated Financial and Other Data—Adjusted EBITDA and Other Non-GAAP Financial Measures” for more information and for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Liquidity and Capital Resources
We have historically financed our business and acquisitions primarily through cash from operations and borrowings under our credit facility. We use cash in the ordinary course of our operations primarily for prescription drug acquisition costs, capital expenditures, and personnel costs. As of June 30, 2024, we had $1.5 million in cash and cash equivalents. Our cash primarily consists of demand deposits held with a large regional financial institution.
On May 13, 2024, the Company entered into the Sixth Amendment to the Third Amended and Restated Loan and Security Agreement (the “2024 Amendment”) to the existing credit facility with Regions Bank (the “Credit Facility”). The Credit Facility provides for term loans (the “Term Loan”) and a line of credit. The 2024 Amendment extended the maturity date of the Credit Facility from April 23, 2025 to April 23, 2027. The line of credit under the Credit Facility bears an interest rate equal to the one-month Secured Overnight Financing Rate (“SOFR”) plus an additional rate of 1.80% to 2.80% based on certain financial ratios maintained by the Company. Additionally, the 2024 Amendment added a new term loan of $15.0 million to the Credit Facility. The interest rate of the Term Loan bears an interest rate equal to the one-month SOFR plus an additional rate of 1.80% to 2.80% based on certain financial ratios maintained by the Company. The Term Loan is payable in quarterly installments of $1.4 million through March 31, 2027, with the remaining balance of the Term Loan due in a final lump sum payment at maturity on April 23, 2027.
As of June 30, 2024, we had $35.6 million in principal outstanding under the Term Loan and $9.0 million borrowings outstanding under the line of credit.
In connection with completing the Corporate Reorganization and the offering made hereby, Guardian Pharmacy, LLC and the Converting Subsidiaries will make certain final distributions to their respective members relating to time periods ending before or upon the closing of the Corporate Reorganization. We estimate that the total amount of such final distributions by Guardian to its members subsequent to June 30, 2024 (including those made before and expected to be made after the date of this prospectus) will be approximately $20.0 million. All of such distributions are made in ordinary course related to operating distributions and are expected to be paid from cash that is available to us prior to this offering. See “Corporate Reorganization.”
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We believe our existing cash and cash equivalents and the amounts available under our Credit Facility will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months, though we may require additional capital resources in the future.
Net Cash Flows
For the years ended December 31, 2022 and 2023, and for the six months ended June 30, 2023 and 2024, respectively, our net cash flows were as follows:
| Net cash provided by (used in): |
| |||||||||||||||
| Year Ended December 31, |
Six Months Ended June 30, |
|||||||||||||||
| 2022 | 2023 | 2023 | 2024 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Operating activities |
$ | 48,522 | $ | 70,819 | $ | 41,454 | $ | 37,787 | ||||||||
| Investing activities |
$ | (17,899 | ) | $ | (13,441 | ) | $ | (7,582 | ) | $ | (16,702 | ) | ||||
| Financing activities |
$ | (45,028 | ) | $ | (57,233 | ) | $ | (33,810 | ) | $ | (20,299 | ) | ||||
Operating Activities
Cash flows provided by operating activities consist of our net income principally adjusted for certain non-cash items, such as depreciation and amortization, provision for losses on accounts receivable, and share-based compensation expense (income). Cash flows used in operating activities consist primarily of changes in our operating assets and liabilities.
Net cash provided by operating activities for the year ended December 31, 2023 increased by $22.3 million compared to the year ended December 31, 2022. The increase was primarily due to decreases in inventory and increases in accrued compensation and other liabilities when compared to 2022, offset by decreases in net income and increases in other current assets when compared to 2022.
Net cash provided by operating activities for the six months ended June 30, 2024 decreased by $3.7 million compared to the corresponding period in 2023. The decrease was primarily due to increases in receivables and inventories, offset by increases in accounts payable and other operating liabilities when compared to the corresponding period in 2023.
Investing Activities
Cash flows provided by investing activities consist primarily of proceeds from disposition of property and equipment and proceeds from disposition of business. Cash flows used in investing activities consist primarily of capital expenditures relating to our new and existing pharmacy locations and payments related to acquisitions.
Net cash used in investing activities for the year ended December 31, 2023 decreased by $4.5 million compared to the year ended December 31, 2022. The decrease was primarily due to lower capital expenditures of $2.2 million in the year ended December 31, 2023 compared to the year ended December 31, 2022, and lower payments of $1.0 million relating to acquisitions in the year ended December 31, 2023, compared to the year ended December 31, 2022.
Net cash used in investing activities for the six months ended June 30, 2024 increased by $9.1 million compared to the corresponding period in 2023. The increase was primarily due to the cash paid for the Acquisitions of $10.2 million offset by $0.8 million less of capital expenditures when compared to the corresponding period in 2023.
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Financing Activities
Cash flows provided by financing activities consist primarily of borrowings from the term loan (recorded as borrowings from notes payable) and the line of credit. Cash flows used in financing activities consist primarily of distributions to our equityholders (inclusive of non-controlling interests), which have mostly consisted of distributions to fund tax liabilities and operational distributions, as well as return of capital and repayment of borrowings from the term loan (recorded as repayment of notes payable) and the line of credit.
Net cash used in financing activities for the year ended December 31, 2023 increased by $12.2 million compared to the year ended December 31, 2022. The increase was primarily due to an increase in distributions to equityholders of $12.3 million in the year ended December 31, 2023 compared to the year ended December 31, 2022.
Net cash used in financing activities for the six months ended June 30, 2024 decreased by $13.5 million compared to the corresponding period in 2023. The decrease is primarily due to the 2024 Amendment resulting in $15.0 million being added to the Credit Facility offset by $1.9 million increase in distributions to equityholders when compared to the corresponding period in 2023.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP. Preparing our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as related disclosures. Because these estimates and judgments may change from period to period, actual results could differ materially, which may negatively affect our financial condition or results of operations. We base our estimates and judgments on historical experience and various other assumptions that we consider reasonable, and we evaluate these estimates and judgments on an ongoing basis. We refer to such estimates and judgments, discussed further below, as critical accounting policies and estimates.
Refer to Note 1 to our consolidated financial statements included elsewhere in this prospectus for further information on our significant accounting policies.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Each prescription claim represents a separate performance obligation by us, separate and distinct from other prescription claims under customer arrangements.
A significant portion of our revenues from sales of pharmaceutical and medical products is subject to reimbursement by federal Medicare (i.e., Part A, B, D) programs and state Medicaid programs. The total net sales and receivables reported on our consolidated financial statements are recorded at the amount expected to be ultimately received from these payors. Billing functions for a portion of our revenue systems are largely computerized, submitting claims for online adjudication electronically, with simultaneous feedback of the amount to be received at the time of sale to determine and record net revenues.
Resident co-payments are billed to the resident as part of our normal billing procedures. Additionally, we bill certain long-term care facilities for the sale of pharmaceuticals. These billings are subject to our normal accounts receivable collections procedures.
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Allowance for Credit Losses
We adopted Accounting Standards Codification (“ASC”) 326, effective as of January 1, 2023, utilizing the modified retrospective method of adoption. Accordingly, the consolidated financial statements for the fiscal year ended December 31, 2022 are presented under ASC Topic 310, Receivables, and the consolidated financial statements for the year ended December 31, 2023 and the six months ended June 30, 2023 and 2024 are presented under ASC 326.
Collection of trade accounts receivable from customers is our primary source of operating cash flow and is critical to our operating performance and financial condition. The primary collection risk relates to facility and private pay customers, as billings to these customers can be complex and may lead to payment disputes or delays. We establish an allowance for trade accounts receivable considered to be at increased risk of becoming uncollectible to reduce the carrying value of such receivables to their estimated net realizable value.
When establishing this allowance for credit losses, we consider such factors as historical collection experience (i.e., payment history and credit losses) and creditworthiness, specifically identified credit risks, aging of accounts receivable, current and expected economic conditions, and other relevant factors. Using this information, the Company estimates future expected credit losses. The allowance for credit losses is regularly reviewed for appropriateness. Judgment is used to assess the collectability of account balances and the economic ability of customers to pay. At such time when a balance is definitively deemed to be uncollectible, the balance is written off against the allowance for credit losses.
Goodwill
Goodwill is the excess of the consideration transferred over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. We test our goodwill annually during the fourth quarter of the fiscal year or when events and circumstances indicate that impairment may have occurred and requires an impairment charge to be recognized based on the difference between the carrying amount of the reporting unit and its fair value up to the amount of goodwill assigned to the reporting unit. Impairment testing of goodwill is required at the reporting unit level (operating segment or one level below operating segment). Prior to performing the quantitative impairment test, we may make a qualitative assessment of the likelihood of goodwill impairment in order to determine whether a detailed quantitative analysis is required. Our annual impairment testing date is October 1.
Recent Accounting Pronouncements
Refer to Note 1 to our consolidated financial statements included elsewhere in this prospectus for accounting pronouncements adopted and recent accounting pronouncements not yet adopted as of the date of this prospectus.
JOBS Act Accounting Election
The JOBS Act permits EGCs to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use the extended transition period for complying with certain new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange
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Act, which would occur if the market value of our common equity that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (c) the date on which we have issued more than $1.0 billion in non-convertible debt securities during any three-year period.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. We held cash and cash equivalents of $1.5 million and $0.7 million as of June 30, 2024 and June 30, 2023, respectively, which primarily consist of demand deposits held with financial institutions. Changes in interest rates affect the interest income we earn on our cash and cash equivalents and the fair value of our cash equivalents. Historical fluctuations in interest rates have not had a significant impact on our financial condition or results of operations, and a hypothetical 100 basis point increase or decrease in interest rates would not have a material impact on the value of our cash and cash equivalents or on our future financial condition or results of operations.
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Overview
We are a leading, highly differentiated pharmacy services company that provides an extensive suite of technology-enabled services designed to help residents of LTCFs adhere to their appropriate drug regimen, which in turn helps reduce the cost of care and improve clinical outcomes. We emphasize high-touch, individualized clinical, drug dispensing and administration capabilities that are tailored to serve the needs of residents in historically lower acuity LTCFs, such as ALFs, and BHFs. More than two-thirds of our annual revenue for each of the past three years has been generated from residents of ALFs and BHFs, which are our target markets, while the remainder has been generated primarily from residents of SNFs. Additionally, our robust suite of capabilities enables us to serve residents in all types of LTCFs. We are a trusted partner to residents, LTCFs and health plan payors because we help reduce errors in drug administration, manage and ensure adherence to drug regimens, and lower overall healthcare costs. As of June 30, 2024, our 50 pharmacies served approximately 174,000 residents in approximately 6,700 LTCFs across 36 states.
Within the U.S. LTCF market, we believe the ALF and BHF sectors present the most attractive opportunity and have the highest growth potential for our business. Certain characteristics of ALFs and BHFs, which are not typical of SNFs, create additional challenges and complexities for pharmacy service providers that Guardian is well suited to address. First, residents at ALFs are typically on a variety of different pharmacy benefit plans, each with a distinct formulary and reimbursement process, covering their complex drug regimens. Second, ALFs often lack staff with formal clinical training and usually do not have an on-site medical director or full-time nurse. Because residents of ALFs rely on off-site physicians to oversee and monitor their health conditions, there is an increased need for coordination among ALF operators, each resident’s physicians and pharmacy service providers. Third, residents in these facilities have the right to choose their own pharmacy, which often leads to multiple pharmacy service providers serving a single ALF. These characteristics are also typical of most BHFs.
We believe that we enjoy a strong competitive position as a large and purpose-built provider of pharmacy services to ALFs and BHFs. Guardian offers a variety of services that we believe address the challenges that ALFs and BHFs face, and differentiate us from our competitors, providing residents, LTCFs and health plan payors with a compelling value proposition. Our centralized corporate support capabilities empower our local pharmacy operators to offer an extensive suite of high-touch, individualized, consultative pharmacy services, using a portfolio of proprietary data analytics systems and technology designed to help ensure that the right dose of the right medication is provided to the right resident at the right time. Examples of our specialized services include:
| • | Assisting residents in optimizing pharmacy benefit plan coverage of their medication by coordinating formulary interchanges with residents’ physicians; |
| • | Proactively analyzing potential adverse drug interactions and managing potential risks in medication administration; |
| • | Providing robotic dispensing and customized compliance solutions, organized by resident and time of administration; |
| • | Integrating a resident’s drug regimen with the LTCF’s EMARs to help ensure adherence; |
| • | Providing training for LTCF caregivers to help them administer medications to residents more safely, efficiently and cost-effectively; |
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| • | Partnering with LTCF operators to increase the number of residents using our services at each facility we serve, which we refer to as “resident adoption,” in order to streamline drug administration and minimize medication management risk; |
| • | Conducting mock audits of LTCFs to monitor compliance with drug administration and government regulation; and |
| • | Reviewing periodically the drug regimen for each resident by consulting pharmacists. |
We are a trusted partner to:
| • | Residents. We help monitor resident drug regimens and coordinate with each resident’s prescribing physicians to confirm clinical appropriateness and to help maximize coverage under the resident’s pharmacy benefit plan. We also partner with each facility to achieve adherence to a resident’s drug regimen. We believe that these services help improve clinical outcomes and reduce hospitalizations and out-of-pocket costs for the resident. |
| • | LTCFs / Caregivers. We help caregivers deliver high quality resident care by streamlining the intricacies associated with drug administration and compliance with related regulatory requirements. We accomplish this through the information available from our technology-enabled, proprietary data warehouse, our compliance packaging of the prescriptions we fill and the clinical training we offer to caregivers. |
| • | Health Plan Payors. Our services help facilitate proper management of residents’ drug regimens and reduce errors in drug administration, which we believe ultimately results in better clinical outcomes and thereby lowers overall health care costs for health insurance payors. |
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Our Solution and Value Proposition
We believe that we have purpose-built our capabilities and associated technology tools to address the growing challenges that are specific to our end markets. In addition to the services we provide to LTCFs generally, we provide ALFs and BHFs with tailored services that enhance their abilities as caregivers to their residents. We offer a suite of high-touch consultative pharmacy services, as illustrated in the following chart, using a portfolio of proprietary data analytics systems and technology, to assist our local pharmacies in optimally serving facilities and their residents.
Through our extensive suite of pharmacy services and our service-focused approach, we believe that we offer a compelling value proposition to residents, LTCFs and their respective caregivers, particularly in ALFs and BHFs, and to health plan payors.
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Our Workflow Lifecycle and Pharmacy Support
Through our locally-based pharmacies, we utilize a complex, technology-enabled platform to manage the dispensing and administration of prescriptions to residents of LTCFs over the full prescription lifecycle in order to manage medication risk.
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We believe our business model and strategic approach are built upon several key strengths of Guardian, as further described below.
We utilize a high-touch, resident-centric, superior customer service model to help drive drug regimen adherence and improved clinical outcomes, while managing overall costs.
We work closely with the LTCFs we serve to deliver a pharmacy solution that strives to maximize resident drug adherence while minimizing the incidence of adverse drug events. We manage the adjudication process for every prescription, which we believe instills confidence on the part of both the residents and LTCFs we serve that adverse drug events will be minimized and proper insurance eligibility will be in place. We also assist residents in confirming appropriate pharmacy benefit plan coverage of their medication by coordinating formulary interchanges with residents’ physicians.
To further enhance the quality of pharmacy administration, we customize technology and dispensing solutions to produce compliance packaging specific to each LTCF and each individual resident. In combination with the training we provide to caregivers, this dispensing solution is designed to help ensure that the right dose of the right medication is provided to the right resident at the right time.
We also offer training and continuing education programs to LTCF staff for a fee to educate caregivers on the proper administration of drugs to residents in accordance with the resident’s drug regimen. Additionally, we conduct mock audits for LTCFs to assist in compliance with state and federal regulations and deliver other pharmacy consulting services, including resident drug therapy evaluations.
We service LTCFs typically within a radius of 200 miles or less of our pharmacy locations, depending on the metropolitan area. We typically deliver medications to these facilities at a minimum once each day. We provide 24-hour, seven-days a week, on-call pharmacist services for emergency dispensing, delivery, and/or consultation with the facility’s staff or the resident’s attending physician.
We believe that our high-touch model contributes to fewer instances of adverse drug events, decreases in resident hospitalizations and increases in overall drug regimen adherence, which collectively keep residents healthier at a lower cost to their insurers.
We use our technological tools to enhance our ability to serve LTCFs and drive operational efficiencies.
The scale of our business has enabled us to make significant investments to equip our pharmacies with dynamic technologies designed to drive superior operational efficiencies in pharmacy workflow management. Key areas of investment include logistics management, revenue cycle management, automated robotic dispensing technology, compliance packaging, pharmacy workflow software, EMAR integration capabilities, cybersecurity infrastructure and disaster recovery business continuity.
Automated Robotic Dispensing Technology
We have invested more than $20 million in advanced pharmacy automation technologies over the past 10 years. The use of automation within our pharmacies leverages our size and distinguishes us from many of our competitors. It increases our dispensing accuracy and speed of pharmaceutical distribution, in addition to providing significant cost benefits. Specifically, we currently have over 100 automated dispensing machines deployed across our network.
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Automation reduces the need for human involvement and improves the efficiency of operations and increases accuracy with respect to drug dispensing. It also leverages artificial intelligence and barcode scanning software to detect the correct National Drug Code number (or NDC) and size, shape, and color of pills in order to help flag problems for our pharmacies. It also enables rapid scaling of volumes as new residents are added. Further, our barcoded delivery system facilitates compliance with pharmacy benefit plan requirements by creating an electronic record of delivery.
Compliance Packaging
We offer a compliance packaging service, through which we repackage and dispense prescription and non-prescription pharmaceuticals in accordance with physician orders and deliver the medications to LTCFs for administration to individual residents. This service organizes each resident’s medications into individual unit dose or multi-unit dose packaging in accordance with specific “Med Passes,” or drug distribution rounds that occur at LTCFs at specific times throughout the day. The packaging of drugs for each resident indicates specific drug administration instructions. LTCFs prefer the individual- or multi-unit dose delivery system over the bulk delivery system employed by retail pharmacies because it improves control over the storage and ordering of drugs and reduces errors in drug administration in healthcare facilities. Nurses or caregivers at LTCFs then distribute medications to residents in accordance with physician orders at each Med Pass.
Pharmacy Workflow Software
The pharmacy workflow software we use helps to manage and track drug dispensing via a structured and scalable workflow process, including the use of barcode technology. In addition, the software increases labor productivity and enables our local pharmacies to focus their time and resources on delivering care to residents, which improves overall resident safety. This system improves efficiencies in nursing time, reduces drug waste, and helps to improve resident outcomes, thereby lowering costs for pharmacy benefit plans.
EMAR Integration Capabilities
Our ability to interface with facilities’ EMARs makes documentation and drug administration more efficient. At the time of drug administration, the nurse or caregiver must scan the barcode associated with each resident at the time of drug delivery, which creates a notation on the EMAR system. This helps us ensure the safe and effective delivery of medications to each resident at each Med Pass and helps LTCFs to manage their regulatory requirements.
Cybersecurity, Infrastructure, Disaster Recovery and Business Continuity
We employ multiple levels of protection to minimize the risks associated with cybersecurity, ransomware and data breaches, including firewalls, cloud-based backups, multifactor authentication, encryption software, intrusion testing and SIEM networking monitoring to ensure the integrity of our data and systems. In addition, we maintain recovery and other business continuity procedures, including cloud-based backups, electrical generators, critical systems housed at hardened data centers and geographic redundancy, intended to minimize disruptions to our operations in the event of disaster or other interruptions to our information systems.
We believe that our business model promoting local management autonomy, combined with our centralized corporate support, results in superior service to LTCFs and their residents.
We believe that our pharmacy management model offers local and tailored support to LTCFs and their residents, and enables us to adapt our technology and dispensing capabilities to
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customer needs in each local market. We provide centralized corporate support to our local pharmacy operators, including data analytics, IT operations, financial oversight and analysis, capital management, leadership support and training, purchasing power, legal/regulatory support, and HR/recruiting assistance. We believe this approach allows us to benefit from local touch and customer-centric decision making thereby enhancing our ability to manage local, regional and national account relationships, improve resident adoption rates in individual facilities and improve drug regimen adherence and compliance.
Specifically, at the pharmacy level, each pharmacy is run by a President, who directly oversees three directors:
As we acquire or organically open new pharmacies, we offer the following support services and training to each of these directors and their local pharmacy management teams:
| • | purchasing strategy and tools |
| • | health plan payor negotiations |
| • | revenue cycle management |
| • | business intelligence and analytics |
| • | human capital management |
| • | treasury, business services and financial accounting |
| • | business development |
| • | operational and regulatory |
| • | sales and marketing |
| • | information technology |
We believe this local approach that capitalizes on our national scale distinguishes us from our competitors by eliminating a “one size fits all” approach that may create inefficiencies in a particular local market.
Leveraging Our Data Warehouse to Deliver Insights
Our business model is supported by our proprietary centralized data warehouse, which facilitates the delivery of our technology-enabled services to LTCFs and their residents. Our data warehouse collects and consolidates extensive data related to pharmacy operating systems, purchasing and inventory management, finance and business planning, pharmacy benefit plan reimbursement, sales and customer relationship management, human resources and payroll, and banking. Information is analyzed and interpreted on a daily or real-time basis and reports, dashboards and analytics are available to team members throughout Guardian. We use these analytics and associated metrics to proactively plan and manage our business.
Specifically, our Guardian Compass platform offers insights to enhance efficiencies for our pharmacies, including proprietary real-time operational dashboards and metrics. Our suite of
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GuardianShield products offers customer and clinical services that benefit both the residents we serve and their caregivers.
Guardian Compass
Guardian Compass includes dashboards created using data from our data warehouse to help our local pharmacies plan, track and optimize their business operations. The data and metric-driven approach enhances our ability to make decisions regarding labor productivity, capacity planning, and sales forecasting. Guardian Compass also provides tools that improve our local pharmacies’ ability to purchase pharmaceuticals effectively. Detailed assessments regarding the aggregate cost of dispensing drugs and the cost per prescription further assist our pharmacies in improving operations.
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We track various individual pharmacy-based operating metrics including financial revenue per Rx, labor per Rx, resident count trends and adoption rate trends per facility among others.
GuardianShield Programs
GuardianShield offers a suite of specialized services, enhanced by actionable analytics, that drive accuracy, efficiency, safety, and savings for LTCFs and create benefits for both residents and LTCF staff. It is comprised of 10 programs, eight of which are currently in use, and two of which are in the development phase, all of which are made possible through the data warehouse. The eight active programs are: the Insurance Optimizer Program, the Antibiotic Stewardship Program, the Psychotropic Medication Reduction Program, the Therapeutic Interchange Program, the Medication Spend Analyzer Program, the Adoption Rate Tracker Program, the Clinical Intervention Tracker Program and the Order Entry QA Analyzer. The two programs in development are: the Falls Risk Management Program and Disease State Management. The data analytics tools and customer service we are able to offer through GuardianShield have downstream benefits for LTCFs and pharmacy benefit plans that we believe are unmatched in the industry.
The Insurance Optimizer Program provides information to help residents choose their pharmacy benefit plans, and helps get essential, non-covered medications covered on a pharmacy benefit plan’s formulary. This program also provides analytics reports to residents in the facilities we serve to quantify their savings. Such data helps with pharmacy adoption, which in turn eases the challenges associated with ALFs and BHFs having to coordinate with multiple pharmacies to supply drugs to residents.
The Antibiotic Stewardship Program combines the extensive clinical experience of our consultant pharmacists with advanced reporting and data analytics to offer a robust antibiotic therapy management program. This helps prevent overuse of antibiotics and other medications, helping pharmacy benefit plans and the facilities we serve.
The Psychotropic Medication Reduction Program capitalizes on our pharmacists’ clinical knowledge and our advanced data analytics capabilities to promote the appropriate use of psychotropic medications (including antipsychotics, anxiolytics, antidepressants, and hypnotics) for the benefit of residents we serve. In understanding the frequency with which such drugs are prescribed to each resident, we are able to help the facilities we serve comply with government regulations pertaining to psychotropic medications.
The Therapeutic Interchange Program allows drug substitutions to therapeutically equivalent drugs to lower costs for SNFs. In addition to the savings generated, this program offers extensive reporting capabilities to track and highlight savings and missed opportunities.
We also offer a Medication Spend Analyzer to break down the monthly drug spending for each of the LTCFs we work with. This assists LTCFs with crucial cost management functions and makes us a valued partner in the process of serving their residents.
For the ALF communities we serve, we seek to maximize the number of residents in those communities who use us for their medication needs, and resident adoption rate is a key metric we use to gauge our effectiveness. Our Adoption Rate Tracker provides information to our pharmacies and ALF communities to help them understand the current opportunity and increase the number of residents we serve in those communities. Higher resident adoption rates mean higher organic growth for us and improved safety and efficiency for the communities and residents.
As a LTCF pharmacy, we use our Clinical Intervention Program to take extra steps to process prescriptions. Whether it is a full medication reconciliation, duplicate therapy resolution, or
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clinical issue resolution we take measures to help improve resident outcomes and save money. This program has analytics reports to show the frequency of these interactions and thus demonstrate the value we bring our residents, communities, and third-party payors.
Finally, we offer an Order Entry QA Analyzer, which is designed to utilize real-time rules- engine technology to examine prescriptions and detect omissions and/or errors before they become a customer service problem. This service adds substantial value for the LTCFs and pharmacy benefit plans we work with, and ultimately, the residents we serve, as we help residents avoid adverse drug reactions and complications resulting from, and the additional costs associated with, the improper dosage or incorrect administration to residents.
Below are select examples of the insights and analytics we are able to produce from our GuardianShield platform for the six months ended June 30, 2024 on a Company-wide basis.
Advances to GuardianShield
We continuously strive to advance the capabilities of GuardianShield, and are actively developing new predictive tools to assist LTCFs and our pharmacies. Chief among these advancements are the Falls Risk Management Program and Disease State Management services.
The Falls Risk Management Program is being designed to review each resident’s medications and medical history, demographic information, functional status, and cognition to identify those residents with the highest risk of falling. The program will then pinpoint the highest probability causative factors related thereto, which will help enable those residents to receive the medications and/or treatment necessary to help minimize this risk. This program is designed to help optimize residents’ health while lowering health care costs for pharmacy benefit plans.
The Disease State Management Program is being designed to use data to identify residents at LTCFs who are on sub-optimal medication regimens. These regimens will then be subject to a targeted review by our consultant pharmacists, who will work to optimize the drugs each resident takes. This program is expected to improve the overall health of the residents we serve and lower health care costs for the pharmacy benefit plans with whom we work.
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GuardianShield University
To increase the effectiveness and reach of GuardianShield, we created GuardianShield University through which we train Guardian Pharmacy staff how to use and get the most out of the GuardianShield services and programs. The university has a robust curriculum offered on rotating semester schedule, and includes lectures, quizzes, and homework assignments. Participants start out at the beginner level and work toward the expert level designation that requires a dissertation style final project to earn that coveted level.
Our Market Opportunity
We believe we have an attractive market opportunity for continued growth. Based on prescription volume information reported by NIC MAP for ALF/MC, we believe we are the largest LTCF pharmacy in the United States in terms of market share serving ALF/MC, with an approximate 12.2% market share nationally. IBISWorld, an independent publisher of industry research reports, estimated as of July 2024 that U.S. institutional pharmacy market revenues would be approximately $24.8 billion in 2024. The U.S. institutional pharmacy market is comprised of pharmacies that provide a range of distribution and drug administration services to residents of nursing homes and other healthcare environments that do not have on-site pharmacies. CMS mandates 10 rules and service capabilities to qualify for participation as a Part D NLTCP provider, as differentiated from traditional Part D and commercial reimbursement. CMS designates an institutional level of care as a “distinct pharmacy setting” and requires payors to compensate designated long-term care pharmacies for the specific services they are required to provide to LTCF residents. In addition, CMS requires that payors maintain network adequacy to serve LTCF residents. This LTCF institutional pharmacy market is currently served by Guardian, two national pharmacy services providers historically focused on serving the needs of SNFs, several regional providers, and over 1,200 independent pharmacies.
We believe that in long-term care settings, proper coordination of drug administration is critical to managing the overall health and wellbeing of residents. Residents of LTCFs can be at high risk for adverse drug events given the complex mix of medications prescribed by the various physicians responsible for their care. Lapses in care or incorrect drug administration can result in serious adverse drug events, which can in turn result in hospitalization and have significant implications on both quality and duration of life, in addition to the overall cost of healthcare.
In comparison to historically higher acuity settings such as SNFs, ALFs in particular face challenges in the pharmacy administration lifecycle. ALFs were initially conceived of as senior living facilities providing stimulation, hospitality and community for elderly individuals who no longer desired, or were capable of, independent living. However, over time, these facilities have expanded their services to increasingly address the health needs of an ever-growing number of older and higher acuity residents who need assistance with medical care and activities of daily living.
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With ever increasing levels of acuity, ALF residents today require greater assistance in maintaining their drug regimens, and consistency and accuracy in drug administration is now a key service that ALFs provide to their residents. There are several specific ongoing industry trends that we believe will continue to drive the increased need for ALFs, as well as BHFs, to act as caregivers, and in turn help drive demand for the associated and critical pharmacy services that we provide:
Aging Demographics and Increases in the Number of Assisted Living Residents
The aging of the U.S. population has been well documented, with Census projections for significant growth in the U.S. elderly population. Specifically, by 2050, the 65+ age group is projected to grow to 82 million people, which represents a greater than 47% increase over the same population group in 2022. During this same time period, the cohort of U.S. residents aged 85 and older is projected to nearly triple from 6.7 million people in 2020 to 19.0 million people by 2060. Even as soon as 2030, it is projected that roughly one in five U.S. residents will be 65 and older, which represents the fastest growing cohort as a percentage of the overall U.S. population. The increase in the elderly population is expected to result in significant increases in move-ins to ALFs and, accordingly, drive increases in the number of prescriptions that are fulfilled by institutional pharmacies.
Increasing Median Ages of ALF Residents, Requiring Greater Emphasis on Healthcare Delivery and Associated Coordination of Complex Drug Regimens
Coupled with the significant increases in move-ins to ALFs generally are the increases in the number of more elderly and frail individuals that are moving into and residing in ALFs. Of the more than 800,000 U.S. residents residing in ALFs in 2024, more than half are above 85 years old, with an additional 31% aged between 75 to 84. These increases in the age demographics of ALF residents have been driven by both later average initial admission age for residents and significant increases in overall life expectancy. As a result of these trends, the resident ALF population tends to have more complex medical needs than in previous generations. Chief among these needs is the coordination and effective management of pharmacy services that are fundamental to the effective treatment and overall cost management of medical care for these individuals.
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Increasingly Complex Medication Regimens
In general, older residents face more critical health conditions, including chronic illness, increased disability and multiple medical diagnoses—for a longer period of time. As a result, there is an increasingly growing demand for not only long-term care facilities, but also for caregivers who are able to help navigate the complex medication regimens of this elderly population. In turn, these caregivers require more sophisticated pharmacy capabilities and require an extensive range of pharmacy workflow services to ensure proper medication adherence and delivery of care.
Highly Fragile Population of Individuals with Behavioral Health Needs at BHFs
Similarly, BHFs serve as caretakers for a highly fragile population of individuals with behavioral health needs. Oftentimes, these residents are suffering from intellectual and developmental disorders or mental health challenges such as schizophrenia, depression, and anxiety-related afflictions. Pharmaceutical drugs are often first line therapies for these individuals, and the proper administration of and compliance with drug regimens is essential to maintaining their health. The overall mental fragility of BHF residents puts them at high risk for hospitalization or other acute episodes of care that present significant costs to health plan payors. Lapses in the proper administration of their drugs only add to this risk.
Increases in ALF and BHF Desire to Contract with Value-Added Scaled Pharmacy Providers
Though ALF and BHF residents are entitled to a choice in their pharmacy provider, ALF and BHF providers and especially large multi-facility LTCF operators have recognized the enhanced value in having scaled and integrated pharmacy networks service the needs of their caregivers and residents. Often, in the absence of a sophisticated provider, pharmaceuticals are simply delivered to residential settings without an associated suite of services to help ensure successful drug administration (e.g., resident compliance, documentation, data collection, ALF and BHF staff training, etc.). LTCFs and residents are seeking assistance to help monitor and ensure ongoing adherence with their increasingly complex medication regimens.
Extension of Drug Coverage via Medicare Part D Helps Drive the Need for Pharmacy Services Companies
Medicare Part D legislation has significantly changed the way in which prescription drugs are financed and reimbursed, thereby directly impacting the performance of pharmacies serving LTCFs. The number of Medicare Part D beneficiaries has more than doubled since 2006, growing from 22 million people in 2006 to 53 million people in 2024, with Part D enrollment as a percentage of total Medicare enrollment growing from 51% of total Medicare enrollment to 80%, respectively.
Part D created significant changes for assisted living residents who are dually eligible for both Medicare and Medicaid (“dual-eligibles”), given the new benefit shifting their drug coverage from Medicaid to Medicare and requiring enrollment in private health care plans. This expands the pharmaceutical drug coverage of these residents, which they would not have previously had or which Medicaid would have had to pay, and yields more favorable reimbursement rates for pharmacy services companies.
Financial and Administrative Impact of Medicare Part D
Medicare Part D has also resulted in the increased variation around formularies and drug management processes for residents and providers. The complex nature of the Medicare Part D
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program and the confusion residents have around coverage directly impacts the ability of ALFs and group homes to run operations. The numerous administrative burdens associated with the transition takes time away from resident care, poses regulatory threats to providers and makes it more difficult to ensure optimal drug therapy for residents.
Industry research indicates that revenues in our target market, the U.S. ALF industry are projected to have a CAGR of more than 5% from 2023 to 2030. Of the more than 800,000 residents residing in ALFs in the United States in 2024, we serve approximately 115,000, with the remainder of the residents we serve residing in other types of LTCFs. We believe that our existing market share, the size of our market opportunity, our strategic approach to high-touch, individualized services and favorable market dynamics provides us with a significant opportunity for future growth.
While our national competitors have primarily focused on SNFs, we believe we enjoy a strong competitive position as a large and purpose-built provider of pharmacy services to ALFs and BHFs. The following chart outlines the key differences in the characteristics of ALFs, BHFs and SNFs and illustrates some of the challenges specific to these facilities.
Key Characteristics of LTCFs
| ALFs and BHFs |
SNFs | |||
| Resident Ability to Choose Pharmacy Provider |
Each ALF resident has the right to choose his or her own pharmacy benefit plan and provider | Most SNFs encourage their residents to select the SNF’s contracted pharmacy provider | ||
| Level of Staff Experience | Typically, minimal clinical training for caregivers / staff members | Experienced staff members, including an on-site medical director and a registered nurse (RN), as well as a licensed practical nurse (LPN) or certified nursing assistant (CNA) required to administer medications | ||
| Access to a Medical Provider | Most ALF residents maintain their physician relationships, with office visits | Each SNF contracts with a medical director that is regularly on site | ||
Our Growth Strategy
Our core growth strategy is focused on increasing the number of residents we serve. Historically, this has been driven by both organic growth and acquired growth. Organic growth represents the increase in the number of residents served at existing locations, start-up greenfield locations and acquired locations subsequent to the acquisition date. Residents served increased from 52,000 as of December 31, 2014 to 174,000 as of June 30, 2024, with 77,000 residents through organic growth and 45,000 residents through acquired growth.
Our organic and acquired growth in residents served was negatively impacted by the COVID-19 pandemic as our resident count decreased from 132,000 to 123,000 during the nine-month period ended December 31, 2020. From December 31, 2020 to June 30, 2024, we increased our number of residents served from 123,000 to 174,000, with 40,000 residents through organic growth and 11,000 residents through acquired growth.
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The three key pillars that we expect to continue to drive our growth are:
| • | Increase regional and large ALF accounts. |
| Our sales teams actively engage in marketing efforts to build relationships with local, regional and national ALFs and BHFs. Our local ALF target customers typically operate a single ALF or a small number of ALFs but are generally characterized by their focus on a specific local area. Conversely, large multi-location ALFs operate with a regional or national footprint. We currently serve facilities operated by Brookdale Senior Living, Life Care Services, Sunrise Senior Living and numerous other regional and national providers. We believe that our customer-oriented business model, which is able to serve large numbers of residents across geographic regions, provides a competitive advantage as we continue to develop and expand relationships with ALF operators. In particular, we believe there are significant opportunities to expand our business serving local, regional and national ALF accounts. |
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| Our ability to contract with new, and grow our business with existing, large, multi-location accounts is illustrated by our more than doubling the number of residents we served at large, multi-location accounts from approximately 15,000 residents beginning in 2018 to approximately 37,000 residents during the month ended June 30, 2024. As we continue to build out our national footprint, we believe we are an increasingly attractive provider to ALF operators that value our services and approach, but prefer a vendor with a broad geographic reach. |
| • | Increase resident adoption of our services in ALF accounts. |
| We measure, analyze and track resident adoption rates at each ALF we serve. Each of our pharmacies has a dedicated management team focused on increasing our resident adoption through targeted marketing efforts, leveraging internally generated data, and demonstrating our value proposition to ALFs, residents and caregivers. Through our direct marketing efforts to ALFs and residents, we have achieved a resident adoption rate of 88% at ALFs we serve as of June 30, 2024. We believe our success in increasing resident adoption is one of our key strengths. |
| • | Ongoing geographic expansion. |
| For both our acquisition program and our greenfield initiatives, we focus on expanding our market share and increasing profitability through strategic evaluation and implementation of opportunities to acquire and build out new pharmacies in existing and underserved markets. |
| Our geographic expansion to date has relied on a two-pronged business development strategy comprised of (1) finding qualified local pharmacy operators to partner with and (2) growing with our existing pharmacy operators into new markets. Once we have identified a new partner, we seek to either acquire their pharmacy or develop a startup pharmacy with them. In addition, we seek to grow into new markets with our existing pharmacy partners through acquisitions or startups. |
| The following graphic illustrates how our network of 50 pharmacies has come together through our growth strategy. |
Our Business Development Strategy: Find Qualified Operators and Grow Together
Note: 50 pharmacies currently open with two greenfield pharmacies scheduled to open in 2H 2024.
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Additionally, we have a robust M&A function with a demonstrated track record of both successful identification of integration of superior qualified pharmacies that are compatible with our platform. Specifically, we seek to partner with pharmacies that are customer-focused, are located in attractive markets (including those close to our large, multi-location ALF accounts) and are led by skilled clinical operators with a growth mindset. Following acquisition, we embark on a standardized multi-year integration process that begins with centralizing pharmacy operations and ultimately transforms core functions and sets the foundation for superior growth and profitability.
Guardian M&A Integration Timeline
Upon acquisition, we are typically able to significantly enhance the profitability and margin of the acquired pharmacy by implementing our IT services and leveraging our purchasing, revenue cycle management and national sales capabilities. These synergies are often substantially realized over a 36-month period from acquisition and represent a substantial opportunity for us and our acquired pharmacy partners. We have completed 30 acquisitions since inception.
In the future, we anticipate that we will structure our acquisitions and greenfield start-ups in a manner similar to our business development strategy prior to this offering. Prior owners of the pharmacies we acquire and the local pharmacy operators we partner with to open greenfield start-up pharmacies will hold minority equity interests in these businesses. A portion of the consideration in an acquisition of an existing pharmacy may be paid in shares of our Class B common stock. Further, employees of the pharmacies may be issued incentive equity interests in that pharmacy. After a period of time sufficient to allow the subsidiary pharmacy to adopt our operating practices and integrate within our business, we would expect to purchase those minority equity interests. Upon such purchases, these pharmacies would become our wholly-owned subsidiaries. In each case, the purchase price for the buyout would be formula-based and we expect that such buyout would be within three to five years after the initial acquisition or greenfield start-up. We also expect that a portion of the consideration for such purchases would be paid in shares of our Class B common stock.
We believe our business development model provides us with a material advantage in attracting and completing acquisitions, particularly when pharmacy owners have multiple competitive sale alternatives. Our post-closing minority ownership structure and the autonomy
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that comes with our local management model promote continued seller participation in the growth of the business in a meaningful way. We believe the same holds true in our greenfield start-up pharmacy initiatives. The structure incentivizes our new pharmacy operators, and the subsidiary pharmacy’s employees to whom subsidiary equity is issued, to promote the subsidiary’s growth and adoption of our proven operating strategies as we complete full integration and ownership of the pharmacy. By empowering local management, we believe this structure also fosters entrepreneurial practices consistent with those that have contributed to our successful organic growth.
Of our 39 pharmacies that have been operating for at least four years, and based on NIC MAP prescription volume data, 32 Guardian pharmacies have achieved market share leadership in the MSAs that they serve, 35 have achieved a 20% or greater ALF/MC market share, and 13 have achieved a 30% or greater ALF/MC market share. In addition, we believe we currently have in excess of 10% ALF/MC market share in 22 states and in excess of 25% ALF/MC market share in 11 states. We believe our growth strategy and operational focus position us to capture additional market share and believe that our total addressable market gives us the opportunity for significant further growth.
Our Experienced Management Team
We have an exceptional leadership team, both at the corporate and local levels, with a proven history of industry leadership and operational excellence.
| • | Highly experienced and entrepreneurial executive leadership. We are led by highly experienced and entrepreneurial executive officers, each of whom has more than 30 years of experience founding and leading successful companies in the pharmacy industry. Prior to our inception, Fred Burke, our President and Chief Executive Officer, David Morris, our Executive Vice President and Chief Financial Officer, and Kendall Forbes, our Executive Vice President of Sales & Operations, began working together in 1993 on a previous pharmacy venture that was acquired by Bindley Western in 1999. |
| • | Experienced local pharmacy leadership teams. We have strong management teams in place at the local level, with the majority of local pharmacy presidents having been in their positions for over a decade. The importance and strength of our local leadership was highlighted during the COVID-19 pandemic as local management teams were empowered to make decisions in real-time that were specific to the evolving pandemic-driven conditions and regulations in their markets, in order to maintain our high service levels for our customers and residents. |
| • | Strong corporate support group. We are supported by a team of more than 100 corporate employees who collectively bring deep experience in relevant areas such as technology, pharmacy operations, supply chain, data analytics, legal, regulatory/compliance, revenue cycle management and network contracting, purchasing, sales and marketing, real estate, human resources, leadership development and finance. |
| • | Support from a sophisticated group of investors. We have been primarily capitalized by Bindley Capital Partners, LLC, a private investment firm led by William Bindley, who serves as our Chairman of the Board and has provided significant strategic leadership. Mr. Bindley, a pioneer in the healthcare services industry, was the founder, chairman and chief executive officer of Bindley Western, a pharmaceutical distribution and services company acquired by Cardinal Health, Inc. for $2.1 billion in 2001. He also served as an executive and the chairman of Priority Healthcare Corporation, a specialty pharmacy services company that was spun-off from Bindley Western in 1998 and acquired by Express |
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| Scripts, Inc. for $1.3 billion in 2005. In addition, Cardinal Equity Partners, along with Fred Burke, David Morris and Kendall Forbes, have made significant capital investments in Guardian. Collectively, this group of investors has extensive experience and expertise in the healthcare services industry. |
Servicing New Areas of Care
We believe our investments in human capital, technology, and services capabilities position us to continue to pursue rapid innovation and potentially expand our business as a health care service provider in the post-acute care sector. While to date we have primarily focused on serving the LTCF markets, we recognize the continued evolution of healthcare delivery in which alternate sites of care are increasingly relevant. For example, we believe that our core capabilities and value proposition is applicable to the large and expanding IDD, hospice and PACE end markets. We have test initiatives ongoing in these adjacent markets. Such initiatives are in the nascent stages and have generated only immaterial revenues to date.
Customers
Our customers are LTCFs and their residents. For the month ended June 30, 2024, we provided pharmacy services to approximately 174,000 residents at 6,700 LTCFs across 36 states. We have established relationships with both local and large multi-facility LTCF operators, and we are generally the primary source of pharmaceuticals for the residents of the facilities we serve.
Our customers depend on pharmacies like ours to provide the necessary pharmacy products and services and to play an integral role in monitoring resident medication regimens and safety. We dispense pharmaceuticals in resident-specific packaging in accordance with physician instructions.
No single customer comprised more than 10% of our consolidated revenues in the last five fiscal years.
Customer Relationships
Our relationships with SNFs are memorialized in written agreements between Guardian and the owner of the respective facility. These contracts generally range from one to three years in duration and typically renew automatically for subsequent renewal terms. The SNF contracts can be terminated by either party generally upon 60 days’ notice. Similarly, our relationships with ALFs and BHFs are generally memorialized in written agreements between Guardian and the owner of the respective community that designate Guardian as the “preferred provider” of that community owner. Unlike a SNF contract where virtually all of the residents in the skilled facility would be served by us, the ALF and BHF contract does not automatically grant us the right to serve those residents. Instead, our sales team must still market our pharmacy services to the individual residents in that community, each of whom has the right of choice to their pharmacy provider. These contracts generally range from one to three years in duration and typically renew automatically for subsequent renewal terms. These contracts can be terminated by either party generally upon 30 days’ notice. Most LTCF contracts specify certain facility-wide services that we may provide for a fee, including EMAR support, consulting services and training. These contracts all generally have similar provisions surrounding compliance with HIPAA, obligations upon termination, limitation of liability and other standard contractual terms.
Payor Mix and Reimbursement
We derive revenues from multiple government and commercial payor sources, which we believe have a generally stable reimbursement profile. In particular, for the six months ended June 30, 2024, approximately 68% of our revenue was derived from Medicare Part D. CMS
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mandates 10 rules and service capabilities to qualify for participation as a Part D Network LTC Pharmacy provider, as differentiated from traditional Part D and commercial reimbursement. These required capabilities involve extended drug control and distribution systems that include items such short-cycle dispensing, compliance packaging, 24/7 support and delivery, medication regimen review, maintaining a comprehensive inventory of Part D drugs, maintaining emergency kits and retrospective billing for patient copays and coverage gaps, known as the “donut hole.” CMS designates an institutional level of care as a “distinct pharmacy setting” and requires payors to compensate designated long-term care pharmacies for the specific services they are required to provide LTCF residents. In addition, CMS requires that payors maintain network adequacy to serve LTCF residents. We believe Medicare Part D payors recognize the value that LTCF pharmacies like Guardian provide, including helping to ensure that residents adhere to the right drug regimens, which helps improve clinical outcomes and reduce the overall cost of care. We believe that, consequently, Medicare Part D plans generally offer more favorable and stable contract terms for LTCF pharmacies relative to commercial plans that are offered to retail pharmacies.
| * | Percentages represent Guardian revenue by payor for the six months ended June 30, 2024. |
Suppliers, Inventory, and Supplier and Manufacturer Rebates
We believe our purchasing scale creates a cost advantage over smaller competitors within our industry. Historically, we have purchased most of the brand name and generic pharmaceuticals we dispense from wholesale distributors with whom we have prime vendor agreements at discounted prices based on contracts negotiated by us directly; and in some cases, based upon prices accessed through group purchasing organization contracts. Our primary wholesale distributor relationships currently include Cardinal Health, Inc., McKesson Corporation, Smith Drug Company, and Morris and Dickson Co. L.L.C., in addition to various generic drug manufacturers. Additionally, we purchase some generic pharmaceuticals directly from their manufacturers. We have a longstanding relationship with a third-party logistics provider, Excel Inc. d/b/a DHL Supply Chain (USA), which stores drugs we purchase directly from manufacturers in its warehouse before they are distributed to our pharmacies as necessary. We seek to maintain an on-site inventory of pharmaceuticals and supplies at our local pharmacies to ensure prompt delivery to the facilities we serve.
Guardian receives a modest amount of rebates from pharmaceutical manufacturers and distributors of pharmaceutical products associated with dispensing their products. Rebates are
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designed to prefer, protect, or maintain a manufacturer’s products that are dispensed by the pharmacy under its formulary.
Government Regulation
Our pharmacies and the LTCFs we serve are subject to numerous federal, state and local regulations. These regulations encompass many areas, including licensing requirements, quality control, drug dispensing, day-to-day operations and reimbursement, and in many cases apply differently depending on the type of LTCF in question. ALFs offer assisted living services for people who need help with daily care. This includes access to prepared meals, assistance with personal care, drug administration, housekeeping, laundry, and social and recreational activities. They generally are not heavily regulated by the federal government but may be regulated at the state or local level. In contrast, SNFs, which are licensed healthcare residences for individuals who require a higher level of medical care than can be provided in an ALF, provide medical care—including drug administration and rehabilitation services such as physical, occupational, and speech therapy—through registered nurses, licensed practical nurses, and certified nurse’s assistants. Consequently, SNFs are heavily regulated by the federal government and by certain state governments. BHFs provide medical and personal care to residents with complex medical needs, including those with intellectual and developmental disabilities and, like ALFs, are not heavily regulated by the federal government but may be regulated at the state or local level. We regularly monitor and assess the impact on our operations of new or proposed regulations and changes in the interpretation or application of existing regulations. As a pharmacy provider for LTCFs, we focus our attention on both regulations applicable to our pharmacy business as well as regulations that pertain to the institutions we serve.
Regulations That Affect Guardian Directly
Licensure
Operation of a pharmacy within a state requires licensure by the respective state’s board of pharmacy. As of June 30, 2024, we had pharmacy licenses for each pharmacy we operate, and to our knowledge, all issued licenses remain valid and in good standing. In addition, states regulate out-of-state pharmacies that fill prescriptions for in-state patients (including residents). Where applicable, our pharmacies hold the requisite licenses to deliver to out-of-state patients (including residents). Our pharmacies are also registered with the appropriate state and federal authorities, such as the DEA, pursuant to statutes governing the regulation of controlled substances.
Federal and State Laws Affecting the Repackaging, Labeling and Interstate Shipping of Drugs
In November 2013, the federal government enacted the Drug Quality and Security Act (“DQSA”), which, in pertinent part, was designed to facilitate drug tracing throughout the pharmaceutical supply chain. Specifically, Title II of the DQSA, the Drug Supply Chain Security Act (“DSCSA”) requires us and other supply chain stakeholders to participate in an electronic, secure interoperable system beginning in November 2024, that will identify and trace certain prescription drug products as they are distributed within the United States. DSCSA also established federal standards with which pharmacies must comply that require drugs to be labeled and tracked at the lot level. These standards preempt state and local requirements related to tracing drugs through the distribution system. While the full requirements of DSCSA were intended to be phased in over a ten-year period and certain elements have not yet been fully implemented, we are subject to certain requirements that have already taken effect: product tracing requirements for dispensers of prescription drugs, including lot level tracing and receipt, storage, and provision of transaction information, history, and statement; and obligations to implement systems to identify potential “suspect” or “illegitimate” products.
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In addition, under the Comprehensive Drug Abuse Prevention and Control Act of 1970, as a dispenser of controlled substances, we must register with the DEA, file reports of inventories and transactions and provide adequate security measures. In addition, we are required to comply with all the relevant requirements of the Controlled Substances Act for the transfer and shipment of pharmaceuticals.
Supply chain laws and regulations such as the DQSA and DSCSA could increase the overall regulatory burden and costs associated with our dispensing business. Although we believe we are in compliance with applicable federal and state regulations currently in effect, these regulations may be interpreted or applied in the future in a manner inconsistent with our business practices, which could adversely affect our results of operations, cash flows, and financial condition.
The DEA, the FDA, and various state regulatory authorities have broad enforcement powers, including the ability to seize or recall products and impose significant criminal, civil and administrative sanctions for violations of these laws and regulations. We have received all necessary regulatory approvals and believe that our pharmacy operations are in substantial compliance with applicable federal and state dispensing requirements. Any changes to the current regulatory and legal paradigm could increase the overall regulatory burden and costs associated with our business.
CMS Regulations Affecting Guardian’s Provision of Pharmacy Services for Certain LTCF Customers
We are subject to a rule issued by CMS and set forth in 81 Fed. Reg. 68,688, entitled “Medicare and Medicaid Programs, Reform of Requirements for Long-Term Care Facilities,” that, among other things, revised the requirements for LTCF participation in the Medicare and Medicaid programs. The rule imposes several requirements that are specific to the provision of pharmacy services within certain LTCFs, that directly impact our business. Specifically, in addition to the requirement that a pharmacist perform a drug regimen review at least once a month, the pharmacist must also review the resident’s medical record in certain instances. Additionally, the pharmacist must document and report any irregularities, including use of unnecessary drugs, to the attending physician, the facility medical director, and the director of nursing. The rule also imposes certain requirements upon LTCFs themselves, which are more fully described in “Government Regulation—Regulations That Affect Our Customers” below.
Laws Affecting Referrals and Business Practices
We are subject to federal and state laws that govern financial and other arrangements between healthcare providers. These laws prohibit certain direct and indirect payments or fee-splitting arrangements between healthcare providers that are designed to induce or encourage the referral of patients (including residents) to, or the recommendation of, a particular product and/or service.
For example, the federal AKS, set forth in 42 U.S.C. § 1320a-7b(b), prohibits knowingly or willfully soliciting, receiving, offering or paying remuneration “including any kickback, bribe or rebate” directly or indirectly in return for or to induce the referral of an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal Health Care Program (as that term is defined in 42 U.S.C. § 1320a-7b(f)).
The OIG has enacted safe harbor regulations that outline practices that, although they potentially may implicate the AKS, are not treated as offenses under the AKS. Failure to meet a safe harbor does not mean that the arrangement necessarily violates the AKS but may subject the arrangement to greater scrutiny by the government. In addition, the OIG issues a variety of
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guidance including Special Fraud Alerts, Special Advisory Bulletins, Advisory Opinions, and other compliance guidance documents to assist healthcare providers with complying with the AKS. This guidance does not have the force of law, but rather identifies specific facts of arrangements that may pose risk of potentially violating the AKS or other federal healthcare laws. While we believe our practices comply with the AKS, we cannot assure our practices, to the extent they are deemed outside of a safe harbor protection, will not be found to potentially violate the AKS.
Other federal laws and state equivalents authorize the imposition of penalties, including criminal and civil fines, damages, and exclusion from participation in Medicare, Medicaid and other Federal Health Care Programs for false claims, improper billing and other offenses. These laws include but are not limited to the federal False Claims Act, set forth in 31 U.S.C. §§ 3729 et seq. under which private parties have the right to bring a qui tam, also known as a whistleblower complaint, against companies that submit or cause to be submitted false claims for payments to the government. From time to time we are subject to whistleblower complaints. Changes to the False Claims Act and court decisions may make whistleblower or qui tam litigation more common.
In addition to federal law, many states have enacted statutes similar to the AKS and the False Claims Act. Violations of these laws may result in fines, imprisonment, denial of payment for services and exclusion from the Medicare and Medicaid programs and other state-funded programs.
Laws Affecting Interactions with Patients / Beneficiaries
Federal laws also impact how healthcare entities may interact with patients, including residents. The federal CMP Law, as set forth in 42 U.S.C. § 1320a-7a, prohibits offering or providing remuneration to Medicare and Medicaid beneficiaries that the person providing the remuneration knows or should know is likely to influence the beneficiaries to order or receive healthcare items or services from a particular provider, practitioner, or supplier of healthcare items or services. Similar to the federal AKS, the OIG promulgates regulations that affect the scope of the CMP Law. For example, on December 7, 2016, the OIG issued a final rule, set forth in 81 Fed. Reg. 88,368, that amended the AKS and the CMP Law. Some of the amendments to the CMP Law may impact our business, such as allowing certain statutory exceptions to the definition of “remuneration” to exclude certain remuneration that poses a low risk of harm and promotes access to care for patients (including residents) and certain remuneration to financially needy individuals. On December 2, 2020, the OIG published a final rule, set forth in 85 Fed. Reg. 77, 684, that provides additional protections to inducements offered to patients for patient engagement and support arrangements to improve quality of care, health outcomes, and efficiency.
The CMP Law, as well as similar state laws, impact how we may interact with LTCFs and residents and thus the operation of our business. We must monitor carefully the services we provide to LTCFs and the consideration received for these services to avoid allegations that we are inappropriately encouraging referrals of or services to residents.
Investigations and Audits
In the ordinary course of business, we may from time to time be subject to inquiries, investigations and audits by federal and state agencies, as well as by pharmacy benefit managers (“PBMs”), that oversee applicable healthcare program participation, pharmacy operations, including environmental and employee health and safety requirements, and payment regulations. In this industry generally, federal and state governmental agencies conduct survey, audit and enforcement efforts resulting in a significant number of inspections, citations for regulatory
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deficiencies and other administrative sanctions including demands for refund of overpayments, terminations from the Medicare and Medicaid programs, suspensions of Medicare and Medicaid payments, and monetary penalties or other types of fines, penalties and orders. If imposed, such sanctions could have a material adverse effect on our financial condition, results of operation and liquidity.
We believe our contract arrangements with healthcare providers and our pharmaceutical suppliers, as well as our pharmacy practices and operations, are in substantial compliance with applicable federal and state laws. These laws may, however, be interpreted in the future in a manner inconsistent with our interpretation and application which could then expose us to sanctions, fines and penalties.
Other State Laws Affecting Access to Services
Certain states have a “freedom of choice” requirement as part of their state Medicaid programs or in separate legislation that enable a patient (or resident) to select his/her provider. These laws may prevent a LTCF from requiring its residents to purchase pharmacy services or supplies from particular providers that have a supplier relationship with the LTCF. Such “freedom of choice” requirements may increase the competition we face in providing services to LTCF residents.
HIPAA
Pursuant to HIPAA, the Department of Health and Human Services (“HHS”) adopted national standards for electronic healthcare transactions and code sets, unique health identifiers, and privacy and security of individually identifiable health information. HIPAA regulations that standardize transactions and code sets require standard formatting for healthcare providers, like us, that submit claims electronically.
The HIPAA privacy regulations apply to PHI, which is individually identifiable health information that relates to an individual’s physical or mental health, the provision of healthcare to an individual, or the payment for the provision of healthcare to an individual. The Privacy Rule under HIPAA limits the use and disclosure of PHI, and HIPAA provides for the imposition of civil or criminal penalties if PHI is improperly used or disclosed.
HIPAA’s Security Rule requires appropriate administrative, physical and technical safeguards to protect the confidentiality, integrity, and security of electronic PHI (“e-PHI”). In practice, the Security Rule requires us to facilitate ensuring the confidentiality, integrity and availability of all e-PHI we create, receive, maintain or transmit, including protecting against unauthorized use or disclosure of e-PHI.
In addition to HIPAA, we may be subject to state privacy laws and other state privacy or health information requirements not preempted by HIPAA, including those which may furnish greater privacy protection for individuals than HIPAA.
Our operations involve PHI, and the nature of our operations is complex. Although we believe that our contract arrangements with health plan payors and providers and our business practices are in compliance with applicable federal and state privacy and security laws, the requirements of these laws, including HIPAA, are complicated and are subject to interpretation and modification. Failure to comply with HIPAA or state equivalent laws could subject us to loss of customers, denial of the right to conduct business, civil damages, fines, criminal penalties and other enforcement actions.
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HITECH was enacted as part of the American Recovery and Reinvestment Act of 2009, changed several aspects of HIPAA including, without limitation, the following: (i) imposing certain liability on business associates of covered entities, for example, with respect to impermissible uses and disclosures of PHI and Security Rule obligations; (ii) requires a data breach notification in the event of certain unauthorized uses or disclosures of unsecured PHI; (iii) allows individuals to obtain their PHI in electronic format if the provider has implemented an electronic health record system; (iv) requires HHS to conduct periodic audits of covered entities and business associates; and (v) strengthens enforcement activities and increases penalties. Due to our operations involving PHI, the changes under the HITECH Act, especially the increased enforcement, routine audits, and breach notification obligations may affect our business operations should there be deemed a potential violation of HIPAA and/or the HITECH Act.
COVID-19 Relief Funds
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in March 2020. The CARES Act allocated billions of dollars in funding to HHS, which eventually became the “Provider Relief Fund.” In April 2020, HHS began distributing the funds to health care providers and hospitals in the United States. Providers were to use Provider Relief Fund monies for health care-related expenses or lost revenue due to COVID-19. We received Provider Relief Fund distributions totaling $10.4 million. Subsequently, we continued to consider the updated eligibility guidelines issued by the HHS. Based on management’s assessment of the likelihood of meeting the applicable terms and conditions for receiving such funds and due to uncertainty regarding long-term care pharmacy eligibility, we made the decision to return all the funds to HHS. All funds were returned in 2020.
Additionally, the CARES Act provided for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. Our deferred payment of the employer portion of social security taxes related to wages earned as of December 31, 2020 was $5.3 million. All such amounts were paid prior to December 31, 2022.
Environmental, Health and Safety Matters
Our facilities are subject to certain federal, state, and local environmental, health and safety statutes, regulations and ordinances and implementing guidance. As discussed under Investigations and Audits above, multiple governmental agencies have regulatory enforcement power over environmental, health and safety matters at our facilities, including inspection, auditing and administrative, and civil and criminal enforcement authority. While environmental laws govern water, air, waste and other media, regulations applicable to our facilities primarily concern management of waste materials (including waste product and equipment cleaning materials) and unused pharmaceuticals and other products generated or otherwise managed in the course of routine business operations. For example, in certain instances where we receive returned, unused medications, regulations require that we properly dispose of these materials when they become waste, which can trigger complex waste management requirements. In operating our facilities, historically we have not encountered any material difficulties effecting compliance with applicable environmental, health and safety laws. While we cannot predict the effect that any future legislation, regulations or interpretations may have upon our operations, we do not anticipate that any pending changes regarding environmental, health and safety laws would have a material adverse impact on us.
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Regulations to which Guardian is Subject from Health Plan Payors
Medicare, as set forth in the Social Security Act Section XVIII, is a federal program that provides certain hospital and medical insurance benefits to persons age 65 and over and to certain disabled persons. Medicaid, as set forth in the Social Security Act Section XIX, is a medical assistance program administered by each state that provides healthcare benefits to certain indigent patients. Within the Medicare and Medicaid statutory framework, there are numerous areas subject to administrative rulings, interpretations, and discretion that may affect reimbursement under Medicare and Medicaid.
We receive reimbursement for the drugs we dispense and our related services from our customer institutional healthcare providers, government reimbursement programs, such as Medicare and Medicaid, and other non-government sources, such as commercial insurance companies, health maintenance organizations, preferred provider organizations, and contracted providers.
Medicare
The Medicare program consists of four parts: (i) Medicare Part A, which covers, among other things, in-patient hospital, SNFs, home healthcare, and certain other types of healthcare services; (ii) Medicare Part B, which covers physicians’ services, outpatient services, durable medical equipment, and certain other types of items and healthcare services; (iii) Medicare Part C, also known as Medicare Advantage, which is a managed care option for beneficiaries who are entitled to Medicare Part A and enrolled in Medicare Part B; and (iv) Medicare Part D, which provides coverage for prescription drugs that are not otherwise covered under Medicare Part A or Part B for those beneficiaries that enroll.
Part A
The Balanced Budget Act of 1997 (the “BBA”) mandated the Prospective Payment System (“PPS”) for Medicare-eligible enrolled residents in SNFs. Under PPS, Medicare pays SNFs a per diem rate per patient for extended care services to patients, covering substantially all items and services furnished during such enrollee’s stay, including routine, ancillary, and capital-related. Such services and items include certain pharmacy services and prescription drugs.
In July 2018, CMS announced the Skilled Nursing Facility Prospective Payment System (“SNF PPS”) final rule, which became effective October 1, 2019. This rule finalized the implementation of the Patient Driven Payment Model (“PDPM”) for fiscal year 2020 Medicare Part A services. The PDPM is a new case-mix classification system for classifying SNF residents in a Medicare Part A covered stay into payment groups under the SNF PPS. Effective beginning October 1, 2019, the PDPM replaced the prior case-mix classification system, the Resource Utilization Groups, Version IV (“RUG-IV”). The new model shifts the focus to value-based care and bases reimbursement on clinical complexity and the resident’s conditions and care needs. Specifically, to account more accurately for the variability in patient (or resident) costs over the course of a stay, under PDPM, an adjustment factor is applied (for certain components) and changes the per diem rate over the course of the stay. In July 2023, CMS issued the Fiscal Year (FY) 2024 Skilled Nursing Facility Prospective Payment System Final Rule, which finalized a PDPM parity adjustment factor to reduce SNF PPS payment rates.
Notwithstanding the recent developments with PDPM, we continue to bill SNFs based upon a negotiated fee schedule and are paid based on contractual relationships with the SNFs. We do not receive direct payment from Medicare for residents covered under the Medicare Part A benefit.
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Part B
Medicare Part B provides coverage for durable medical equipment prosthetics, orthotics, and supplies (“DME” or “DMEPOS”), certain classes of prescription drugs, and certain preventive health services such as the influenza vaccine, among other things. Common examples of DME include nebulizers, infusion pumps, and diabetic test strips. Prescription drugs covered under Medicare Part B include immunosuppressive drugs, oral anti-emetic drugs, oral anti-cancer drugs, and drugs self-administered through any piece of DME (e.g., respiratory or inhalation drugs administered via nebulizer or drugs administered with a Medicare-covered infusion pump).
A DMEPOS supplier typically must obtain DMEPOS accreditation to enroll and bill directly under Medicare Part B. Guardian pharmacies supply DME products and thus are enrolled in Part B to do so. Some Guardian pharmacies are also accredited under Part B DMEPOS to dispense DME supplies. Additionally, all Guardian pharmacies are enrolled in Part B as a mass immunizer to administer and receive reimbursement for administering the influenza vaccine.
Recent Changes Impacting Part B DME Infusion Drugs
The 21st Century Cures Act (the “Cures Act”), enacted in December 2016, among other things implemented Average Sales Price pricing for Part B DME infusion drugs in January 2017. The Medicare home infusion therapy (“HIT”) benefit is for coverage of home infusion therapy-associated professional services for certain drugs and biologicals administered intravenously, or subcutaneously through a pump that is an item of DME. The HIT benefit had a temporary transitional payment period from 2019-2020, prior to becoming permanently effective on January 1, 2021. In October 2019, CMS issued a final rule with comment period updating the temporary transitional payment rates for home infusion therapy services for calendar year 2020. This final rule also finalized beneficiary eligibility requirements and payment provisions related to the HIT benefit to be implemented permanently beginning in Contract Year 2021, as required by the Cures Act. In November 2020, CMS issued another final rule, which summarized the HIT benefit policies that were previously codified in the October 2019 final rule, and finalized the exclusion of home infusion therapy services from coverage under the Medicare home health benefit, as required by the Cures Act. In particular, this November 2020 final rule confirmed that “home infusion drugs” are defined as “parenteral drugs and biologicals administered intravenously, or subcutaneously for an administration period of 15 minutes or more, in the home of an individual through a pump that is an item of DME covered under the Medicare Part B DME benefit.” Such term does not include insulin pump systems or self-administered drugs or biologicals on a self-administered drug exclusion list.
Part D
Medicare Part D provides coverage for most outpatient prescription drugs that are FDA-approved and for which coverage is not otherwise available under Medicare Part A or Part B. Under Medicare Part D, beneficiaries who are entitled to Medicare benefits under Part A or who are enrolled in Medicare Part B may enroll in prescription drug plans offered by private commercial insurers who contract with CMS, including stand-alone prescription drug plans and Medicare Advantage plans with prescription drug coverage (collectively, “Part D Plans”). Medicare beneficiaries generally have to pay a premium to enroll in a Part D Plan and have to pay cost-sharing amounts, with amounts varying from one Part D Plan to another. CMS provides various federal subsidies to Part D Plans to reduce the cost to beneficiaries.
Most Part D Plans have a list of covered drugs, called a formulary. Part D Plan formularies must include drug categories and classes that cover disease states consistent with Part D program
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requirements, and Part D Plans generally must cover at least two drugs per category. CMS reviews the formularies of Part D Plans and requires these formularies to include the types of drugs most commonly used by Medicare beneficiaries, as well as those enrollees who reside in long-term care facilities. For example, it is CMS’s expectation that Part D Plans provide coverage of dosage forms of drugs that are widely utilized in the long-term care setting. Dually-eligible residents in nursing centers may be entitled to have their prescription drug costs covered by a Part D Plan, provided that the prescription drugs which they are taking are either on the Part D Plan’s formulary or an exception to the Part D Plan’s formulary is granted. We obtain reimbursement for drugs we provide to enrollees of the given Part D Plan in accordance with the terms of agreements negotiated between us and the Part D Plan.
Medicare Part D does not alter federal reimbursement for residents of nursing centers whose stay at the nursing center is covered under Medicare Part A. Accordingly, Medicare’s per diem payments to nursing centers may include a portion attributable to the expected cost of drugs provided to such residents. We will, therefore, continue to receive reimbursement for drugs provided to such residents from the nursing center in accordance with the terms of our agreements with each nursing center.
Recent Medicare Part D Changes
In an April 16, 2018 final rule published at 83 Fed. Reg. 16,440 and entitled “Medicare Program; Contract Year 2019 Policy and Technical Changes to the Medicare Advantage, Medicare Cost Plan, Medicare Fee-for-Service, the Medicare Prescription Drug Benefit Programs, and the PACE Program,” CMS rescinded regulatory provisions that require prescribers of Part D drugs to enroll in Medicare in order for the Part D drug to be covered. As a replacement, effective April 1, 2019, a Part D Plan is required to reject, or require its pharmacy benefit manager to reject, a pharmacy claim for a Part D drug if the individual who prescribed the drug is included on the “preclusion list.” The preclusion list consists of certain individuals and entities that are currently revoked from the Medicare program under 42 C.F.R. § 424.535 and are under an active reenrollment bar, or have engaged in behavior for which CMS could have revoked the individual or entity to the extent applicable if they had been enrolled in Medicare, and CMS determines that the underlying conduct that led, or would have led, to the revocation is detrimental to the best interests of the Medicare program. CMS made further revisions to the Part D preclusion list regulations—relating to the appeals process for individuals and entities on the preclusion list, claim denials and beneficiary notifications, and beneficiary appeals—in an April 16, 2019 Final Rule published at 84 Fed. Reg. 15,680.
In a January 19, 2021 final rule published at 86 Fed. Reg. 5,864 and entitled “Medicare and Medicaid Programs; Contract Year 2022 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicaid Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly,” CMS aimed to add transparency to the Part D program, and lowering prescription drug prices. As such, this final rule requires Part D plans to offer a real-time benefit comparison tool starting January 1, 2023, so that enrollees can obtain information about lower-cost alternative therapies under their prescription drug benefit plan.
In August 2022, Congress passed the Inflation Reduction Act, which, among other provisions, introduced significant drug pricing reforms aimed to reduce federal government and beneficiary spending for Medicare Part B and Part D drugs. Key provisions in this legislation include limited authority for regulators to negotiate prices for certain Medicare drugs, caps on beneficiary cost share and maximum out-of-pocket spending, and rebates on manufacturers where drug prices exceed inflation. CMS has released initial guidance related to the implementation of this program, which will begin in phases starting in September 2023.
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In December 2023, CMS issued the “Medicare Part D Drug Inflation Rebates Paid by Manufacturers: Revised Guidance” revising initial guidance issued in February 2023, with respect to identification of Part D rebatable drugs and exclusions, calculation of the Part D inflation rebate amount, ensuring integrity of inflation rebates, enforcement of rebate amount payments by manufacturers, and adding example formulas to illustrate how CMS will calculate Part D drug inflation rebate amounts. Beginning in 2024, certain enrollees will have their out-of-pocket drug costs capped when reaching a certain threshold.
Rebates
Guardian receives a modest amount of rebates from pharmaceutical manufacturers and distributors of pharmaceutical products associated with dispensing their products. CMS appears to continue to question whether institutional pharmacies should be permitted to receive these access/performance rebates from manufacturers with respect to prescriptions covered under Medicare Part D, but has not prohibited the receipt of such rebates.
Medicaid
The reimbursement rate for pharmacy services under Medicaid is determined on a state-by-state basis subject to review by CMS and applicable federal law. Although Medicaid programs vary from state to state, most state Medicaid programs provide for the payment of certain pharmacy services, up to established limits, at rates determined in accordance with each state’s regulations. The federal Medicaid statute specifies a variety of requirements that a state plan must meet, including requirements related to eligibility, coverage for services, payment, and admissions. For residents that are eligible for Medicaid only, and are not dually eligible for Medicare and Medicaid, we bill the individual state Medicaid program or in certain circumstances the state’s designated managed care or other similar organizations for covered prescription drugs.
Federal regulations and the regulations of certain states establish federal “upper limits” for reimbursement of certain prescription drugs under Medicaid (these upper limits being the “FUL”). The Patient Protection and Affordable Care Act and the reconciliation law known as Health Care and Education Affordability Reconciliation Act (combined we refer to both Acts as the “Affordable Care Act”), enacted in March 2010, provided for the gradual modification to the calculation of the FUL for drug prices and the definition of Average Manufacturer’s Price (“AMP”).
Specifically, the Affordable Care Act and CMS’s Covered Outpatient Drugs final rule, published at 81 Fed. Reg. 5,170, changed the definition of the FUL by requiring the calculation of the FUL as no less than 175% of the weighted average, based on utilization, of the most recently reported monthly AMP for pharmaceutically and therapeutically equivalent multi-source drugs available through retail community pharmacies nationally. As an exception, however, if the AMP-based FUL is lower than the National Average Drug Acquisition Cost (“NADAC”), the FULs will be set at the drug’s NADAC. CMS updates the FULs on a monthly basis and the FULs become effective on the first date of the month following their publication. States have thirty (30) days after the effective date of the monthly updates to implement the new FULs.
In addition, the definition of AMP changed to reflect net sales only to drug wholesalers that distribute to retail community pharmacies and to retail community pharmacies that directly purchase from drug manufacturers. Further, the Affordable Care Act continued the current statutory exclusion of prompt pay discounts offered to wholesalers and added three other exclusions to the AMP definition: (i) bona fide services fees; (ii) reimbursement for unsalable returned goods (recalled, expired, damaged, etc.); and (iii) payments from and rebates/discounts to certain entities not conducting business as a wholesaler or retail community pharmacy.
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The Covered Outpatient Drugs final rule also changed how states reimburse pharmacies. The final rule required states to pay pharmacies based on the actual acquisition cost of the drug, as opposed to the estimated acquisition cost. Moreover, it required states to consider the sufficiency of both the ingredient cost reimbursement and dispensing fee reimbursement when proposing changes to either of these components of reimbursement for Medicaid covered drugs.
Over the last several years, state Medicaid programs have undertaken efforts to control prescription drug costs and have seemingly aimed to lower reimbursement through a variety of mechanisms.
Regulations That Affect Our Customers
As previously noted in this prospectus, the LTCFs we serve are subject to numerous federal, state and local regulations.
Specifically, most LTCFs are required to be licensed in the states in which they operate. In addition, for SNFs and other LTCFs serving Medicaid or Medicare residents, such facilities must be certified to be in compliance with applicable requirements for participation set forth in 42 C.F.R. Part 483 (subpart B). Certain customer LTCFs may also be subject to the Nursing Home Reform Act, part of the Omnibus Budget Reconciliation Act of 1987, as amended, which imposes strict compliance standards relating to quality of care for facility operations, including increased documentation and reporting requirements, unannounced surveys and related enforcement processes, and residents’ bill of rights.
In the Final Rule, set forth in 81 Fed. Reg. 68,688 and entitled “Medicare and Medicaid Programs, Reform of Requirements for Long-Term Care Facilities,” referenced previously in this prospectus (see Government Regulation—Regulations That Affect Guardian Directly—CMS Regulations Affecting Guardian’s Provision of Pharmacy Services for Certain LTCF Customers), LTCFs participating in the Medicare and Medicaid programs must develop and maintain policies and procedures, including to address the steps the pharmacist must take when the pharmacist identifies an irregularity that requires urgent action. Moreover, LTCFs must have an effective quality assurance and performance improvement program, person-centered care planning, an infection preventionist, a compliance and ethics program, a means to call for staff assistance from the bedside, and effective staff training, among other requirements. Finally, LTCFs must focus on reducing or eliminating the inappropriate use of psychotropic drugs. In May 2024, CMS published a Final Rule, set forth in 89 Fed. Reg. 40,876 entitled “Medicare and Medicaid Programs; Minimum Staffing Standards for Long-Term Care Facilities and Medicaid Institutional Payment Transparency Reporting” requiring certain minimum nurse staffing requirements.
Our LTCF customers may also be directly subject to many of the laws and regulations to which Guardian is subject, as described in detail earlier in this Prospectus (see Government Regulation—Regulations That Affect Guardian Directly and Government Regulation—Regulations to which Guardian is Subject from Health Plan Payors). For example, our LTCF customers may be subject to laws affecting referrals and business practices, such as the AKS, and laws affecting interactions with residents and beneficiaries, such as the CMP Law. Our LTCF customers may from time to time be subject to inquiries, investigations and audits by federal and state agencies that oversee applicable healthcare program participation and LTCF operations. LTCF customers may also have direct obligations under HIPAA. Finally, LTCF residents may be covered by (and LTCF customers may receive reimbursement for services provided to residents under) Medicare Part A, Part B and Part D Plans, Medicaid, commercial insurance, and other private health plan payors (including managed care).
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Human Capital Management
Our success is directly linked to the commitment, engagement and performance of its employees. It is important that we not only attract and retain the best and brightest diverse talent, but also ensure they remain engaged and can thrive in an environment that is committed to helping them grow, succeed and contribute directly to achieving our purpose. We embrace diversity and equal opportunity in our workforce. We are committed to building a team that represents a variety of backgrounds, perspectives and skills. The more inclusive we are, the better our work will be.
As of June 30, 2024, we employed approximately 3,200 persons, all of whom are located within the United States. Our workforce includes over 500 pharmacists and over 70 nurses, in addition to more than 100 employees who work in the Atlanta office to support our local pharmacies nationwide.
We consider the intellectual capital of our employees to be an essential driver of our business and key to future prospects. To attract and retain a high-quality, experienced workforce, we offer a competitive mix of compensation and insurance benefits for our employees, as well as participation in equity programs for certain employees. We offer a wide range of health insurance benefits packages that are customizable to suit the individual needs of each member of our workforce, which is an important factor in our recruitment efforts. We are committed to helping our colleagues reach their full potential by rewarding both their performance and leadership skills and by providing opportunities for growth and development.
Full-time employees are eligible to participate in our medical, dental, vision, Health Savings Account, Flexible Spending Account, accident insurance, critical illness insurance, life insurance and disability plans. We offer employees a 401(k)-retirement plan with a company match. Finally, certain employees also participate in an annual bonus plan. None of our employees are represented by a labor union. We consider our employee relations to be good.
Intellectual Property
We use a number of trademarks and service marks. All of the principal trademarks and service marks used in the course of our business have been registered in the United States or are the subject of pending applications for registration. The Company’s registered trademarks are perpetual in duration.
We have various proprietary products, processes and other intellectual property that are used either to facilitate the conduct of our business or that are made available as products or services to the facilities we work with. We generally seek to protect such intellectual property through a combination of trade secret and patent laws and through confidentiality and other contractually imposed protections.
Although we believe that our products and processes do not infringe upon the intellectual property rights of any third parties, third parties may assert infringement claims against us from time to time.
Competition
The business of providing pharmacy services to LTCF residents is highly competitive, and we face competition from multiple sources. There are national, regional and local institutional pharmacies, as well as and numerous local retail pharmacies, that provide pharmaceutical
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distribution services comparable to those that we offer. Many of these pharmacies have strong relationships with the LTCFs they serve and their residents. In addition, some of our competitors have greater financial resources than we do and may be more established in the markets they serve than we are, making our ability to compete more difficult. Some of our larger competitors have indicated that they plan to focus more on the ALF market, which could further increase the competition we face.
While we do not believe any single competitor offers a comparably robust, integrated pharmacy services solution, our primary competitors in the ALF and BHF space are large national providers including Omnicare, Inc. and PharMerica Corporation, in addition to local and regional pharmacies in each of our markets, including Remedi SeniorCare, PharmCareUSA and Polaris Pharmacy Services. We believe we are the market leader for providing pharmacy services to ALFs and BHFs. We believe we compete favorably in all areas, including SNFs, based on the following competitive factors:
| • | the value and comprehensiveness of the pharmacy services solution we offer and the superior outcomes for residents and reduced health care costs for pharmacy benefit plans; |
| • | the strength of our business model, which focuses on local autonomy as opposed to a hub and spoke model; |
| • | the superiority of our data analytics capabilities; |
| • | the variety of clinical services we offer to improve the quality of care for residents at ALFs and BHFs; and |
| • | our significant investment in automation at each local pharmacy. |
Sales and Marketing
We sell our services to LTCFs through each local pharmacy’s sales organization and, in many cases, we leverage our relationships with top national and regional LTCFs to establish relationships with residents. Our sales team has broad experience in the long-term care pharmacy services industry and with LTCF executives. The sales teams at each of our local pharmacies have their own structures that are tailored to their market and the LTCFs located therein and are responsible for identifying sales opportunities and managing the overall sales process. The effectiveness of our sales teams are evidenced by the approximately 400 new ALFs and BHFs our local pharmacies added in 2023.
We generate leads, accelerate sales opportunities, and build brand awareness through our marketing programs. Our marketing programs target LTCF executives, caregivers and residents. Our principal marketing programs include learning opportunities for residents, field marketing events, integrated marketing campaigns, lead generation and participation in industry events, trade shows, and conferences. We also benefit from the expansion of our large, multi-location LTCF accounts, as well as from the strength of our brand in local and regional markets.
Properties
Our corporate headquarters occupy approximately 25,000 square feet in Atlanta, Georgia, under a lease that expires on October 31, 2030. We use this space for administration, sales, marketing, data analytics, and customer support. We have 55 additional leases in place for our local pharmacies, totaling approximately 690,000 square feet.
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We also lease approximately 8,100 square feet at a third-party logistics provider’s warehouse in Vonore, Tennessee. We warehouse pharmaceuticals that we purchase from certain manufacturers at the leased space and contract with the third-party logistics provider for its distribution services.
Legal Proceedings
From time to time, we and our pharmacies are involved and will continue to be involved in various claims relating to, and arising out of, our business and our operations. In June 2019, Guardian Pharmacy, LLC learned of a federal False Claims Act claim regarding Guardian Pharmacy, LLC and one of its subsidiaries, Guardian Pharmacy of Atlanta, LLC, after being contacted by the United States Attorney’s Office for the Northern District of Georgia. The allegations underlying the claim were set forth in a qui tam complaint filed by a relator asserting claims for alleged violations of the False Claims Act. The civil action was styled Heller v. Guardian Pharmacy, LLC, et al., Civil Action No. 1:18-cv-03728-SDG, and was brought in the United States District Court for the Northern District of Georgia. The complaint alleged that Guardian Pharmacy of Atlanta, LLC submitted false claims for prescription drugs to government payors, including Medicare Part D and Tricare, for claims resulting from referrals induced by violations of the AKS and sought recovery on behalf of the United States of treble damages incurred by the United States and related civil penalties. The U.S. Department of Justice declined to intervene in the case on November 18, 2019, but the relator elected to proceed with the litigation. Guardian Pharmacy, LLC and Guardian Pharmacy of Atlanta, LLC filed motions to dismiss the relator’s complaint, and the court granted Guardian Pharmacy, LLC’s motion and denied Guardian Pharmacy of Atlanta, LLC’s motion. Accordingly, Guardian Pharmacy, LLC was dismissed from the case on February 10, 2021. On September 30, 2023, the Court denied the relator’s and Guardian Pharmacy of Atlanta, LLC’s cross motions for summary judgment. On May 21, 2024, the parties entered into a confidential resolution of the civil action. On May 23, 2024, the relator and Guardian Pharmacy of Atlanta, LLC filed a stipulation dismissing the claims with prejudice as to the relator and without prejudice as to the United States. Subsequently, on June 10, 2024, the United States filed its notice of consent to the dismissal of the relator’s qui tam claims on the same terms. Accordingly, the matter has been resolved.
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Executive Officers and Directors
The following table sets forth the names, ages (as of September 1, 2024) and positions of our executive officers and individuals who are expected to serve as our directors following the completion of this offering.
| Name |
Age |
Position(s) |
||||||
| Executive Officers |
||||||||
| Fred Burke |
75 | President and Chief Executive Officer and Class III Director | ||||||
| David Morris |
61 | |
Executive Vice President and Chief Financial Officer and Class I Director |
| ||||
| Kendall Forbes |
68 | Executive Vice President of Sales & Operations | ||||||
| Non-Employee Directors |
||||||||
| William Bindley |
83 | Chairman of the Board of Directors and Class III Director | ||||||
| John Ackerman |
66 | Class II Director | ||||||
| Steve Cosler |
69 | Class III Director | ||||||
| Randall Lewis |
62 | Class II Director | ||||||
| Mary Sue Patchett |
61 | Class I Director | ||||||
| Thomas Salentine, Jr. |
55 | Class I Director | ||||||
In connection with the Corporate Reorganization and this offering, the Company will enter into the Stockholders’ Agreement with the Guardian Founders, consisting of Bindley Capital Partners I, LLC (“Bindley Capital”), Pharmacy Investors, LLC (“Pharmacy Investors”), Cardinal Equity Fund LP (“Cardinal” and, collectively with Pharmacy Investors, the “Cardinal Stockholders”), Fred Burke, David Morris and Kendall Forbes. The Stockholders’ Agreement will provide that the size of our board of directors will initially be eight directors, effective as of the consummation of this offering. The Stockholders’ Agreement will also provide for, among other things, certain director nomination rights with respect to our board of directors and certain voting agreements among the Guardian Founders. Pursuant to the terms and conditions of the Stockholders’ Agreement, Bindley Capital will have the right to designate two nominees for election to our board of directors, the Cardinal Stockholders will have the right to designate one nominee for election to our board of directors, and each of Mr. Burke and Mr. Morris will be nominees for election to our board of directors. The three remaining nominees for election to our board of directors will be selected by our board of directors, each of whom must qualify as independent pursuant to NYSE listing standards. Furthermore, the Guardian Founders will agree to vote in favor of the election of all of the foregoing nominees.
Accordingly, we expect that Mr. Bindley and Mr. Salentine will serve on our board of directors as nominees of Bindley Capital, Mr. Ackerman will serve on our board of directors as the nominee of the Cardinal Stockholders, and Mr. Burke and Mr. Morris will serve on our board of directors in furtherance of their nomination rights. In addition, we expect that Mr. Cosler, Mr. Lewis and Ms. Patchett will serve on our board of directors as the independent director nominees. See “Management—Stockholders’ Agreement and Controlled Company Exemption.”
More detailed information about each of the individuals expected to serve as our directors following the completion of this offering is provided below.
Fred Burke has served as our President and Chief Executive Officer and a member of our board of directors since our formation. Prior to co-founding Guardian, Mr. Burke was a co-founder and president of two start-up companies in Atlanta, Georgia: Central Pharmacy Services, Inc. (“Central Pharmacy”), which was founded in 1992 and ultimately acquired by Cardinal Health in
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2001, and Sales Technologies, Inc., which was founded in 1983 and acquired by Dun & Bradstreet Corporation in 1989. Mr. Burke also previously served as a brand manager at Procter & Gamble, a consultant and engagement manager at McKinsey & Company, and as an officer in the United States Air Force, leading a combat communications unit. Mr. Burke received a B.S., Engineering from Mississippi State University, and an M.S., Industrial Management from the Krannert School of Management at Purdue University. We believe that Mr. Burke is qualified to serve as a director because of his operational and historical expertise gained from serving as our President and Chief Executive Officer, and his extensive experience in the pharmacy industry.
David Morris has served as our Executive Vice President and Chief Financial Officer and a member of our board of directors since our formation. Prior to co-founding Guardian, Mr. Morris served as Chief Financial Officer at Central Pharmacy from 1993 to 2001. Mr. Morris previously served as President of the PBM Division at Complete Health from 1991 to 1993 and served as a Certified Public Accountant at Ernst & Young LLP from 1985 to 1991. Mr. Morris received a B.S., Accounting from the University of Alabama. We believe that Mr. Morris is qualified to serve as a director because of his operational and historical expertise gained from serving as our Executive Vice President and Chief Financial Officer, his extensive experience in the pharmacy industry and his expertise in financial management.
Kendall Forbes has served as our Executive Vice President of Sales & Operations since July 2004. Prior to co-founding Guardian, Mr. Forbes was a co-founder and the Executive Vice President of Operations of Central Pharmacy from 1993 to July 2004. Mr. Forbes previously owned the Baton Rouge Central Pharmacy from 1985 to 1993 and served as a Pharmacy Manager at Nuclear Pharmacy, Inc., a predecessor of Syncor Nuclear Pharmacy, from 1982 to 1985. Mr. Forbes received a B.S. from the University of Louisiana Monroe School of Pharmacy and completed his graduate fellowship in Radiopharmacy at the University of New Mexico.
William Bindley has served as Chairman of our board of directors since our formation. Mr. Bindley has served as Chairman of Bindley Capital Partners, LLC, a private investment firm, since 2001. Mr. Bindley also founded Priority Healthcare Corporation (“Priority”), a national provider of bio-pharmaceuticals and complex therapies for chronic disease states, and served as their Chairman from 1995 to 2005 and Chief Executive Officer from 1994 to 1997. Mr. Bindley was also the Chairman, President, Chief Executive Officer and founder of Bindley Western Industries, Inc., a national pharmaceutical distributor and nuclear pharmacy operator that was acquired by Cardinal Health, Inc. in 2001. He previously served as a trustee at Kite Realty Group Trust from August 2004 to May 2024 and has also served on the boards of directors of Cardinal Health, Inc., Key Bank, NA, Bindley Western Industries, Priority and Shoe Carnival, Inc. Mr. Bindley received his B.S. in Industrial Economics and Doctor of Management from Purdue University and completed the Wholesale Management Program at the Stanford Graduate School of Business. We believe that Mr. Bindley is qualified to serve as a director because of his extensive experience in leading healthcare focused companies, as well as his significant public company leadership experience.
John Ackerman has served as a member of our board of directors since our formation. Mr. Ackerman is a co-founder of Cardinal Equity Partners, a private equity firm focused on middle-market investments, and has served as President since 1994. Mr. Ackerman currently serves on the board of directors of four of Cardinal Equity Partners’ portfolio companies, as well as on the board of directors of AAA Hoosier Motor Club. Until their respective sales in 2020, Mr. Ackerman was a board member of Hulman & Company, a wholesale foods supplier, The Indianapolis Motor Speedway and Clabber Girl Corporation, a baking powder producer. Prior to entering private equity, Mr. Ackerman spent ten years with the Quaker Oats Company, where he managed a variety of the company’s brands. Mr. Ackerman has a bachelor’s degree in business
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from the University of Michigan and a M.S., Management from the Kellogg School of Business at Northwestern University. We believe Mr. Ackerman is qualified to serve as a director because of his extensive strategic and managerial experience in our industry.
Steve Cosler is expected to join our board of directors prior to the completion of this offering. Mr. Cosler has served as an Operating Partner at Water Street Healthcare Partners, LLC (“Water Street”), a Chicago-based private equity firm focused on the healthcare industry, since 2006. Prior to Water Street, he served as the President and Chief Executive Officer of Priority, a Fortune 1000 company that distributed and managed biopharmaceutical therapies. At Priority, Mr. Cosler lead the company’s successful initial public offering, as well as strategic initiatives that contributed to its growth and ultimate sale to Express Scripts, Inc. Mr. Cosler serves on the board of directors of Imagine360, LLC, Liviniti, LLC and Eversana Life Science Services LLC, all of which are Water Street portfolio companies, as well as MedShorts LLC. Mr. Cosler also serves as the Chairman of National Retail Properties, Inc. Previously, Mr. Cosler served on the board of directors of Cima Labs Inc. and Priority, and served as the lead independent director at Catamaran Corporation, both of which are former public companies. Mr. Cosler has also served on the Board of Trustees for two closed-end funds of Claymore Securities Inc. Mr. Cosler received a M.S., Industrial Management from the Krannert School of Management at Purdue University. We believe Mr. Cosler is qualified to serve as a director because of his unique combination of senior management and operational experience in specialty pharmacy, specialty distribution, outsourced payer services and technology.
Randall Lewis is expected to join our board of directors prior to the completion of this offering. Mr. Lewis is the Managing Partner for Cleveland Avenue, LLC (“Cleveland Avenue”), a venture capital investment firm that invests in agrifood and beverage, related technologies, and life-style related technology investments. He joined Cleveland Avenue in 2020 and is responsible for leading transaction sourcing, due diligence, financial evaluation, and portfolio management of the firm’s portfolio investments. Mr. Lewis has served on the board of directors of Simon Property Group, Inc. since March 2023. Prior to joining Cleveland Avenue, Mr. Lewis served his alma mater, Purdue University, as Executive Director for the Krannert Professional Development Center from 2013 to 2020. He has over 35 years of finance, risk management, and operations experience. This includes his years with General Electric, Wells Fargo and Elevance Health, Inc. (formerly Anthem, Inc.). While working for these Fortune 500 companies, he held various senior executive roles, including Executive Vice President and Chief Compliance Officer, Executive Vice President and Chief Auditor, Managing Director of Corporate Development, and Chief Executive Officer for a start-up logistics firm. Mr. Lewis obtained his B.S. in General Management/Accounting and M.B.A. in Finance from the Krannert School of Management at Purdue University. Mr. Lewis is also a Certified Public Accountant. We believe Mr. Lewis is qualified to serve as a director because of his deep financial and operational experience and public company board experience.
Mary Sue Patchett is expected to join our board of directors prior to the completion of this offering. Ms. Patchett held various senior leadership positions at Brookdale Senior Living Inc. (“Brookdale”), the nation’s largest operator of senior housing facilities, from 2011 to 2021. Ms. Patchett served as the Executive Vice President of Strategic Operations at Brookdale from March 2020 to June 2021, where in addition to her strategic planning, market/competitive positioning and government affairs responsibilities, she served as commander of Brookdale’s COVID-19 emergency response center, leading a team of internal experts and external consultants to develop and execute pandemic protocols. Ms. Patchett also served as the Executive Vice President of Community and Field Operations at Brookdale, and before that, was President of the Southeast Division. Ms. Patchett earned her B.S. in business from George Mason University. We believe Ms. Patchett is qualified to serve as a director because of her substantial managerial experience in the healthcare sector and longstanding involvement in the senior care industry.
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Thomas Salentine, Jr. has served as a member of our board of directors since our formation. Mr. Salentine has served as President at Bindley Capital Partners, LLC, a private investment firm, since 2001. He was previously a principal at Frontenac Company, a private equity firm, from 1996 to 2001. Prior to that, Mr. Salentine worked in investment banking at Bear Stearns Companies, Inc. from 1990 to 1993. He previously served on the board of directors of Platinum Entertainment, Inc., an integrated music company. Mr. Salentine is a graduate of Harvard College and received his M.B.A. from the Kellogg School of Management at Northwestern University. We believe Mr. Salentine is qualified to serve as a director because of his substantial experience in the investment and financial industries and public company board experience.
There are no family relationships among any of our directors or executive officers.
Election of Officers
Each executive officer serves at the discretion of our board of directors and holds office until his or her successor is duly appointed or until his or her earlier resignation or removal.
Composition of the Board of Directors
Our business and affairs are managed under the direction of our board of directors. Following the completion of this offering, we expect our board of directors to initially consist of eight directors, of whom Mr. Cosler, Mr. Lewis and Ms. Patchett will be independent. Each of our directors will continue to serve as a director until the election and qualification of his or her successor or until his or her earlier death, resignation, or removal. The authorized number of directors may be changed by resolution of our board of directors. Vacancies on our board of directors can be filled by resolution of our board of directors.
Classified Board of Directors
Our certificate of incorporation will provide that our board of directors will be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our board of directors will be designated as follows:
| • | Messrs. Morris and Salentine and Ms. Patchett will be Class I directors, and their terms will expire at the annual meeting of stockholders to be held in 2025; |
| • | Messrs. Ackerman and Lewis will be Class II directors, and their terms will expire at the annual meeting of stockholders to be held in 2026; and |
| • | Messrs. Bindley, Burke and Cosler will be Class III directors, and their terms will expire at the annual meeting of stockholders to be held in 2027. |
Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors.
The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control. See “Description of Capital Stock—Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Certain Provisions of Delaware Law.”
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Background and Experience of Directors
Upon completion of this offering, our board of directors will be responsible for reviewing, on an annual basis, the appropriate characteristics, skills, and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the board of directors, in nominating candidates for election (and, in the case of vacancies, appointing), will take into account many factors, including the following:
| • | personal and professional integrity; |
| • | experience in corporate management, such as serving as an officer or former officer of a publicly held company; |
| • | experience in the industries in which we compete; |
| • | experience as a board member of another publicly held company; |
| • | diversity of background and expertise and experience in substantive matters pertaining to our business relative to other board members; |
| • | conflicts of interest; and |
| • | practical and mature business judgment. |
Stockholders’ Agreement and Controlled Company Exemption
After completion of the Corporate Reorganization and this offering, the Guardian Founders will control a majority of our voting power pursuant to the Stockholders’ Agreement. The Stockholders’ Agreement will be among the Company and the Guardian Founders, consisting of Bindley Capital, the Cardinal Stockholders, Fred Burke, David Morris and Kendall Forbes. The Stockholders’ Agreement will provide that the size of our board of directors will initially be eight directors, effective as of the consummation of this offering. Pursuant to the terms and conditions of the Stockholders’ Agreement, Bindley Capital will have the right to designate two nominees for election to our board of directors, the Cardinal Stockholders will have the right to designate one nominee for election to our board of directors, and each of Mr. Burke and Mr. Morris will be nominees for election to our board of directors. The three remaining nominees for election to our board of directors will be selected by our board of directors, each of whom must qualify as independent pursuant to NYSE listing standards. Further, the Guardian Founders will agree to vote in favor of the election of all of the foregoing nominees.
The director nomination rights of Bindley Capital and the Cardinal Stockholders as described above will generally survive for so long as the respective party and its affiliates (i) continue to beneficially own certain specified amounts of our common stock and (ii) refrain from acquiring beneficial ownership of more than 10% of the equity securities of any competitor of the Company. Specifically, if Bindley Capital and its affiliates cease to beneficially own at least 15,211,000 shares of our common stock but continue to beneficially own at least 6,084,400 shares of our common stock, Bindley Capital will thereafter have the right to designate only one director nominee. If Bindley Capital and its affiliates cease to beneficially own at least 6,084,400 shares of our common stock, Bindley Capital will cease to have the right to designate any director nominee. If the Cardinal Stockholders and their affiliates cease to beneficially own at least 6,084,400 shares of our common stock, the Cardinal Stockholders will thereafter cease to have the right to designate any director nominee. In the event that Bindley Capital or the Cardinal Stockholders, together with their respective affiliates, acquire more than 10% of the equity securities of any competitor of the Company, such party will cease to have the right to designate any director nominee. The
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respective nomination rights in favor of Mr. Burke and Mr. Morris will terminate if such person ceases to serve as an executive officer of the Company.
To the extent that any director nomination rights of the Guardian Founders under the Stockholders’ Agreement terminate, nominations of persons for election to those respective director seats will be made by our board of directors or may be made by a stockholder of the Company who has complied with all applicable requirements under our bylaws.
With respect to any vote other than the election of directors, the Guardian Founders will also agree to vote all of their shares of common stock in the manner determined by the Guardian Founders holding a majority of the votes represented by shares of common stock held by the Guardian Founders.
The Stockholders’ Agreement further provides that, until the seventh anniversary of the Stockholders’ Agreement, each Guardian Founder who, together with its affiliates, beneficially owns 10% or more of the Company’s common stock (a “Significant Stockholder”) will not, directly or indirectly, acquire, agree to acquire or make a proposal to acquire beneficial ownership of any additional equity securities of the Company not owned by them as of the date of the Stockholders’ Agreement without the prior consent of our board of directors, subject to certain limited exceptions. The Stockholders’ Agreement also generally provides that, until the seventh anniversary of the Stockholders’ Agreement and without the consent of our board of directors, no Significant Stockholder will, or will permit any of its affiliates to, (a) submit a proposal or offer in respect of any transaction or series of transactions that would constitute certain types of going-private transactions, or (b) transfer any equity securities of the Company to any competitor of the Company or any person who, together with its affiliates, would beneficially own 10% or more of the Company’s common stock following such transfer.
The Stockholders’ Agreement will terminate upon the earlier of (a) the 15th anniversary of the date thereof, (b) a sale of the Company and (c) the date on which both (i) the director nomination rights of each Guardian Founder thereunder have terminated and (ii) no Guardian Founder continues to be a Significant Stockholder; provided that the rights and obligations of any Guardian Founder under the Stockholders’ Agreement will terminate on the date on which such Guardian Founder no longer beneficially owns any equity securities of the Company.
As a result of the Stockholders’ Agreement, the Guardian Founders will control a majority of the voting power of shares of our common stock eligible to vote in the election of our directors and on other matters submitted to a vote of our stockholders. Because more than 50% of the voting power in the election of our directors will be held by this group, we will be a “controlled company” within the meaning of NYSE listing standards. As a controlled company, we will be exempt from complying with certain NYSE corporate governance requirements, including the requirements that: (1) a majority of our board of directors consists of “independent directors,” as defined under NYSE rules, (2) we have a nominating and governance committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, and (3) we have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
For so long as we qualify as a “controlled company,” we may rely on some or all of these exemptions. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NYSE. In the event that we cease to be a “controlled company” and our Class A common stock continues to be listed on NYSE, we will be required to comply with these provisions within the applicable transition periods.
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Board Committees
Our board of directors will have an audit committee and a compensation committee. The expected composition and responsibilities of each committee are described below. Members will serve on these committees until their resignation or until otherwise determined by our board of directors. Our board of directors may also establish from time to time any other committees that it deems necessary or desirable.
As a “controlled company” for purposes of the NYSE listing standards, we may rely on certain exemptions from NYSE listing standards that enable us not to comply with certain NYSE corporate governance requirements. We do not intend at this point to form a stand-alone nominating and governance committee.
Audit Committee
Upon completion of this offering, we expect our audit committee will initially consist of Mr. Cosler, Mr. Lewis and Ms. Patchett, with Mr. Lewis serving as chair. Our audit committee will be responsible for, among other things:
| • | selecting and hiring our independent auditors, and approving the audit and non-audit services to be performed by our independent auditors; |
| • | assisting the board of directors in evaluating the qualifications, performance, and independence of our independent auditors; |
| • | assisting the board of directors in monitoring the quality and integrity of our financial statements and our accounting and financial reporting; |
| • | assisting the board of directors in monitoring our compliance with legal and regulatory requirements; |
| • | oversight of risk assessment and risk management, including risks related to data protection and cybersecurity; |
| • | reviewing with management and our independent auditors the adequacy and effectiveness of our internal control over financial reporting processes; |
| • | assisting the board of directors in monitoring the performance of our internal audit function; |
| • | reviewing with management and our independent auditors our annual and quarterly financial statements; |
| • | reviewing and overseeing all transactions between us and a related person for which review or oversight is required by applicable law or that are required to be disclosed in our financial statements or SEC filings, and developing policies and procedures for the committee’s review, approval and ratification of such transactions; |
| • | establishing procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and |
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| • | preparing the audit committee report that the rules and regulations of the SEC require to be included in our annual proxy statement. |
NYSE rules will require us to have at least one audit committee member upon the listing of our Class A common stock on NYSE, at least two audit committee members within 90 days of listing, and at least three audit committee members within one year of listing. We expect that Mr. Cosler, Mr. Lewis and Ms. Patchett will each qualify as independent under the NYSE listing standards and the independence requirements of Rule 10A-3 under the Exchange Act. In addition, our board of directors has determined that each of Mr. Lewis and Mr. Cosler is an “audit committee financial expert” within the meaning of SEC rules.
Our audit committee will operate under a written charter that satisfies the applicable rules of the SEC and the listing standards of NYSE. Our audit committee’s charter will be available on our website upon the completion of this offering. All audit services to be provided to us and all permissible non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm will be approved in advance by our audit committee.
Compensation Committee
Upon completion of this offering, we expect our compensation committee will consist of Mr. Cosler, Mr. Lewis and Ms. Patchett, with Mr. Cosler serving as chair. The compensation committee will be responsible for, among other things:
| • | reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer, evaluating our Chief Executive Officer’s performance in light of those goals and objectives and, either as a committee or together with the other independent directors (as directed by the board of directors), determining and approving our Chief Executive Officer’s compensation level based on such evaluation; |
| • | reviewing and approving, or making recommendations to the board of directors with respect to, the compensation of our other executive officers, including annual base salary, bonus and equity-based incentives, and other benefits; |
| • | reviewing and recommending to the board of directors the compensation of our directors; |
| • | reviewing and discussing with management our “Compensation Discussion and Analysis” disclosure, once required by SEC rules; |
| • | preparing the compensation committee report required by the SEC to be included in our annual proxy statement; and |
| • | reviewing and making recommendations with respect to our equity and equity-based compensation plans. |
Our compensation committee will operate under a written charter that satisfies the applicable rules of the SEC and the NYSE listing standards. Our compensation committee’s charter will be available on our website upon the completion of this offering.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is or has been an officer or employee of our company. None of our executive officers currently serves, or in the past fiscal year has served,
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as a member of the compensation committee (or other board of directors committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving on our board of directors. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors of any entity that has one or more executive officers serving on our compensation committee.
Code of Ethics
We have adopted a Code of Conduct and Business Ethics that applies to all of our officers, directors, and employees, including our principal executive officer, principal financial officer, principal accounting officer, and controller, or persons performing similar functions, which will be posted on our website. Our Code of Conduct and Business Ethics is a “code of ethics,” as defined in Item 406(b) of Regulation S-K. We will make any legally required disclosures regarding amendments to, or waivers of, provisions of our code of ethics on our website. The information contained in, or that can be accessed through, our website is not incorporated by reference and is not part of this prospectus.
Role of the Board in Risk Oversight
One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through its standing committees that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure. Our audit committee is responsible for reviewing and discussing our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies with respect to risk assessment and risk management. Our audit committee also is responsible for oversight of data protection and cybersecurity risks and monitors compliance with legal and regulatory requirements. Our board of directors monitors the effectiveness of our governance guidelines. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.
Compensation of Directors and Officers
Employment Agreements
We expect to enter into employment agreements with our named executive officers that will govern certain terms and conditions of their employment following the offering. The anticipated terms of these employment agreements are described below under “Executive Compensation—Employment Agreements” and “Executive Compensation—Severance and Change in Control Compensation.”
Overview of Prospective Executive Compensation Program
Following the offering, decisions with respect to the compensation of our executive officers, including our named executive officers, will be made by the compensation committee of our board of directors (the “Compensation Committee”). The following discussion is based on recent actions and the present expectations as to the compensation of our named executive officers and directors following the offering. The actual compensation of our named executive officers will depend on the judgment of the members of the Compensation Committee and may differ from that set forth in the following discussion. Such compensation will also generally be governed by our executive officers’ employment agreements, as in effect from time to time, including as described below.
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We anticipate that compensation for our executive officers will have the following key components: base salary; annual cash incentive opportunities; equity compensation awards; employee benefits; and severance benefits. Base salaries, employee benefits and severance benefits will be designed to attract and retain senior management talent. We will use annual cash incentive awards and stock-based awards to promote the retention of key employees, the achievement of performance objectives, and the alignment of the interests of our named executive officers with those of our stockholders.
Annual Cash Incentives
We expect to provide annual cash incentive award opportunities to our named executive officers to motivate their achievement of short-term performance goals and tie a portion of their cash compensation to performance. We expect that, near the beginning of each year, the Compensation Committee will select the performance targets, target amounts, target award opportunities and other terms and conditions of annual cash incentive awards for the named executive officers, subject to the terms of their employment agreements. Following the end of each year, the Compensation Committee would determine the extent to which the performance targets were achieved and the amount of the annual cash incentive award that is payable to each named executive officer.
Stock-Based Awards
In connection with the completion of this offering, we expect to adopt the Guardian Pharmacy Services, Inc. 2024 Equity and Incentive Compensation Plan (the “2024 Plan”) to permit the grant of awards to non-employee directors, officers and other employees of Guardian and its subsidiaries, and certain consultants to Guardian and its subsidiaries, and to provide to such persons incentives and rewards for service and/or performance. The terms of the 2024 Plan are described in more detail below under “Executive Compensation—2024 Equity and Incentive Compensation Plan.”
We expect to use stock-based awards to promote our interests and those of our stockholders by providing executive officers and other key employees with the opportunity to acquire equity interests as an incentive for their remaining in our service and/or achieving performance objectives and aligning such employees’ interests with those of our stockholders.
Other Compensation and Benefits
We expect to provide our named executive officers with a standard suite of employee benefit programs, and may also provide our named executive officers with perquisites and personal benefits that are not generally available to all employees.
We anticipate that the employment agreements with our named executive officers will provide for severance compensation in the event of certain qualifying terminations of employment. See “Executive Compensation—Severance and Change in Control Compensation” below for further information.
Compensation of Our Directors
We refer to our directors who are (1) our employees or officers or (2) affiliated with Bindley Capital Partners or Cardinal Equity Partners as our “Affiliated Directors.” Affiliated Directors will not receive any compensation for their service as our directors. Immediately following the completion of this offering, we expect our Affiliated Directors to consist of Messrs. Burke, Morris, Ackerman, Bindley and Salentine.
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Our directors who are not Affiliated Directors (“Non-Affiliated Directors”) are expected to receive cash and equity-based compensation for their service as directors, as further described below under “Director Compensation.” Immediately following the completion of this offering, we expect our Non-Affiliated Directors to consist of Mr. Cosler, Mr. Lewis and Ms. Patchett.
Limitation of Liability and Indemnification of Directors and Officers
Our certificate of incorporation, to be effective upon the completion of this offering, will contain provisions that limit the liability of our directors and officers for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors and officers will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors or officers, provided that our certificate of incorporation will not limit the liability of:
| • | a director or officer for any breach of their duty of loyalty to our company or our stockholders; |
| • | a director or officer for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
| • | a director for unlawful payments of dividends or unlawful stock repurchases, or redemptions as provided in Section 174 of the DGCL; |
| • | a director or officer for any transaction from which they derived an improper personal benefit; or |
| • | an officer in any action by or in the right of the Company. |
Our bylaws, which will be effective upon the completion of this offering, will provide that we shall indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding, by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.
Prior to the completion of this offering, we intend to obtain insurance policies under which, subject to the limitations of the policies, coverage will be provided to our directors and officers against losses arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these officers and directors pursuant to our indemnification obligations or otherwise as a matter of law.
The underwriting agreement provides for indemnification by the underwriters of us and our officers, directors and employees for certain liabilities arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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This section provides an overview of the compensation awarded to, earned by, or paid to our principal executive officer and our next two most highly compensated executive officers during 2022 and 2023. We refer to these individuals as our named executive officers (“NEOs”). Our NEOs for 2022 and 2023 were:
| • | Fred Burke, President and Chief Executive Officer; |
| • | David Morris, Executive Vice President and Chief Financial Officer; and |
| • | Kendall Forbes, Executive Vice President, Sales & Operations. |
The following discussion also includes forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ from currently planned programs as summarized in this discussion.
2023 Summary Compensation Table
The following table summarizes information regarding the compensation awarded to, earned by, or paid to our NEOs for 2023 and 2022.
| Name and Principal Position |
Year | Salary(1) ($) |
Bonus ($) |
Non-Equity Incentive Plan Compensation(2) ($) |
All Other Compensation(3) ($) |
Total ($) |
||||||||||||||||||
| Fred Burke |
2023 | $ | 402,750 | $ | — | $ | 212,625 | $ | 58,362 | $ | 673,737 | |||||||||||||
| 2022 | $ | 387,000 | $ | — | $ | 186,150 | $ | 52,909 | $ | 626,059 | ||||||||||||||
| David Morris |
2023 | $ | 348,625 | $ | — | $ | 184,313 | $ | 54,386 | $ | 587,324 | |||||||||||||
| 2022 | $ | 331,500 | $ | — | $ | 165,750 | $ | 49,459 | $ | 546,709 | ||||||||||||||
| Kendall Forbes |
2023 | $ | 348,625 | $ | — | $ | 184,313 | $ | 50,687 | $ | 583,625 | |||||||||||||
| 2022 | $ | 331,500 | $ | — | $ | 165,750 | $ | 46,116 | $ | 543,366 | ||||||||||||||
| (1) | Effective upon the completion of the offering, we expect that Mr. Burke’s base salary rate will be $450,000 per year, and the base salary rate of each of Messrs. Morris and Forbes will be $400,000 per year, in each case pursuant to the NEO’s employment agreement (as described below). |
| (2) | Represents annual cash incentive award payouts. See “—2023 Annual Cash Incentive Awards” below for more information. |
| (3) | The amounts reported for 2023 consist of: (i) for Mr. Burke, a 401(k) employer match in the amount of $11,550 and reimbursement for self-employment taxes in the amount of $46,812; (ii) for Mr. Morris, a 401(k) employer match in the amount of $11,550 and reimbursement for self-employment taxes in the amount of $42,836; and (iii) for Mr. Forbes, a 401(k) employer match in the amount of $11,550 and reimbursement for self-employment taxes in the amount of $39,317. |
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2023 Annual Cash Incentive Awards
For the 2023 fiscal year, each NEO was granted a target opportunity to receive an annual cash incentive award expressed as a percentage of base salary. The NEOs’ target annual incentive awards for 2023 are shown in the following table:
| Name |
2023 Target Annual Cash Incentive Award |
Target Award as a % of Base Salary |
||||||
| Fred Burke |
$ | 212,625 | 53 | % | ||||
| David Morris |
$ | 184,313 | 53 | % | ||||
| Kendall Forbes |
$ | 184,313 | 53 | % | ||||
Payouts for these annual cash incentive awards are determined based on achievement with respect to the following metrics for the 2023 fiscal year: (1) Company revenue; (2) Company Adjusted EBITDA; and (3) residents served, which is a measure of the number of residents for which a prescription was filled during December 2023.
In order for the NEOs to earn their target annual incentive awards, the following performance targets were required to be met for 2023:
| • | Company revenue of $1.01 billion; |
| • | Company Adjusted EBITDA of $75.9 million; and |
| • | 168,000 residents served. |
In the event performance with respect to one or more of the performance metrics is below the applicable performance target, the compensation committee of our board of managers may, in its discretion, provide for payouts, in amounts as it may determine, with respect to the NEOs’ annual cash incentive award opportunities.
For 2023, we achieved $1.05 billion in revenue, $76.2 million in Adjusted EBITDA, and 163,000 in residents served. As a result of the fact that the revenue and Adjusted EBITDA targets were achieved, the compensation committee determined to pay out the annual incentive awards at 100% of the respective target levels, as set forth in the “Non-Equity Incentive Plan Compensation” column of the 2023 Summary Compensation Table above.
Outstanding Equity Awards at 2023 Fiscal Year-End
There were no outstanding equity awards held by any of our NEOs as of December 31, 2023, and our NEOs did not receive equity compensation awards during fiscal year 2023. However, we expect to offer equity-based compensation to our NEOs and other key employees following the offering under the 2024 Plan. The terms of the 2024 Plan are described below under “—2024 Equity and Incentive Compensation Plan.”
Anticipated 2025 Long-Term Incentive Program Awards
Beginning with 2025, our long-term incentive program is expected to consist of restricted stock unit awards (“RSUs”) for our NEOs and certain other employees. We anticipate that the
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number of RSUs to be granted to each participant will be determined by the compensation committee based on prior-year company performance and such other factors as the compensation committee may deem appropriate, and that such RSUs will generally vest based on continued employment through the third anniversary of the date of grant. We currently anticipate that the targeted values of the RSU awards for the NEOs, and all other employees as a group, will be as set forth in the following table, except as otherwise determined by the compensation committee prior to the 2025 grants.
| RSU Award Value(1) |
||||
| Fred Burke |
$ | — | ||
| David Morris |
$ | 240,000 | ||
| Kendall Forbes |
$ | 240,000 | ||
| All other employees, excluding NEOs |
$ | 10,520,000 | ||
| (1) | We anticipate that the target number of RSUs granted to each grantee will be determined based on the grantee’s actual RSU award value and the compensation committee’s determination of the value of RSUs as of the date of grant. Actual payouts with respect to the RSU awards would be made in shares of our Class A common stock. |
Employment Agreements
Prior to the completion of this offering, we expect to enter into employment agreements with Messrs. Burke, Morris and Forbes (the “Employment Agreements”). The Employment Agreements would become effective upon the completion of the offering. The initial term of each Employment Agreement would end on the second anniversary of its effective date, but the term would be automatically extended for additional one-year periods thereafter unless we provide the NEO written notice of non-renewal at least 60 days prior to the end of the applicable term. The Employment Agreements would include the following key compensation terms:
| • | Base salary of $450,000 for Mr. Burke, $400,000 for Mr. Morris, and $400,000 for Mr. Forbes, subject to annual review for increase; |
| • | For each of our fiscal years (beginning with 2025) ending during the term of the NEO’s employment, eligibility for an annual cash incentive award, subject to the terms and conditions (including performance metrics and goals) determined by our board of directors (or an appropriate committee of the board of directors). The target annual cash incentive opportunity for each NEO will be no less than 60% of the NEO’s base salary, and the maximum cash incentive opportunity for each NEO will be no less than 150% of the NEO’s target annual cash incentive opportunity; |
| • | Eligibility to participate in our long-term incentive program as may be in effect from time to time for our senior executives generally, with such participation occurring in accordance with the approval of our board of directors (or an applicable committee of the board of directors), our policies, and the applicable award agreements and incentive compensation plans under which such awards will be granted; and |
| • | Eligibility for employee benefit plans, programs and policies as may be in effect for our senior executives generally. |
For information regarding the termination and change in control compensation and benefits provided for under the Employment Agreements, see “—Severance and Change in Control Compensation” below.
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Retirement Plans
Guardian Pharmacy, LLC offers a tax-qualified 401(k) retirement savings plan to its employees, under which participating employees may contribute a portion of their eligible compensation into their plan accounts. Employer matching contributions are made under the 401(k) plan in an amount equal to 100% of up to 1% of a participant’s eligible compensation, and 50% of up to an additional 5% of a participant’s eligible compensation, subject to applicable Internal Revenue Code limitations. Each of the NEOs was eligible to participate in the 401(k) plan during fiscal year 2023.
Severance and Change in Control Compensation
The Employment Agreements are expected to provide for certain payments and benefits in connection with certain terminations of employment. Pursuant to the Employment Agreements, if (other than as described in the following paragraph) an NEO’s employment is terminated by us other than for “cause,” death or “disability” (including by not renewing the Employment Agreement), or by the NEO for “good reason” (as such terms are defined in the Employment Agreements), the NEO will be entitled to receive: (1) a lump sum cash payment equal to two times the sum of the NEO’s annual base salary plus target annual cash incentive; (2) a lump sum cash payment equal to the NEO’s target annual cash incentive, pro-rated based on the NEO’s period of service during the applicable fiscal year; and (3) reimbursement by us for a portion of health and welfare continuation coverage premiums for up to 24 months.
If, within two years after a “change in control” (as defined in the Employment Agreements) an NEO’s employment is terminated by us other than for “cause,” death or “disability” (including by not renewing the Employment Agreement) or by the NEO for “good reason,” the NEO will be entitled to receive: (1) a lump sum cash payment equal to three times the sum of the NEO’s annual base salary plus target annual cash incentive; (2) a lump sum cash payment equal to the NEO’s target annual cash incentive, pro-rated based on the NEO’s period of service during the applicable fiscal year; (3) reimbursement by us for a portion of health and welfare continuation coverage premiums for up to 36 months; and (4) full vesting of outstanding equity-based awards (with performance-based awards vesting at the greater of target and actual performance as of the date of termination).
In general, receipt of the severance payments described above is subject to the NEO’s execution of a customary release of claims in our favor. In addition, the Employment Agreements include customary non-competition, non-solicitation, and confidentiality provisions.
Clawback Policy
Prior to the completion of this offering, we expect to adopt a compensation recoupment policy that complies with rules recently promulgated by the NYSE and the SEC (the “Clawback Policy”). The Clawback Policy will apply to current and former executive officers, and it will provide for the recovery of certain incentive-based compensation received during a three-year recovery period if we are required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws. The incentive-based compensation recoverable under the Clawback Policy generally includes the amount of incentive-based compensation received (while we have a class of securities listed on a national securities exchange or national securities association) that exceeds the amount that would have been received had it been determined based on the restated amounts (without regard to any taxes paid). The Clawback Policy will not condition clawback on the fault of the executive officer, but the required clawback under the Clawback Policy is subject to certain limited exceptions in accordance with the SEC and NYSE rules.
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2024 Equity and Incentive Compensation Plan
In connection with this offering, we expect to adopt the Guardian Pharmacy Services, Inc. 2024 Equity and Incentive Compensation Plan, or the 2024 Plan. The material terms of the 2024 Plan are as follows:
Purpose. The purpose of the 2024 Plan is to permit the grant of awards to non-employee directors, officers and other employees of Guardian and its subsidiaries, and certain consultants to Guardian and its subsidiaries, and to provide to such persons incentives and rewards for service and/or performance.
Administration; Effectiveness. The 2024 Plan will generally be administered by the Compensation Committee. However, at the discretion of our board of directors, the 2024 Plan may be administered by our board of directors, including with respect to the administration of any responsibilities and duties held by the Compensation Committee under the 2024 Plan. The Compensation Committee has the authority to determine eligible participants in the 2024 Plan, and to interpret and make determinations under the 2024 Plan. Any interpretation or determination by the Compensation Committee under the 2024 Plan will be final and conclusive. The Compensation Committee may delegate all or any part of its authority under the 2024 Plan to any subcommittee thereof, and, to the extent permitted by law, may delegate its administrative duties or powers to one or more of our officers, agents or advisors. The 2024 Plan is expected to be effective on the date of completion of this offering. No awards will be made under the 2024 Plan prior to the completion of this offering.
Shares Available for Awards under the 2024 Plan. Subject to adjustment as described in the 2024 Plan and the share counting rules described below, the number of shares of our Class A common stock available for awards under the 2024 Plan shall be, in the aggregate, 2,000,000 shares (the “Overall Share Limit”). The Overall Share Limit will be automatically increased on the first day of each fiscal year, beginning in 2025 and ending in 2034, by an amount equal to the lesser of (a) 1% of the shares of our common stock (including both Class A common stock and Class B common stock) outstanding on the last day of the immediately preceding fiscal year and (b) such smaller number of shares as determined by our board of directors. Such shares may be shares of original issuance or treasury shares or a combination of the two.
Share Counting. The aggregate number of shares of our Class A common stock available to be awarded under the 2024 Plan will be reduced by one share of our Class A common stock for every one share subject to an award granted under the 2024 Plan.
The following shares of our Class A common stock will be added (or added back, as applicable) to the aggregate number of shares available under the 2024 Plan: (1) shares subject to an award that is cancelled or forfeited, expires, is settled for cash, or is unearned (in whole or in part); (2) shares withheld by us, tendered or otherwise used in payment of the exercise price of a stock option granted under the 2024 Plan; (3) shares withheld by us, tendered or otherwise used to satisfy a tax withholding obligation with respect to awards; provided that with respect to restricted stock, this provision will only be in effect until the day immediately prior to the tenth anniversary of the effective date of the 2024 Plan; and (4) shares subject to a share-settled appreciation right granted under the 2024 Plan that are not actually issued in connection with the settlement of such appreciation right. Shares reacquired by us in the open market or otherwise using cash proceeds from the exercise of stock options will not be added (or added back, as applicable) to the aggregate number of shares of Class A common stock available under the 2024 Plan. In addition, if under the 2024 Plan a participant has elected to give up the right to receive cash compensation in exchange for shares of our Class A common stock based on fair market value, such shares will not count against the aggregate number of shares available under the 2024 Plan.
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Shares of our Class A common stock issued or transferred pursuant to awards granted under the 2024 Plan in substitution for or in conversion of, or in connection with the assumption of, awards held by awardees of an entity engaging in an acquisition or merger with us or any of our subsidiaries (“Substitute Awards”) will not count against the share limits under the 2024 Plan, except as otherwise provided in the 2024 Plan. Additionally, shares of our Class A common stock available under certain plans that we or our subsidiaries may assume in connection with certain corporate transactions from another entity may be available for certain awards under the 2024 Plan, but will not count against the share limits under the 2024 Plan.
Subject to adjustment as provided in the 2024 Plan, the aggregate number of shares of our Class A common stock actually issued or transferred by us upon the exercise of Incentive Stock Options (as defined below) will not exceed 2,000,000 shares of Class A common stock (the “ISO Limit”).
Non-Employee Director Compensation Limit. No non-employee member of our board of directors in any one calendar year will be granted compensation for such service (including awards granted under the 2024 Plan and any other cash or non-cash compensation) having an aggregate maximum value (measured at the date of grant, as applicable, and calculating the value of any awards based on the grant date fair value for financial reporting purposes) in excess of $500,000.
Types of Awards Under the 2024 Plan. Pursuant to the 2024 Plan, we may grant stock options (including stock options intended to qualify as “incentive stock options” under Section 422 of the Code (“Incentive Stock Options”)), appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash incentive awards, and certain other awards based on or related to shares of our Class A common stock.
Each grant of an award under the 2024 Plan will be evidenced by an agreement, certificate, resolution or other form of writing or other evidence approved by the Compensation Committee (an “Evidence of Award”), which will contain such terms and provisions as the Compensation Committee may determine, consistent with the 2024 Plan. Those terms and provisions include the number of shares of our Class A common stock subject to each award, vesting terms, and provisions that apply upon events such as retirement, death, disability or termination of service of a participant or in the event of a change in control. A brief description of the types of awards which may be granted under the 2024 Plan is set forth below.
Stock Options. Stock options granted under the 2024 Plan may be either Incentive Stock Options or non-qualified stock options. Incentive Stock Options may only be granted to employees. Except with respect to Substitute Awards, stock options must have an exercise price per share that is not less than the fair market value of a share of our Class A common stock on the date of grant. The term of a stock option may not extend more than 10 years after the date of grant. Each grant will specify the form of consideration to be paid in satisfaction of the exercise price. Stock options under the 2024 Plan may not provide for dividends or dividend equivalents.
Appreciation Rights. The 2024 Plan provides for the grant of appreciation rights. An appreciation right is a right to receive from us an amount equal to 100%, or such lesser percentage as the Compensation Committee may determine, of the spread between the base price of the appreciation right and the fair market value of shares of our Class A common stock at the time of exercise. An appreciation right may be paid in cash, shares of our Class A common stock or any combination of the two. Except with respect to Substitute Awards, the base price of an appreciation right may not be less than the fair market value of a share of our Class A common stock on the date of grant. The term of an appreciation right may not extend more than 10 years from the date of grant. Appreciation rights under the 2024 Plan may not provide for dividends or dividend equivalents.
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Restricted Stock. Restricted stock constitutes an immediate transfer of the ownership of shares of our Class A common stock to the participant in consideration of the performance of services, entitling such participant to dividend, voting and other ownership rights, subject to the limitations described in the 2024 Plan, and subject to the substantial risk of forfeiture and restrictions on transfer determined by the Compensation Committee for a period of time determined by the Compensation Committee or until certain management objectives specified by the Compensation Committee are achieved. Each such grant or sale of restricted stock may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value per share of our Class A common stock on the date of grant. Any grant of restricted stock may specify the treatment of dividends or distributions paid on restricted stock that remains subject to a substantial risk of forfeiture. However, dividends or other distributions on restricted stock with restrictions that lapse as a result of the achievement of management objectives will be deferred until and paid contingent upon the achievement of the applicable management objectives.
Restricted Stock Units. Restricted stock units awarded under the 2024 Plan constitute an agreement by us to deliver shares of our Class A common stock, cash, or a combination of the two, to the participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include achievement regarding management objectives) during the restriction period applicable to such restricted stock units as the Compensation Committee may specify. Each grant or sale of restricted stock units may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value of shares of our Class A common stock on the date of grant. During the restriction period applicable to such restricted stock units, the participant will have no right to transfer any rights under the award and will have no rights of ownership in the shares of our Class A common stock underlying the restricted stock units and no right to vote them. Rights to dividend equivalents may be extended to and made part of any restricted stock unit award at the discretion of and on the terms determined by the Compensation Committee. However, dividend equivalents or other distributions on the Class A common stock underlying restricted stock units with restrictions that lapse as a result of the achievement of management objectives will be deferred until and paid contingent upon achievement of the applicable management objectives.
Cash Incentive Awards, Performance Shares, and Performance Units. Performance shares, performance units and cash incentive awards may also be granted to participants under the 2024 Plan. A performance share is a bookkeeping entry that records the equivalent of one share of our Class A common stock, and a performance unit is a bookkeeping entry that records a unit equivalent to $1.00 or such other value as determined by the Compensation Committee. Each grant will specify the number or amount of performance shares or performance units, or the amount payable with respect to cash incentive awards, being awarded, which number or amount may be subject to adjustment to reflect changes in compensation or other factors. These awards, when granted under the 2024 Plan, will specify management objectives regarding the earning of the awards. Each grant will specify the time and manner of payment of cash incentive awards, performance shares or performance units that have been earned. Any grant of performance shares or performance units may provide for the payment of dividend equivalents in cash or in additional shares of our Class A common stock, which dividend equivalents will be subject to deferral and payment on a contingent basis based on the participant’s earning and vesting of the awards with respect to which the dividend equivalents are paid.
Other Awards. The Compensation Committee may grant shares of Class A common stock or such other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of our Class A common stock or factors that may influence the value of such shares of our Class A common stock, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of
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our Class A common stock, purchase rights for shares of our Class A common stock, awards with value and payment contingent upon our performance or performance of specified subsidiaries, affiliates or other business units or any other factors designated by the Compensation Committee, and awards valued by reference to the book value of the shares of our Class A common stock or the value of securities of, or the performance of our subsidiaries, affiliates or other business units (which we refer to collectively as “Other Awards”). Cash awards, as an element of or supplement to any other award granted under the 2024 Plan, may also be granted as Other Awards. The Compensation Committee may, at or after the date of grant, authorize the payment of dividends or dividend equivalents on Other Awards on either a current or deferred or contingent basis, either in cash or in additional shares of our Class A common stock. However, dividend equivalents or other distributions on Class A common stock underlying Other Awards with restrictions that lapse as a result of the achievement of management objectives will be deferred until, and paid contingent upon, achievement of the applicable management objectives.
Management Objectives. Awards under the 2024 Plan may be subject to management objectives. The management objectives applicable to an award under the 2024 Plan (if any) will be determined by the Compensation Committee, and may be based on one or more, or a combination, of metrics under the following categories or such other metrics as may be determined by the Compensation Committee (including relative or growth achievement regarding such metrics): (1) Profits (e.g., gross profit, gross profit growth, operating income, earnings before or after deduction for all or any portion of interest, taxes, depreciation or amortization, net income (before or after taxes), EBIT margin, consolidated net income, net earnings, net sales, cost of sales, basic or diluted earnings per share (before or after taxes), residual or economic earnings, net operating profit (before or after taxes), or economic profit); (2) Cash Flow (e.g., actual or adjusted earnings before or after interest, taxes, depreciation and/or amortization (including EBIT and EBITDA), free cash flow, free cash flow with or without specific capital expenditure target or range, including or excluding divestments and/or acquisitions, operating cash flow, total cash flow, cash flow in excess of cost of capital or residual cash flow, or cash flow return on investment); (3) Returns (e.g., profits or cash flow returns on: assets, investment, capital, invested capital, net capital employed, equity, or sales); (4) Working Capital (e.g., working capital targets, working capital divided by sales, days’ sales outstanding, days’ sales inventory, or days’ sales in payables); (5) Profit Margins (e.g., profits divided by revenues or gross margins and material margins divided by revenues); (6) Liquidity Measures (e.g., debt-to-capital, debt-to-EBITDA, or total debt ratio); (7) Sales Growth, Gross Margin Growth, Cost Initiative and Stock Price Metrics (e.g., revenue, net revenue, revenue growth, net revenue growth, revenue growth outside the United States, gross margin and gross margin growth, material margin and material margin growth, stock price appreciation, total return to stockholders, sales and administrative costs divided by sales, or sales and administrative costs divided by profits); and (8) Strategic Initiative Key Deliverable Metrics consisting of one or more of the following: product development, strategic partnering, research and development, vitality index, market penetration, market share, geographic business expansion goals, expense targets or cost reduction goals, general and administrative expense savings, selling, general and administrative expenses, objective measures of client/customer satisfaction, employee satisfaction, employee retention, management of employment practices and employee benefits, supervision of litigation and information technology, productivity ratios, economic value added (or another measure of profitability that considers the cost of capital employed), product quality, sales of new products, or goals relating to acquisitions or divestitures of subsidiaries, affiliates and joint ventures.
If the Compensation Committee determines that a change in our business, operations, corporate structure or capital structure, or the manner in which we conduct our business, or other events or circumstances render the management objectives unsuitable, the Compensation Committee may in its discretion modify such management objectives or the goals or actual levels of achievement regarding the management objectives, in whole or in part, as the Compensation Committee deems appropriate and equitable.
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Adjustments; Corporate Transactions. The Compensation Committee will make or provide for such adjustments in the: (1) number and kind of shares of our Class A common stock covered by outstanding stock options, appreciation rights, restricted stock, restricted stock units, performance shares and performance units granted under the 2024 Plan; (2) if applicable, number and kind of shares of our Class A common stock covered by other awards granted pursuant to the 2024 Plan; (3) exercise price or base price provided in outstanding stock options and appreciation rights; (4) cash incentive awards; and (5) other award terms, as the Compensation Committee determines to be equitably required in order to prevent dilution or enlargement of the rights of participants that otherwise would result from (a) any extraordinary cash dividend, stock dividend, stock split, combination of shares, recapitalization or other change in our capital structure, (b) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing.
In the event of any such transaction or event or in the event of a change in control, the Compensation Committee may provide in substitution for any or all outstanding awards under the 2024 Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and shall require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each stock option or appreciation right with an exercise price or base price, respectively, greater than the consideration offered in connection with any such transaction or event or change in control, the Compensation Committee may in its discretion elect to cancel such stock option or appreciation right without any payment to the person holding such stock option or appreciation right. The Compensation Committee shall also make or provide for such adjustments in the number of shares available for issuance under the 2024 Plan and the share limits of the 2024 Plan as the Compensation Committee determines is appropriate to reflect any such transaction or event. However, any adjustment to the limit on the number of shares of our Class A common stock that may be issued upon exercise of Incentive Stock Options will be made only if and to the extent such adjustment would not cause any stock option intended to qualify as an Incentive Stock Option to fail to so qualify.
Transferability of Awards. Except as otherwise provided by the Compensation Committee or the terms of the 2024 Plan, no award made under the 2024 Plan may be transferred by a participant except by will or the laws of descent and distribution. In no event will any award granted under the 2024 Plan be transferred for value.
Amendment and Termination of the 2024 Plan. Our board of directors generally may amend the 2024 Plan from time to time in whole or in part. However, if any amendment, for purposes of applicable stock exchange rules and except as permitted under the adjustment provisions of the 2024 Plan, (1) would materially increase the benefits accruing to participants under the 2024 Plan, (2) would materially increase the number of securities which may be issued under the 2024 Plan, (3) would materially modify the requirements for participation in the 2024 Plan, or (4) must otherwise be approved by our stockholders in order to comply with applicable law or the rules of NYSE or the applicable national securities exchange upon which our shares of Class A common stock are traded or quoted, all as determined by our board of directors, then such amendment will be subject to stockholder approval and will not be effective unless and until such approval has been obtained.
Our board of directors may, in its discretion, terminate the 2024 Plan at any time. Termination of the 2024 Plan will not affect the rights of participants or their successors under any awards outstanding and not exercised in full on the date of termination. No grant will be made under the 2024 Plan on or after the tenth anniversary of the effective date of the 2024 Plan, but all grants made prior to such date will continue in effect thereafter subject to their terms and the terms of the 2024 Plan.
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2023 Director Compensation
We did not pay any compensation, make any equity awards or non-equity awards, or pay any other compensation to any of our non-employee directors in 2023 or prior to this offering for their service as directors.
For a discussion of the compensation awarded to, earned by, or paid to Messrs. Burke and Morris during 2023, see “Executive Compensation.”
Anticipated Compensation of Our Non-Affiliated Directors Following this Offering
We refer to our directors who are (1) our employees or officers or (2) affiliated with Bindley Capital Partners or Cardinal Equity Partners as our Affiliated Directors. Affiliated Directors will not receive any compensation for their service as our directors. Immediately following the completion of this offering, we expect our Affiliated Directors to consist of Messrs. Burke, Morris, Ackerman, Bindley and Salentine.
Our Non-Affiliated Directors are expected to receive cash and equity-based compensation for their service as directors, as further described below. Immediately following the completion of this offering, we expect our Non-Affiliated Directors to consist of Mr. Cosler, Mr. Lewis and Ms. Patchett.
We expect that, following the offering, our Non-Affiliated Directors will receive compensation for their services as directors as follows:
| • | An annual cash retainer of $75,000 for each Non-Affiliated director; |
| • | An additional annual cash retainer of $25,000 for any lead director; and |
| • | An annual grant of restricted stock units with a targeted value of $100,000, which grants are expected to be made at the time of each annual meeting of our stockholders and to generally vest on the earlier of the first anniversary of the date of grant and the date of the following annual meeting of stockholders. The initial grants of restricted stock units are expected to be made to our Non-Affiliated Directors shortly after completion of this offering. Such initial grants will have a targeted value of $50,000 and will generally vest on the earlier of six months after the date of grant and the date of any regular annual meeting of stockholders that occurs in 2025. |
We do not expect to pay any fees to our directors for attending meetings of the board of directors or its committees. We also do not expect to initially provide for additional retainer fees for chairs of committees of the board of directors, as all members of our initial board of directors who will receive compensation for board service are expected to serve on all such committees. However, we may consider additional compensation for board of directors or committee service in the future.
Non-Employee Director Stock Ownership Guidelines
Our non-employee directors who receive compensation from us for their service on our board of directors will be subject to stock ownership guidelines after the completion of this offering. Under the stock ownership guidelines to be adopted, each of our non-employee directors who receives compensation from us for service on our board of directors will be required to own stock in an amount equal to five times the director’s annual cash retainer. For purposes of this requirement, a non-employee director’s holdings will include shares of our common stock held directly or indirectly, individually or jointly, as well as vested share awards that have been deferred for future delivery. Until a director’s stock ownership requirements (if applicable) have been satisfied, such director will be required to retain 100% of the shares received upon settlement of restricted stock units or other equity-based awards that are granted on or following this offering (net of shares with a value equal to the amount of taxes owed by such non-employee director in respect of such settlement).
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than compensation arrangements for executive officers and directors which are described elsewhere in this prospectus, the following is a summary of transactions since January 1, 2023 in which we participated or will participate, and in which:
| • | the amounts involved exceeded or will exceed $120,000; and |
| • | any of our directors, executive officers or holders of more than 5% of any class of our voting stock, or any immediate family member of the foregoing persons, had or will have a direct or indirect material interest. |
Corporate Reorganization
In connection with the Corporate Reorganization described elsewhere in this prospectus, and pursuant to the merger of Merger Sub with and into Guardian Pharmacy, LLC, each then-outstanding Common Unit of Guardian Pharmacy, LLC will be converted into (i) one share of Class B common stock of Guardian Inc. and (ii) the right to receive $1.02 in cash (without interest), which we collectively refer to as the Merger Consideration. Accordingly, all holders of Common Units immediately prior to the Corporate Reorganization, including certain of our executive officers and directors, and securityholders beneficially owning more than five percent of our voting securities, will be entitled to their pro rata portions of the Merger Consideration. For more information, see “Corporate Reorganization.”
Indemnification Arrangements
Our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.
Directed Share Program
At our request, the underwriters have reserved up to 10% of the shares of Class A common stock being offered by this prospectus for sale at the initial public offering price to our directors, officers and certain of our employees and other persons associated with us who have expressed an interest in purchasing shares in the offering. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available for sale to the general public. Any reserved shares not purchased by these persons will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. The sales of shares pursuant to the directed share program will be made by Raymond James & Associates, Inc., an underwriter of this offering. See “Underwriting—Directed Share Program.”
Policies and Procedures for Related Party Transactions
Our board of directors expects to adopt a written related party transaction policy, to be effective upon the completion of this offering, setting forth the policies and procedures for the review and approval or ratification of transactions involving us and “related persons.” For the purposes of this policy, “related persons” will include our executive officers, directors, director
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nominees, and their immediate family members, and stockholders owning five percent or more of any class of our outstanding common stock and their immediate family members.
The policy will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement, or relationship, or any series of similar transactions, arrangements, or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transaction, our audit committee is tasked with considering all relevant facts and circumstances, including, without limitation, whether the transaction is on terms comparable to those that could be obtained in an arm’s-length transaction with an unrelated party and the extent of the related person’s interest in the transaction. No related party transaction may be consummated unless our audit committee has approved or ratified such transaction in accordance with the guidelines set forth in the policy. Any member of the audit committee who is a related person with respect to a transaction under review will not be permitted to participate in the deliberations or vote regarding approval or ratification of the transaction. Such director may be counted, however, in determining the presence of a quorum at a meeting of the audit committee that considers the transaction. All of the transactions described in this section occurred prior to the adoption of the policy.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information regarding the beneficial ownership of shares of our Class A common stock and Class B common stock as of September 1, 2024 for:
| • | each person known by us to own beneficially more than 5% of any class of our common stock; |
| • | each of our named executive officers and directors individually; and |
| • | all of our executive officers and directors as a group. |
The beneficial ownership information is presented on the following bases:
| • | after giving effect to the Corporate Reorganization (as described under “Corporate Reorganization”), but prior to the completion of this offering; |
| • | after giving effect to the Corporate Reorganization described above, plus the issuance and sale of 6,750,000 shares of Class A common stock by us in this offering; and |
| • | after giving effect to the Corporate Reorganization and the issuance and sale described above, plus the issuance and sale of 1,012,500 additional shares of Class A common stock by us pursuant to the underwriters’ option to purchase additional shares in this offering. |
The table below does not reflect any shares of Class A common stock that our directors or executive officers may purchase in this offering through the directed share program described under “Underwriting—Directed Share Program.” If any shares of Class A common stock are so purchased by these persons, or their affiliated entities, the number and percentage of shares of our Class A common stock beneficially owned by such persons and the voting power of such persons after this offering will be higher than those figures set forth in the table below. The aggregate number of shares of Class B common stock to be issued in connection with the Corporate Reorganization, including the number of such shares to be issued to each individual member of Guardian Pharmacy, LLC, will be impacted by the public offering price of shares of Class A common stock in this offering. Accordingly, the share information presented herein is based on an assumed public offering price of $15.00 per share, and may be subject to adjustment. Any such adjustments are not expected to be material.
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to such securities. Accordingly, if an individual or entity is a member of a “group” which has agreed to act together for the purpose of acquiring, holding, voting or disposing of such securities, such individual or entity is deemed to be the beneficial owner of such securities held by all members of the group. Further, if an individual or entity has or shares the power to vote or dispose of such securities held by another entity, beneficial ownership of such securities held by such entity may be attributed to such other individuals or entities. Except as otherwise indicated, all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws.
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Except as otherwise indicated in the footnotes below, the address of each beneficial owner is c/o Guardian Pharmacy Services, Inc., 300 Galleria Parkway SE, Suite 800, Atlanta, Georgia 30339.
| Class A Common Stock(a) | Class B Common Stock(a) | Combined Voting Power(a) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Before Offering |
Shares After Offering |
Shares After Offering, Including Full Option Exercise |
Shares Before Offering |
Shares After Offering |
Shares After Offering, Including Full Option Exercise |
% of Combined Voting Power Before Offering |
% of Combined Voting Power After Offering |
% of Combined Voting Power After Offering, Including Full Option Exercise |
||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name of
Beneficial |
Number | % | Number | % | Number | % | Number | % | Number | % | Number | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| 5% Stockholders |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bindley Capital Partners I, LLC(b)(c) |
— | — | — | — | — | — | 24,402,800 | 45 | % | 24,402,800 | 45 | % | 24,402,800 | 45 | % | 45 | % | 40 | % | 39 | % | |||||||||||||||||||||||||||||||||||||||
| Pharmacy Investors, LLC(d)(e) |
— | — | — | — | — | — | 5,656,244 | 10 | % | 5,656,244 | 10 | % | 5,656,244 | 10 | % | 10 | % | 9 | % | 9 | % | |||||||||||||||||||||||||||||||||||||||
| NEOs and Directors |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fred Burke |
— | — | — | — | — | — | 5,187,219 | 10 | % | 5,187,219 | 10 | % | 5,187,219 | 10 | % | 10 | % | 9 | % | 8 | % | |||||||||||||||||||||||||||||||||||||||
| David Morris |
— | — | — | — | — | — | 2,563,433 | 5 | % | 2,563,433 | 5 | % | 2,563,433 | 5 | % | 5 | % | 4 | % | 4 | % | |||||||||||||||||||||||||||||||||||||||
| Kendall Forbes |
— | — | — | — | — | — | 2,430,224 | 4 | % | 2,430,224 | 4 | % | 2,430,224 | 4 | % | 4 | % | 4 | % | 4 | % | |||||||||||||||||||||||||||||||||||||||
| John Ackerman(d) |
— | — | — | — | — | — | 7,540,634 | 14 | % | 7,540,634 | 14 | % | 7,540,634 | 14 | % | 14 | % | 12 | % | 12 | % | |||||||||||||||||||||||||||||||||||||||
| William Bindley(b) |
— | — | — | — | — | — | 24,402,800 | 45 | % | 24,402,800 | 45 | % | 24,402,800 | 45 | % | 45 | % | 40 | % | 39 | % | |||||||||||||||||||||||||||||||||||||||
| Steve Cosler |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Randall Lewis |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Mary Sue Patchett |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Thomas Salentine, Jr.(b) |
— | — | — | — | — | — | 24,402,800 | 45 | % | 24,402,800 | 45 | % | 24,402,800 | 45 | % | 45 | % | 40 | % | 39 | % | |||||||||||||||||||||||||||||||||||||||
| All executive officers and directors as a group (9 persons) |
— | — | — | — | — | — | 42,124,310 | 78 | % | 42,124,310 | 78 | % | 42,124,310 | 78 | % | 78 | % | 69 | % | 68 | % | |||||||||||||||||||||||||||||||||||||||
| * | Represents less than 1%. |
| (a) | Our Class A common stock entitles holders thereof to one vote per share, and our Class B common stock entitles holders thereof to one vote per share, voting together as a single class. See “Description of Capital Stock—Common Stock.” |
| (b) | Mr. Bindley and Mr. Salentine, Jr. share investment power over the shares beneficially owned by Bindley Capital Partners I, LLC by virtue of their positions as members and officers of Bindley Capital Partners, LLC, the manager of Bindley Capital Partners I, LLC. |
| (c) | Bindley Capital Partners I, LLC’s address is 8909 Purdue Road, Suite 500, Indianapolis, Indiana 46268. |
| (d) | Mr. Ackerman shares voting and investment power over 1,884,390 shares of Class B common stock and 5,656,244 shares of Class B common stock beneficially owned by Cardinal Equity Fund LP and Pharmacy Investors, LLC, respectively, by virtue of his position as Managing Director of Cardinal Equity Partners LLC, the general partner of Cardinal Equity Fund LP, and as a Manager of Pharmacy Investors, LLC. |
| (e) | Pharmacy Investors, LLC’s address is 8801 River Crossing Boulevard, Suite 320, Indianapolis, Indiana 46240. |
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The following is a description of the material terms of, and is qualified in its entirety by, our amended and restated certificate of incorporation and amended and restated bylaws, as each will be in effect upon the consummation of this offering, and the forms of which are filed as exhibits to the registration statement of which this prospectus forms a part. Accordingly, references herein to our certificate of incorporation and bylaws refer to our certificate of incorporation and bylaws as so amended and restated. Because this is only a summary, it may not contain all the information that is important to you. Under “Description of Capital Stock,” “we,” “us,” “our” and the “Company” refer to Guardian Pharmacy Services, Inc. and not to any of its subsidiaries.
General
Upon the consummation of this offering, our authorized capital stock will consist of 700,000,000 shares of Class A common stock, par value $0.001 per share, 100,000,000 shares of Class B common stock, par value $0.001 per share and 50,000,000 shares of preferred stock, par value $0.001 per share. Unless our board of directors determines otherwise, we will issue all shares of our capital stock in uncertificated form.
After giving effect to the Corporate Reorganization and the issuance of 6,750,000 shares of Class A common stock in this offering and assuming no exercise of the underwriters’ option to purchase additional shares, there will be outstanding:
| • | 6,750,000 shares of our Class A common stock; |
| • | 54,094,123 shares of our Class B common stock; and |
| • | no shares of our preferred stock. |
Common Stock
We will have two classes of common stock: Class A common stock, which has one vote per share, and Class B common stock, which has one vote per share. The Class A common stock and Class B common stock will vote together as a single class on all matters submitted to a vote of stockholders (including the election of directors), except as otherwise required by applicable law and except in connection with amendments to our certificate of incorporation that increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of either class so as to affect the holders of such shares adversely.
Voting
Holders of shares of our Class A common stock and Class B common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors elected by our stockholders. The holders of our Class A common stock and Class B common stock do not have cumulative voting rights in the election of directors.
Dividends
Holders of shares of our Class A common stock and Class B common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. See “Dividend Policy.”
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Liquidation
Upon our liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of our Class A common stock and Class B common stock will be entitled to receive ratably our remaining assets available for distribution, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting separately as a class.
Full Paid and Non-Assessable
All shares of our Class A common stock and Class B common stock that will be outstanding at the time of the consummation of the offering will be fully paid and non-assessable. The Class A common stock and Class B common stock will not be subject to further calls or assessments by us.
Rights and Preferences
Holders of shares of our Class A common stock do not have preemptive, conversion, subscription or redemption rights. Holders of shares of our Class B common stock do not have preemptive, subscription or redemption rights. Shares of our Class B common stock are convertible into shares of our Class A common stock as described below under “—Transfer Restrictions and Conversion of Class B Common Stock.”
There will be no redemption or sinking fund provisions applicable to the Class A common stock or Class B common stock. The rights powers, preferences and privileges of our Class A common stock and Class B common stock will be subject to those of the holders of any shares of our preferred stock or any other series or class of stock we may authorize and issue in the future.
Transfer Restrictions and Conversion of Class B Common Stock
Shares of Class B common stock may not be transferred by the holder thereof, unless such transfer is a “Permitted Transfer.” We refer to a transferee of shares of Class B common stock received in a Permitted Transfer as a “Permitted Transferee.” In accordance with our certificate of incorporation, a “Permitted Transfer” generally will include any transfer of Class B common stock (i) approved in advance by our board of directors; (ii) to a family member of the holder; (iii) to certain entities owned by the holder or certain trusts (each, a “Permitted Entity”); (iv) upon a holder’s death by will, intestate succession or operation of law; or (v) by a Permitted Entity to a family member of the holder or any other Permitted Entity of the holder.
As provided in our certificate of incorporation, with respect to each holder of Class B common stock (and any subsequent Permitted Transferee) (a “Qualified Stockholder”), such holder’s shares of Class B common stock will automatically convert into shares of Class A common stock on a one-for-one basis pursuant to the two-year conversion schedule set forth in our certificate of incorporation. We refer to the date of issuance of the relevant shares of Class B common stock as the “Class B Issuance Date.” With respect to each holder being issued shares of Class B common stock on the Class B Issuance Date, 25% of such holder’s shares of Class B common stock will convert into shares of Class A common stock on each of the following dates: (i) the date that is 6 months after the Class B Issuance Date; (ii) the date of the one-year anniversary of the Class B Issuance Date; (iii) the date that is 18 months after the Class B Issuance Date; and (iv) the date of the two-year anniversary of the Class B Issuance Date.
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If the conversion of any shares of Class B common stock would result in the conversion of any fractional share, the number of shares so converted will be rounded down to the nearest whole number. Notwithstanding the foregoing conversion terms, our board of directors may accelerate the conversion of all or any portion of Class B common stock to earlier times, including to permit participation of holders of Class B common stock in underwritten secondary public offerings or for any other reason.
Preferred Stock
No shares of preferred stock will be issued or outstanding immediately after the offering contemplated by this prospectus. Our certificate of incorporation authorizes our board of directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by the holders of our Class A common stock or Class B common stock. Our board of directors is able to determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, including, without limitation:
| • | the designation of the series; |
| • | the number of shares of the series, which our board of directors may, except where otherwise provided in the preferred stock designation, increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares then outstanding); |
| • | whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series; |
| • | the dates at which dividends, if any, will be payable; |
| • | the redemption or repurchase rights and price or prices, if any, for shares of the series; |
| • | the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series; |
| • | the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of our affairs; |
| • | whether the shares of the series will be convertible into shares of any other class or series, or any other security, of us or any other entity, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made; |
| • | restrictions on the issuance of shares of the same series or of any other class or series; and |
| • | the voting rights, if any, of the holders of the series. |
We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our common stock might believe to be in their best interests or in which the holders of
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our Class A common stock might receive a premium over the market price of the shares of our Class A common stock. Additionally, the issuance of preferred stock may adversely affect the rights of holders of our Class A common stock by restricting dividends on the Class A common stock, diluting the voting power of the common stock or subordinating the liquidation rights of the Class A common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our Class A common stock.
Annual Stockholders Meetings
Our bylaws will provide that annual stockholder meetings will be held at a date, time and place, if any, as selected by our board of directors. To the extent permitted under applicable law, we may conduct meetings by remote communications, including by webcast.
Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Certain Provisions of Delaware Law
Our certificate of incorporation and bylaws will contain, and the DGCL contains, provisions that are intended to avoid costly takeover battles, reduce our vulnerability to a hostile or abusive change of control and enhance the ability of our board of directors to maximize stockholder value in connection with any unsolicited offer to acquire us. These provisions may have an anti-takeover effect and may delay, deter or prevent a merger or acquisition of Guardian by means of a tender offer, a proxy contest or other takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the prevailing market price for the shares of Class A common stock held by stockholders. See “Risk Factors—Our certificate of incorporation and bylaws and provisions of Delaware law may discourage or prevent certain strategic transactions, including a takeover of our company, even if such a transaction would be beneficial to our stockholders.”
Authorized but Unissued Capital Stock
The authorized but unissued shares of common stock and preferred stock will be available for future issuance without stockholder approval, subject to any limitations imposed by the listing standards of NYSE. These additional shares may be used for a variety of corporate finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Business Combinations
We will be governed by Section 203 of the DGCL. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination transaction with an interested stockholder (a stockholder who purchases more than 15% of our common stock) for a period of three years after the interested stockholder became such unless the transaction fits within an applicable exemption, such as board approval of the business combination or the transaction that resulted in such stockholder becoming an interested stockholder. These provisions apply even if the business combination could be considered beneficial by some stockholders and may have the effect of delaying, deferring or preventing a change in control.
No Cumulative Voting
Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. Our certificate of incorporation will not
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authorize cumulative voting. Therefore, stockholders holding a majority of the shares of our stock entitled to vote generally in the election of directors will be able to elect all our directors.
Special Stockholder Meetings
Our certificate of incorporation and bylaws will provide that special meetings of our stockholders may be called at any time only by or at the direction of a majority of the directors or the chairman of the board of directors. Our certificate of incorporation and bylaws will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisions may have the effect of deferring, delaying, or discouraging hostile takeovers, or changes in control or management of Guardian.
Stockholder Proposals and Director Nominations
Our bylaws will establish advance notice procedures with respect to stockholder proposals and stockholders’ nomination of candidates for election as directors. In order for any matter to be “properly brought” before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the immediately preceding annual meeting of stockholders. Our bylaws also specify requirements as to the form and content of a stockholder’s notice. Our bylaws will allow the chairman of the meeting at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings that may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may also defer, delay, or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to influence or obtain control of Guardian.
Stockholder Action by Written Consent
Our certificate of incorporation will provide that so long as we are a “controlled company” within the meaning of the rules or regulations of any stock exchange applicable to the Company, any action required or permitted to be taken by our stockholders may be effected by written consent. Our certificate of incorporation will provide that, after we cease to be a “controlled company,” our stockholders may not take action by written consent but may only take action at annual or special meetings of our stockholders. This provision may lengthen the amount of time required to take stockholder actions and would prevent the amendment of our bylaws or removal of directors by our stockholders without holding a meeting of stockholders.
Dissenters’ Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our stockholders will have appraisal rights in connection with a merger or consolidation of us. Pursuant to the DGCL, stockholders who properly request and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery.
Stockholders’ Derivative Actions
Under the DGCL, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of our shares at the time of the transaction to which the action relates or such stockholder’s stock thereafter devolved by operation of law.
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Choice of Forum
Unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be, to the fullest extent permitted by law, the sole and exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, or other employees to us or to our stockholders; any action asserting a claim against us arising pursuant to the DGCL or our certificate of incorporation or bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
In addition, unless we consent to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. However, we believe such forum selection provision would not apply to claims brought to enforce a duty or liability created by the Exchange Act.
Officers and Directors
The DGCL authorizes corporations to limit or eliminate the personal liability of directors and officers to corporations and their stockholders for monetary damages for breaches of fiduciary duties, subject to certain exceptions. Our certificate of incorporation will include a provision that eliminates the personal liability of directors and officers for monetary damages to the corporation or its stockholders for any breach of fiduciary duty or other act or omission as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL. The effect of these provisions is to eliminate the rights of us and our stockholders, through stockholders’ derivative suits on our behalf, to recover monetary damages from a director or officer for breach of fiduciary duty, including breaches resulting from grossly negligent behavior. However, exculpation does not apply to any breaches of the director’s or officer’s duty of loyalty, any acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law, to any director for any authorization of dividends or stock redemptions or repurchases paid or made in violation of the DGCL, for any transaction from which the director or officer derived an improper personal benefit, or to any officer in any action by or in the right of the corporation.
Our certificate of incorporation will generally provide that we must indemnify and advance expenses to our directors and officers to the fullest extent authorized by the DGCL. We also are expressly authorized to carry directors’ and officers’ liability insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification and advancement provisions and insurance are useful to attract and retain qualified directors and executive officers.
The limitation of liability, indemnification and advancement provisions to be included in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors and officers for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
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Transfer Agent and Registrar
The transfer agent and registrar for shares of our Class A common stock and Class B common stock will be Computershare Trust Company.
Listing
We have been approved to list our Class A common stock on NYSE under the symbol “GRDN.”
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. No prediction is made as to the effect, if any, future sales of shares, or the availability for future sales of shares, will have on the market price of our Class A common stock prevailing from time to time. The sale of substantial amounts of our Class A common stock in the public market, or the anticipation that such sales could occur, could harm the prevailing market price of our Class A common stock.
Upon consummation of this offering and after giving effect to the Corporate Reorganization, we will have outstanding 6,750,000 shares of Class A common stock (or 7,762,500 shares of Class A common stock if the underwriters’ option to purchase additional shares of Class A common stock is exercised in full) and 54,094,123 shares of Class B common stock. The shares of Class A common stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares of Class A common stock (i) held by our “affiliates,” as defined in Rule 144 under the Securities Act, which would be subject to the limitations and restrictions described below, or (ii) sold pursuant to our directed share program, which would be subject to a 180-day lock-up. See “Underwriting—Directed Share Program.” In addition, the Class B common stock is subject to transfer restrictions until such shares are converted into Class A common stock at scheduled intervals over the two-year period following the date of issuance thereof. In addition our board of directors may accelerate the conversion of all or any portion of Class B common stock into Class A common stock.
Lock-Up Agreements
Subject to customary exceptions, we and all of our directors, executive officers and certain of our existing securityholders will enter into lock-up agreements pursuant to which we and they will agree with the underwriters, for a period of 180 days after the date of this prospectus, not to directly or indirectly offer, sell, contract to sell or otherwise dispose of or transfer any shares of common stock or any securities, convertible into or exchangeable for shares of common stock, without the prior written consent of Raymond James & Associates, Inc. These agreements also preclude any hedging, collar or other transaction designed or reasonably expected to result in a disposition of shares of common stock or securities convertible into or exercisable or exchangeable for shares of common stock. Raymond James & Associates, Inc. may, in its sole discretion and at any time, release all or any portion of the securities subject to these agreements. Raymond James & Associates, Inc. does not have any present intent or any understanding to release all or any portion of the securities subject to these agreements. See “Underwriting.”
In addition, each holder of Class B common stock will be subject to certain extended transfer restrictions pursuant to our certificate of incorporation. Shares of Class B common stock may not be transferred by the holder thereof, unless such transfer is a Permitted Transfer. Our certificate of incorporation will further provide that shares of Class B common stock will automatically convert on a one-for-one basis into shares of Class A common stock over a two-year period. See “Description of Capital Stock—Common Stock—Transfer Restrictions and Conversion of Class B Common Stock.”
Rule 144
In general, under Rule 144, a person (or persons whose shares are aggregated) who is not deemed to have been an “affiliate” of ours at any time during the three months preceding a sale, and who has held restricted securities (within the meaning of Rule 144) for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those securities, subject only to the availability of current public information about us. As defined in Rule 144, an “affiliate” of an issuer is a person that directly, or indirectly,
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through one or more intermediaries, controls, or is under common control with the issuer. A non-affiliated person who has held restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those securities without regard to the provisions of Rule 144.
A person (or persons whose securities are aggregated) who is deemed to be an affiliate of ours and who has held restricted securities (within the meaning of Rule 144) for at least six months would be entitled to sell within any three-month period a number of securities that does not exceed the greater of one percent of the then outstanding shares of securities of such class or the average weekly trading volume of securities of such class during the four calendar weeks preceding such sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us (which requires that we are current in our periodic reports under the Exchange Act).
Equity Plans
Following the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering the shares of Class A common stock reserved for issuance in the future pursuant to the 2024 Plan. Subject to Rule 144 volume and manner of sale limitations applicable to affiliates, shares registered under such registration statement will be immediately available for sale in the open market when issued, except to the extent that such shares are subject to lock-up agreements, vesting restrictions with us or other contractual restrictions.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following discussion is a summary of material U.S. federal income tax considerations generally applicable to the ownership and disposition of our Class A common stock by a Non-U.S. Holder (as defined below) that holds our Class A common stock as a capital asset within the meaning of section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”) (generally, property held for investment). This discussion is based on the Code, Treasury Department regulations promulgated thereunder (“Regulations”), judicial decisions, administrative pronouncements and other relevant applicable authorities, all as currently in effect as of the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect).
This discussion does not address all U.S. federal income tax considerations that may be applicable to Non-U.S. Holders in light of their particular circumstances or Non-U.S. Holders subject to special treatment under U.S. federal income tax law, such as:
| • | banks, insurance companies and other financial institutions; |
| • | brokers, dealers or traders in securities; |
| • | regulated investment companies; |
| • | pension plans; |
| • | “qualified foreign pension funds,” or entities wholly-owned by a “qualified foreign pension fund”; |
| • | persons deemed to sell our Class A common stock under the constructive sale provisions of the Code; |
| • | persons who have a functional currency other than the U.S. dollar; |
| • | persons subject to special tax accounting rules as a result of any item of gross income with respect to the Class A common stock being taken into account in an applicable financial statement under section 451(b) of the Code; |
| • | certain former citizens or residents of the United States; |
| • | persons that elect to mark their securities to market; |
| • | partnerships or other entities or arrangements classified as partnerships for U.S. federal income tax purposes and investors therein; |
| • | persons holding our Class A common stock as part of a straddle, hedge, conversion or other integrated transaction; |
| • | persons who acquired shares of our Class A common stock as compensation or otherwise in connection with the performance of services; |
| • | controlled foreign corporations; |
| • | passive foreign investment companies; and |
| • | tax-exempt or governmental organizations. |
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In addition, this discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift, alternative minimum tax, Medicare contribution tax considerations, the rules regarding qualified small business stock within the meaning of section 1202 of the Code, or any election to apply section 1400Z-2 of the Code to gains recognized with respect to shares of our Class A common stock. Non-U.S. Holders should consult their tax advisors regarding the particular tax considerations to them of owning and disposing of our Class A common stock.
For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of our Class A common stock that is not for U.S. federal income tax purposes:
| • | an individual who is a citizen or resident of the United States; |
| • | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| • | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| • | a trust (i) the administration of which is subject to the primary supervision of a court within the United States and for which one or more U.S. persons have the authority to control all substantial decisions, or (ii) that has otherwise validly elected to be treated as a U.S. person under the applicable Regulations. |
If a partnership (or other entity or arrangement treated as a partnership or other pass-through entity for U.S. federal income tax purposes) holds our Class A common stock, the tax treatment of a partner or beneficial owner of the entity will generally depend on the status of the owner and the activities of the entity. Partners in a partnership (or beneficial owners of another entity or arrangement treated as a partnership or other pass-through entity for U.S. federal income tax purposes) should consult their tax advisors regarding the tax considerations of an investment in our Class A common stock.
Distributions on Our Class A Common Stock
As discussed under the section titled “Dividend Policy,” we do not currently anticipate paying cash dividends to our Class A common stockholders. In the event that we do make distributions of cash or property (other than certain stock distributions) with respect to our Class A common stock (or that we engage in certain redemptions that are treated as distributions with respect to Cass A common stock), any such distributions generally will be treated as dividends to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If a distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), the excess will be treated first as a tax-free return of capital to the extent of a Non-U.S. Holder’s adjusted tax basis in our Class A common stock and thereafter as capital gain from the sale, exchange or other taxable disposition of our Class A common stock, with the tax treatment described below in “—Sale, Exchange or Other Disposition of Our Class A Common Stock.”
Subject to the discussions below under “—Backup Withholding and Information Reporting” and “—Foreign Account Tax Compliance Act Withholding Taxes,” distributions treated as dividends paid on our Class A common stock to a Non-U.S. Holder will generally be subject to
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U.S. federal withholding tax at a 30% rate, or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding under an applicable income tax treaty, a Non-U.S. Holder will generally be required to (i) provide a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E (or any appropriate successor or replacement forms), as applicable, certifying that it is not a U.S. person as defined under the Code and that it is entitled to benefits under the treaty or (ii) if such Non-U.S. Holder’s Class A common stock is held through certain foreign intermediaries or foreign partnerships, satisfy the relevant certification requirements of applicable Regulations. A Non-U.S. Holder that does not timely furnish the required documentation but that is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
Subject to the discussions below under “—Backup Withholding and Information Reporting” and “—Foreign Account Tax Compliance Act Withholding Taxes,” no amounts in respect of U.S. federal withholding tax will be withheld from dividends paid to a Non-U.S. Holder if the dividends are effectively connected with such Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States) and the Non-U.S. Holder provides a properly executed IRS Form W-8ECI or other applicable or successor form. Instead, the effectively connected dividends will generally be subject to regular U.S. income tax on a net income basis as if the Non-U.S. Holder were a U.S. person as defined under the Code. A Non-U.S. Holder that is a treated as a corporation for U.S. federal income tax purposes receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower treaty rate) on its effectively connected earnings and profits (subject to certain adjustments).
Sale, Exchange or Other Disposition of Our Class A Common Stock
Subject to the discussions below under “—Backup Withholding and Information Reporting” and “—Foreign Account Tax Compliance Act Withholding Taxes,” a Non-U.S. Holder will generally not be subject to U.S. federal income tax on gain realized on a sale, exchange or other disposition of our Class A common stock unless:
| • | such gain is effectively connected with a trade or business conducted by such Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States), in which case such gain will generally be subject to U.S. federal income tax in the same manner as effectively connected dividend income as described above; |
| • | such Non-U.S. Holder is an individual present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met, in which case such gain will generally be subject to U.S. federal income tax at a rate of 30% (or a lower treaty rate), which gain may be offset by certain U.S.-source capital losses even though the individual is not considered a resident of the United States, provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses; or |
| • | we are or become a United States real property holding corporation (as defined in section 897(c) of the Code, a “USRPHC”), at any time within the shorter of the five-year period preceding the disposition or the Non-U.S. Holder’s holding period, and either (i) our Class A common stock is not regularly traded on an established securities market prior to |
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| the beginning of the calendar year in which the sale or disposition occurs, or (ii) the Non-U.S. Holder has owned or is deemed to have owned, at any time within the shorter of the five-year period preceding the disposition or the Non-U.S. Holder’s holding period, more than 5% of our Class A common stock. |
Although there can be no assurance in this regard, we believe that we are not a USRPHC and we do not anticipate becoming a USRPHC for U.S. federal income tax purposes.
Backup Withholding and Information Reporting
Payments of dividends on our Class A common stock will not be subject to backup withholding, provided a Non-U.S. Holder either certifies to such Non-U.S. Holder’s non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E, or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our Class A common stock paid to a Non-U.S. Holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our Class A common stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above or a Non-U.S. Holder otherwise establishes an exemption. Proceeds of a disposition of our Class A common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to tax authorities in a Non-U.S. Holder’s country of residence, establishment, or organization.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules maybe allowed as a refund or credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance Act Withholding Taxes
Certain rules may require withholding at a rate of 30% on dividends in respect of, and (subject to the proposed Regulations discussed below) the gross proceeds from the sale or other disposition of, our Class A common stock held by or through certain foreign financial institutions (including investment funds), unless such institution (i) enters into, and complies with, an agreement with the Treasury Department to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution to the extent such interests or accounts are held by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments or (ii) complies with an intergovernmental agreement between the United States and an applicable foreign country to report such information to its local tax authority, which will exchange such information with the U.S. authorities. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Accordingly, the entity through which our Class A common stock is held will affect the determination of whether such withholding is required. Similarly, dividends in respect of, and (subject to the proposed Regulations discussed below) the gross proceeds from the sale or other disposition of, our Class A common stock held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exemptions will be subject to withholding at a rate of 30%, unless such entity either (i) certifies that such entity does not have any “substantial United States owners” or (ii) provides certain information regarding the entity’s “substantial
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United States owners,” which we or the applicable withholding agent will in turn provide to the Treasury Department. The Treasury Department has released proposed Regulations which, if finalized in their present form, would eliminate the application of this regime with respect to payments of gross proceeds (but not dividends). Pursuant to these proposed Regulations, we and any other applicable withholding agent may (but are not required to) rely on this proposed change to Foreign Account Tax Compliance Act withholding until final regulations are issued or until such proposed regulations are rescinded. We will not pay any amounts to holders in respect of any amounts withheld. Non-U.S. Holders should consult their tax advisors regarding the possible implications of this withholding tax on their investment in our Class A common stock.
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Raymond James & Associates, Inc. is acting as representative of the underwriters of this offering. Under the terms of an underwriting agreement, which will be filed as an exhibit to the registration statement of which this prospectus forms a part, each of the underwriters named below has severally agreed to purchase from us the respective number of shares of Class A common stock shown opposite its name below:
| Underwriter |
Number of |
|||
| Raymond James & Associates, Inc. |
||||
| Truist Securities, Inc. |
||||
| Stephens Inc. |
||||
|
|
|
|||
| Total |
6,750,000 | |||
|
|
|
|||
The underwriting agreement provides that the obligation of the underwriters to purchase and accept delivery of the shares of Class A common stock offered by this prospectus are subject to approval by their counsel of certain legal matters and to certain other customary conditions set forth in the underwriting agreement.
The underwriters are obligated to purchase and accept delivery of all of the shares of Class A common stock offered by this prospectus, if any of the shares of Class A common stock are purchased, other than those covered by the underwriters’ option to purchase additional shares described below.
The underwriters initially propose to offer the shares of Class A common stock directly to the public at the public offering price listed on the cover page of this prospectus and to various dealers at that price less a concession not in excess of $ per share of Class A common stock. After the public offering of the shares of Class A common stock, the underwriters may change the public offering price and other selling terms. The shares of Class A common stock are offered by the underwriters as stated in this prospectus, subject to receipt and acceptance by them. The underwriters reserve the right to reject an order for the purchase of the shares of Class A common stock in whole or in part.
Option to Purchase Additional Shares
We have granted the underwriters an option exercisable for 30 days after the date of this prospectus to purchase, from time to time, in whole or in part, up to an aggregate of 1,012,500 shares of our Class A common stock from us at the offering price less underwriting discounts and commissions, solely for the purpose of covering overallotments. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase its pro rata portion of these additional shares based on the underwriter’s percentage underwriting commitment in this offering as indicated in the above table.
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Discounts and Expenses
The following table summarizes the underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares. The underwriting fee is the difference between the initial price to the public and the amount the underwriters pay to us for the shares.
|
Paid by Guardian |
||||||||
| No Exercise |
Full Exercise |
|||||||
| Per Share |
$ | $ | ||||||
| Total |
$ | $ | ||||||
The representative has advised us that the underwriters propose to offer the shares of Class A common stock directly to the public at the offering price on the cover of this prospectus and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $ per share.
If all the shares are not sold at the initial public offering price following the initial public offering, the representative may change the offering price and other selling terms.
The expenses of the offering that are payable by us are estimated to be approximately $4.45 million (excluding underwriting discounts and commissions).
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.
Lock-Up Restrictions
Subject to customary exceptions, we and all of our directors, executive officers and certain of our existing securityholders have agreed, for a period of 180 days after the date of this prospectus, not to directly or indirectly offer, sell, contract to sell or otherwise dispose of or transfer any shares or any securities convertible into or exchangeable for shares of our capital stock, without the prior written consent of the representative. Following the expiration of such lock-up restrictions and the conversion of their shares of Class B common stock, our executive officers and directors and certain of our other existing security holders, subject to compliance with the Securities Act or exceptions therefrom, will be able to freely trade their Class A common stock. These lock-up restrictions also preclude any hedging, collar or other transaction designed or reasonably expected to result in a disposition of shares of common stock or securities convertible into or exercisable or exchangeable for shares of common stock. Raymond James & Associates, Inc. may, in its sole discretion and at any time, release all or any portion of the securities subject to these restrictions. Raymond James & Associates, Inc. does not have any present intent or any understanding to release all or any portion of the securities subject to these restrictions.
In addition, each holder of Class B common stock will be subject to certain extended transfer restrictions pursuant to our certificate of incorporation. Shares of Class B common stock may not be transferred by the holder thereof, unless such transfer is a Permitted Transfer. Our certificate of incorporation will further provide that shares of Class B common stock will automatically convert on a one-for-one basis into shares of Class A common stock over a two-year period. See “Description of Capital Stock—Common Stock—Transfer Restrictions and Conversion of Class B Common Stock.”
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Offering Price Determination
Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price was negotiated between Raymond James & Associates, Inc. and us. In determining the initial public offering price of our Class A common stock, Raymond James & Associates, Inc. considered:
| • | the history and prospects for the industry in which we compete; |
| • | our financial information; |
| • | the ability of our management and our business potential and earning prospects; |
| • | the prevailing securities markets at the time of this offering; and |
| • | the recent market prices of, and the demand for, publicly traded shares of generally comparable companies. |
Stabilization, Short Positions Penalty Bid
Until the distribution of the securities offered by this prospectus is completed, rules of the SEC may limit the ability of the underwriters to bid for and to purchase shares of our Class A common stock. As an exception to these rules, the underwriters may engage in transactions effected in accordance with Regulation M under the Exchange Act (“Regulation M”) that are intended to stabilize, maintain or otherwise affect the price of the shares of our Class A common stock. The underwriter may engage in stabilizing transactions, short sales, syndicate covering transactions and penalty bids in accordance with Regulation M.
| • | Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
| • | A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering |
| • | Syndicate covering transactions involve purchases of the Class A common stock in the open market after the distribution has been completed in order to cover syndicate short positions. |
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| • | Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the Class A common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the Class A common stock. As a result, the price of the Class A common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NYSE or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Class A common stock. In addition, neither we nor any of the underwriters make any representation that the representative will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
Electronic Distribution
A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representative on the same basis as other allocations.
Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
Listing
We have been approved to list our shares of Class A common stock on the NYSE under the symbol “GRDN.”
Stamp Taxes
If you purchase shares of Class A common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.
Other Relationships
The underwriters and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking
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and financial advisory services for the issuer and its affiliates, for which they received or may in the future receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and certain of their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer or its affiliates. If the underwriters or their affiliates have a lending relationship with us, certain of those underwriters or their affiliates may hedge their credit exposure to us consistent with their customary risk management policies. Typically, the underwriters and their affiliates would hedge such exposure by entering into transactions that consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the shares of Class A common stock offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the shares of Class A common stock offered hereby. The underwriters and certain of their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Directed Share Program
At our request, the underwriters have reserved up to 10% of the shares of Class A common stock being offered by this prospectus for sale at the initial public offering price to our directors, officers and certain of our employees and other persons associated with us who have expressed an interest in purchasing shares in the offering. The sales will be made by Raymond James & Associates, Inc., an underwriter of this offering, through a directed share program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available for sale to the general public. Any reserved shares not purchased by these persons will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. Participants in the directed share program shall be subject to a 180-day lock-up with respect to any shares sold to them pursuant to the directed share program. This lock-up will have similar restrictions to the lock-up restrictions described above under “—Lock-Up Restrictions.” We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sales of the shares reserved pursuant to the directed share program.
Selling Restrictions
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
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European Economic Area
In relation to each Member State of the European Economic Area (each a “Relevant Member State”), no shares of common stock have been offered or will be offered pursuant to the offering to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares of common stock which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Regulation), except that offers of Shares may be made to the public in that Relevant Member State at any time under the following exemptions under the Prospectus Regulation:
| a. | to any legal entity which is a qualified investor as defined under the Prospectus Regulation; |
| b. | to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representative for any such offer; or |
| c. | in any other circumstances falling within Article 1(4) of the Prospectus Regulation, |
provided that no such offer of shares of common stock shall require the Issuer or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
Each person in a Relevant Member State who initially acquires any shares of common stock or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with Guardian and the underwriters that it is a qualified investor within the meaning of the Prospectus Regulation.
In the case of any shares of common stock being offered to a financial intermediary as that term is used in Article 5(1) of the Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares of common stock acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in a Relevant Member State to qualified investors, in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
We, the underwriters and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an “offer to the public” in relation to any shares of common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares of common stock, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129 (as amended).
The above selling restriction is in addition to any other selling restrictions set out below.
In connection with the offering, the underwriters are not acting for anyone other than us and will not be responsible to anyone other than us for providing the protections afforded to their clients nor for providing advice in relation to the offering.
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Notice to Prospective Investors in the United Kingdom
In relation to the United Kingdom (“UK”), no shares of common stock have been offered or will be offered pursuant to the offering to the public in the UK prior to the publication of a prospectus in relation to the shares of common stock which has been approved by the Financial Conduct Authority in the UK in accordance with the UK Prospectus Regulation and the FSMA, except that offers of shares of common stock may be made to the public in the UK at any time under the following exemptions under the UK Prospectus Regulation and the FSMA:
| a. | to any legal entity which is a qualified investor as defined under the UK Prospectus Regulation; |
| b. | to fewer than 150 natural or legal persons (other than qualified investors as defined under the UK Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or |
| c. | at any time in other circumstances falling within section 86 of the FSMA, |
provided that no such offer of shares of common stock shall require the Issuer or any Representative to publish a prospectus pursuant to Section 85 of the FSMA or Article 3 of the UK Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
Each person in the UK who initially acquires any shares of common stock or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with Guardian and the Representatives that it is a qualified investor within the meaning of the UK Prospectus Regulation.
In the case of any shares of common stock being offered to a financial intermediary as that term is used in Article 5(1) of the UK Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares of common stock acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in the UK to qualified investors, in circumstances in which the prior consent of the Representatives has been obtained to each such proposed offer or resale.
Guardian, the underwriters and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an “offer to the public” in relation to any shares of common stock in the UK means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of common stock to be offered so as to enable an investor to decide to purchase or subscribe for any shares of common stock, the expression “UK Prospectus Regulation” means Regulation (EU) 2017/1129 (as amended) as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (as amended), and the expression “FSMA” means the Financial Services and Markets Act 2000 (as amended).
In connection with the offering, the underwriters are not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for providing advice in relation to the offering.
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This document is for distribution only to persons who (i) have professional experience in matters relating to investments and who qualify as investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Financial Promotion Order”), (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc.”) of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
Notice to Prospective Investors in Canada
The common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
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The validity of the issuance of the shares of Class A common stock offered hereby will be passed upon for us by Jones Day, Atlanta, Georgia. Mayer Brown LLP, New York, New York is representing the underwriters in connection with this offering.
The balance sheets of Guardian Pharmacy Services, Inc. at December 31, 2022 and 2023 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Guardian Pharmacy, LLC and subsidiaries at December 31, 2022 and 2023, and for each of the two years in the period ended December 31, 2023, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to this offering of our Class A common stock. This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits and schedules. You can find further information about us in the registration statement and its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and, in each instance, we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement, with each such statement being qualified in all respects by reference to the document to which it refers. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You may inspect these reports and other information without charge at the SEC’s website (http://www.sec.gov).
Upon the completion of the offering, we will become subject to the informational requirements of the Exchange Act, as amended, and will be required to file periodic current reports, proxy statements and other information with the SEC. You will be able to inspect this material without charge at the SEC’s website.
In addition, following the completion of this offering, we will make the information filed with or furnished to the SEC available free of charge through our website at www.guardianpharmacy.net as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference and is not part of this prospectus.
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Guardian Pharmacy Services, Inc.
| Page |
||||
| Audited Balance Sheets as of December 31, 2022 and 2023 |
||||
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) |
F-2 | |||
| F-3 | ||||
| F-4 | ||||
| Unaudited Interim Balance Sheets as of December 31, 2023 and June 30, 2024 |
||||
| F-5 | ||||
| F-6 | ||||
| Guardian Pharmacy, LLC | ||||
| Audited Consolidated Financial Statements as of December 31, 2022 and 2023 and for each of the Two Years in the Period Ended December 31, 2023 |
||||
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) |
F-7 | |||
| Consolidated Financial Statements: |
||||
| F-8 | ||||
| Consolidated Statements of Income for the years ended December 31, 2022 and 2023 |
F-9 | |||
| Consolidated Statements of Comprehensive Income for the years ended December 31, 2022 and 2023 |
F-10 | |||
| Consolidated Statements of Changes in Equity for the years ended December 31, 2022 and 2023 |
F-11 | |||
| Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2023 |
F-12 | |||
| F-13 | ||||
| Unaudited Interim Consolidated Financial Statements as of June 30, 2024 and for the Three and Six Months Ended June 30, 2023 and 2024 |
||||
| Consolidated Balance Sheets at December 31, 2023 and June 30, 2024 |
F-31 | |||
| Consolidated Statements of Income for the three and six months ended June 30, 2023 and 2024 |
F-32 | |||
| F-33 | ||||
| Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2024 |
F-34 | |||
| Notes to Unaudited Interim Consolidated Financial Statements |
F-35 | |||
F-1
Table of Contents
Guardian Pharmacy Services, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Guardian Pharmacy Services, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Guardian Pharmacy Services, Inc. (the Company) as of December 31, 2022 and 2023, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2023 in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2021.
Atlanta, Georgia
March 21, 2024
F-2
Table of Contents
Guardian Pharmacy Services, Inc.
| December 31, | ||||||||
| 2022 | 2023 | |||||||
| Assets |
||||||||
| Receivable from parent |
$ | 1 | $ | 1 | ||||
|
|
|
|
|
|||||
| Total assets |
$ | 1 | $ | 1 | ||||
|
|
|
|
|
|||||
| Commitments and contingencies (see Note 3) |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, par value $0.01 per share, 1,000 shares authorized, 100 shares issued and outstanding |
$ | 1 | $ | 1 | ||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
$ | 1 | $ | 1 | ||||
|
|
|
|
|
|||||
See accompanying notes to Balance Sheets.
F-3
Table of Contents
Guardian Pharmacy Services, Inc.
| 1. | Business and Basis of Presentation |
Guardian Pharmacy Services, Inc. (the “Company’’) was incorporated in the state of Delaware on November 16, 2021. The Company was formed for the purpose of completing an initial public offering of its common stock and related transactions in order to carry on the business of Guardian Pharmacy, LLC as a publicly-traded entity.
The accompanying balance sheets have been prepared in accordance with accounting principles generally accepted in the United States of America. Statements of income, stockholders’ equity and cash flows have not been presented because the Company has not engaged in any business or other activities except in connection with its formation.
| 2. | Stockholders’ Equity |
The Company is authorized to issue 1,000 shares of common stock with the par value of $0.01 per share, 100 of which have been issued and are outstanding as of December 31, 2022 and 2023.
| 3. | Commitments and Contingencies |
The Company may be subject to legal proceedings that arise in the ordinary course of business. There are currently no proceedings to which the Company is a party, nor does the Company have knowledge of any proceedings that are threatened against the Company.
| 4. | Subsequent Events |
Events and transactions occurring through the date of issuance of the financial statements have been evaluated by management and, when appropriate, recognized or disclosed in the financial statements or notes to the financial statements.
F-4
Table of Contents
Guardian Pharmacy Services, Inc.
| December 31, 2023 |
June 30, 2024 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Receivable from parent |
$ | 1 | $ | 1 | ||||
|
|
|
|
|
|||||
| Total assets |
$ | 1 | $ | 1 | ||||
|
|
|
|
|
|||||
| Commitments and contingencies (see Note 3) |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, par value $0.01 per share, 1,000 shares authorized, 100 shares issued and outstanding |
$ | 1 | $ | 1 | ||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
$ | 1 | $ | 1 | ||||
|
|
|
|
|
|||||
See accompanying notes to unaudited interim Balance Sheets.
F-5
Table of Contents
Guardian Pharmacy Services, Inc.
Notes to the Unaudited Interim Balance Sheets
| 1. | Business and Basis of Presentation |
Guardian Pharmacy Services, Inc. (the “Company’’) was incorporated in the state of Delaware on November 16, 2021. The Company was formed for the purpose of completing an initial public offering of its common stock and related transactions in order to carry on the business of Guardian Pharmacy, LLC as a publicly-traded entity.
The accompanying balance sheets have been prepared in accordance with accounting principles generally accepted in the United States of America. Statements of income, stockholders’ equity and cash flows have not been presented because the Company has not engaged in any business or other activities except in connection with its formation.
| 2. | Stockholders’ Equity |
The Company is authorized to issue 1,000 shares of common stock with the par value of $0.01 per share, 100 of which have been issued and are outstanding as of December 31, 2023 and June 30, 2024.
| 3. | Commitments and Contingencies |
The Company may be subject to legal proceedings that arise in the ordinary course of business. There are currently no proceedings to which the Company is a party, nor does the Company have knowledge of any proceedings that are threatened against the Company.
| 4. | Subsequent Events |
Events and transactions occurring through the date of issuance of the financial statements have been evaluated by management and, when appropriate, recognized or disclosed in the financial statements or notes to the financial statements.
F-6
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members and Board of Managers of Guardian Pharmacy, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Guardian Pharmacy, LLC and subsidiaries (the Company) as of December 31, 2022 and 2023, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the years then ended and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Atlanta, Georgia
March 21, 2024
F-7
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
| December 31, | ||||||||
| (In thousands) | 2022 | 2023 | ||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 607 | $ | 752 | ||||
| Accounts receivable, net |
67,825 | 77,262 | ||||||
| Inventories |
41,443 | 36,727 | ||||||
| Other current assets |
10,123 | 14,864 | ||||||
|
|
|
|
|
|||||
| Total current assets |
119,998 | 129,605 | ||||||
| Property and equipment, net |
39,632 | 45,064 | ||||||
| Intangible assets, net |
14,442 | 11,979 | ||||||
| Goodwill |
56,046 | 56,046 | ||||||
| Operating lease right-of-use assets |
25,561 | 28,113 | ||||||
| Other assets |
435 | 358 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 256,114 | $ | 271,165 | ||||
|
|
|
|
|
|||||
| Liabilities and equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 78,101 | $ | 85,603 | ||||
| Accrued compensation |
13,947 | 16,961 | ||||||
| Line of credit |
4,000 | 9,000 | ||||||
| Notes payable, current portion |
3,964 | 3,977 | ||||||
| Operating leases, current portion |
5,540 | 6,229 | ||||||
| Other current liabilities |
6,453 | 16,245 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
112,005 | 138,015 | ||||||
| Notes payable, net of current portion |
22,969 | 18,992 | ||||||
| Operating leases, net of current portion |
20,341 | 22,803 | ||||||
| Other liabilities |
24,870 | 31,496 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
180,185 | 211,306 | ||||||
|
|
|
|
|
|||||
| Commitments and contingencies (see Note 8) |
||||||||
| Equity: |
||||||||
| Members’ equity |
42,729 | 28,209 | ||||||
| Non-controlling interests |
33,200 | 31,650 | ||||||
|
|
|
|
|
|||||
| Total equity |
75,929 | 59,859 | ||||||
|
|
|
|
|
|||||
| Total liabilities and equity |
$ | 256,114 | $ | 271,165 | ||||
|
|
|
|
|
|||||
See accompanying notes to Consolidated Financial Statements.
F-8
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Consolidated Statements of Income
| Year Ended December 31, | ||||||||
| (In thousands) | 2022 | 2023 | ||||||
| Revenues |
$ | 908,909 | $ | 1,046,193 | ||||
| Cost of goods sold |
723,043 | 837,883 | ||||||
|
|
|
|
|
|||||
| Gross profit |
185,866 | 208,310 | ||||||
| Selling, general, and administrative expenses |
133,876 | 167,364 | ||||||
|
|
|
|
|
|||||
| Operating income |
51,990 | 40,946 | ||||||
| Other expense: |
||||||||
| Interest expense |
1,926 | 2,859 | ||||||
| Other expense, net |
403 | 367 | ||||||
|
|
|
|
|
|||||
| Total other expense |
2,329 | 3,226 | ||||||
|
|
|
|
|
|||||
| Net income |
49,661 | 37,720 | ||||||
| Less net income attributable to non-controlling interests |
(14,240 | ) | (13,818 | ) | ||||
|
|
|
|
|
|||||
| Net income attributable to Guardian Pharmacy, LLC |
$ | 35,421 | $ | 23,902 | ||||
|
|
|
|
|
|||||
See accompanying notes to Consolidated Financial Statements.
F-9
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Consolidated Statements of Comprehensive Income
| Year Ended December 31, |
||||||||
| (In thousands) | 2022 | 2023 | ||||||
| Net income |
$ | 49,661 | $ | 37,720 | ||||
| Other comprehensive gain: |
||||||||
| Net change on cash flow hedge |
185 | — | ||||||
|
|
|
|
|
|||||
| Comprehensive income |
49,846 | 37,720 | ||||||
| Comprehensive income attributable to non-controlling interests |
(14,240 | ) | (13,818 | ) | ||||
|
|
|
|
|
|||||
| Comprehensive income attributable to Guardian Pharmacy, LLC |
$ | 35,606 | $ | 23,902 | ||||
|
|
|
|
|
|||||
See accompanying notes to Consolidated Financial Statements.
F-10
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Consolidated Statements of Changes in Equity
| (In thousands) | Members’ Equity |
Non-Controlling Interests |
Accumulated Other Comprehensive Loss |
Total Equity |
||||||||||||
| Balance, December 31, 2021 |
$ | 24,112 | $ | 29,391 | $ | (185 | ) | $ | 53,318 | |||||||
| Contributions |
— | 771 | — | 771 | ||||||||||||
| Non-cash equity contributions |
— | 640 | — | 640 | ||||||||||||
| Net income |
35,421 | 14,240 | — | 49,661 | ||||||||||||
| Other comprehensive gain: |
||||||||||||||||
| Net change on cash flow hedge |
— | — | 185 | 185 | ||||||||||||
| Distributions |
(16,804 | ) | (11,842 | ) | — | (28,646 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance, December 31, 2022 |
42,729 | 33,200 | — | 75,929 | ||||||||||||
| Contributions |
— | 889 | — | 889 | ||||||||||||
| Non-cash equity contributions |
— | 225 | — | 225 | ||||||||||||
| Net income |
23,902 | 13,818 | — | 37,720 | ||||||||||||
| Distributions |
(38,422 | ) | (16,482 | ) | — | (54,904 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance, December 31, 2023 |
$ | 28,209 | $ | 31,650 | $ | — | $ | 59,859 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See accompanying notes to Consolidated Financial Statements
F-11
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Consolidated Statements of Cash Flows
| Year Ended December 31, |
||||||||
| (In thousands) | 2022 | 2023 | ||||||
| Operating activities |
||||||||
| Net income |
$ | 49,661 | $ | 37,720 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
16,563 | 18,234 | ||||||
| Share-based compensation expense (income) |
(3,381 | ) | (6,090 | ) | ||||
| Provision for losses on accounts receivable |
4,141 | 5,070 | ||||||
| Other |
257 | 283 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(16,794 | ) | (14,296 | ) | ||||
| Inventories |
(8,123 | ) | 4,426 | |||||
| Other current assets |
(1,574 | ) | (4,688 | ) | ||||
| Accounts payable |
13,366 | 6,295 | ||||||
| Accrued compensation |
(1,148 | ) | 3,013 | |||||
| Other operating liabilities |
(4,446 | ) | 20,852 | |||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
48,522 | 70,819 | ||||||
| Investing activities |
||||||||
| Purchases of property and equipment |
(16,770 | ) | (14,556 | ) | ||||
| Payment for acquisitions |
(2,003 | ) | (985 | ) | ||||
| Other |
874 | 2,100 | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(17,899 | ) | (13,441 | ) | ||||
| Financing activities |
||||||||
| Repayment of notes payable |
(3,750 | ) | (4,000 | ) | ||||
| Borrowings from line of credit |
253,000 | 269,500 | ||||||
| Repayment of line of credit |
(249,000 | ) | (264,500 | ) | ||||
| Principal payments on finance lease obligations |
(3,052 | ) | (3,893 | ) | ||||
| Deferred payments related to acquisitions |
(281 | ) | (325 | ) | ||||
| Contributions from non-controlling interests |
771 | 889 | ||||||
| Distributions to non-controlling interests |
(11,842 | ) | (16,482 | ) | ||||
| Member distributions |
(30,804 | ) | (38,422 | ) | ||||
| Other |
(70 | ) | — | |||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(45,028 | ) | (57,233 | ) | ||||
| Net change in cash and cash equivalents |
(14,405 | ) | 145 | |||||
| Cash and cash equivalents, beginning of year |
15,012 | 607 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of year |
$ | 607 | $ | 752 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of cash flow information |
||||||||
| Cash paid during the year for interest |
$ | 1,779 | $ | 2,783 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of non-cash investing and financing activities |
||||||||
| Purchases of property and equipment through finance leases |
$ | 4,608 | $ | 5,873 | ||||
|
|
|
|
|
|||||
See accompanying notes to Consolidated Financial Statements.
F-12
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
(In Thousands)
1. Description of Business and Summary of Significant Accounting Policies
Guardian Pharmacy, LLC (“Guardian”), an Indiana limited liability company, was formed on July 21, 2003. Guardian Pharmacy, LLC and its subsidiaries (collectively, the “Company”) is a leading long-term care pharmacy services company that facilitates the full lifecycle of pharmacy administration and associated consultative services for residents of long-term care facilities. At December 31, 2023, the Company owned pharmacies operating in 28 states.
All long-lived assets were held in the United States as of December 31, 2022 and 2023. All revenues were generated in the United States during the years ended December 31, 2022 and 2023.
Principles of Consolidation
The Consolidated Financial Statements are prepared in conformity with the generally accepted accounting principles in the United States of America (“U.S. GAAP”).
The Consolidated Financial Statements include the accounts of Guardian Pharmacy, LLC and all controlled subsidiaries. All intercompany transactions and accounts have been eliminated. Results of operations of the Company’s controlled subsidiaries have been included from the date of acquisition.
The Company has reclassified certain prior period amounts to conform to the current period presentation.
Significant Accounting Policies
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates.
Fair Value
The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:
| • | Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
| • | Level 2—Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument. |
F-13
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
| • | Level 3—Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs that market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk. |
Financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, line of credit and notes payable. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short maturity of these instruments. The Company estimates that the carrying amount of the line of credit and notes payable approximates fair value due to the fluctuation of their variable interest rates with market movement.
The following table summarizes the valuation of liabilities measured at fair value on a recurring basis on the Company’s Consolidated Balance Sheets:
| Level 1 | Level 2 | Level 3 | ||||||||||
| December 31, 2022 |
||||||||||||
| Liabilities: |
||||||||||||
| Contingent consideration obligations(1) |
$ | — | $ | — | $ | 451 | ||||||
|
|
|
|
|
|
|
|||||||
| Fair value of financial instruments |
$ | — | $ | — | $ | 451 | ||||||
|
|
|
|
|
|
|
|||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| December 31, 2023 |
||||||||||||
| Liabilities: |
||||||||||||
| Contingent consideration obligations(1) |
$ | — | $ | — | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Fair value of financial instruments |
$ | — | $ | — | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| (1) | The fair value measurement of the contingent consideration obligations arising from acquisitions is based upon Level 3 inputs including, in part, the estimate of future cash flows based upon the likelihood of achieving the various criteria triggering the payment of the obligations. Changes in the fair value of the contingent consideration obligations are recorded within Selling, general and administrative expenses. |
The following table provides a reconciliation of the activity for the Level 3 contingent consideration fair value measurements during the years ended December 31, 2022 and 2023:
| Balance at December 31, 2021 |
$ | 492 | ||
| Current year acquisitions |
250 | |||
| Fair value adjustment |
129 | |||
| Payments |
(420 | ) | ||
|
|
|
|||
| Balance at December 31, 2022 |
451 | |||
| Payments |
(451 | ) | ||
|
|
|
|||
| Balance at December 31, 2023 |
$ | — | ||
|
|
|
|||
F-14
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
Cash and Cash Equivalents
Cash consists primarily of demand deposits held with financial institutions. The Company considers all highly liquid investments purchased with an original maturity of three months or less when purchased to be cash equivalents for financial statement presentation.
Accounts Receivable
Accounts receivable consists primarily of amounts due from third parties (e.g., pharmacy benefit managers, insurance companies, governmental agencies, and long-term care facilities) and private pay customers. Accounts receivable are stated at cost less an allowance for credit losses the net of which approximates fair value.
Allowance for Credit Losses
Collection of accounts receivable from customers is the Company’s primary source of operating cash flow and is critical to the operating performance and the financial condition of the Company. The primary collection risk relates to amounts due from long-term care facilities and private pay customers, as billings to these customers can be complex and may lead to payment disputes or delays. The Company establishes an allowance for accounts receivable considered to be at increased risk of becoming uncollectible to reduce the carrying value of such receivables to their estimated net realizable value.
When establishing this allowance for credit losses, the Company considers such factors as historical collection experience (i.e., payment history and credit losses) and creditworthiness, specifically identified credit risks, aging of accounts receivable, current and expected economic conditions, and other relevant factors. The allowance for credit losses is regularly reviewed for appropriateness. Judgment is used to assess the collectability of account balances and the economic ability of customers to pay. At the time a balance is definitively deemed to be uncollectible, the balance is written off against the allowance for credit losses. The charges recorded for credit losses is reported within Selling, general and administrative expenses on the Consolidated Statements of Income. As of December 31, 2022 and 2023, the allowance for credit losses was $5,371 and $6,171, respectively.
The table below outlines the activity for the allowance for credit losses for the years ended December 31, 2022 and 2023:
| Balance at December 31, 2021 |
$ | 4,608 | ||
| Additions |
4,799 | |||
| Deductions |
(4,036 | ) | ||
|
|
|
|||
| Balance at December 31, 2022 |
5,371 | |||
| Additions |
5,718 | |||
| Deductions |
(4,918 | ) | ||
|
|
|
|||
| Balance at December 31, 2023 |
$ | 6,171 | ||
|
|
|
|||
F-15
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
Rebates
The Company receives rebates, discounts, and other price concessions relating to purchases from its suppliers and vendors. The Company estimates rebates earned and the associated receivable from pharmaceutical wholesalers and manufacturers, group purchasing organizations (“GPOs”) and vendors, based on estimates of the qualifying prescriptions dispensed or the key products purchased and sold. The receivables are recognized at the end of the period in the Consolidated Financial Statements within Accounts receivable and as a reduction to Cost of goods sold and Inventories as appropriate.
Inventories
Inventories consist primarily of purchased pharmaceuticals held for sale to customers. Inventories are recorded at the lower of cost (first-in, first-out method) or net realizable value.
Physical inventory counts are taken quarterly and used to record the inventory balances on hand to ensure the amounts reflected in the accompanying Consolidated Financial Statements are properly stated. Costs include the purchase price of pharmaceuticals, which is reduced for rebates earned associated with inventory remaining at the end of each period, and overhead. There is no significant obsolescence reserve recorded since the Company has not experienced (nor does it expect to experience) significant levels of inventory obsolescence write-offs due to the ability to return unused drugs to its suppliers and vendors for credit.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated depreciation. See the Property and Equipment Note 2 for more information.
Leases
In accordance with ASC 842, the Company has applied the practical expedient to account for the lease and non-lease components as a single lease component for all leases. The Company also made an accounting policy election to not recognize right-of-use (‘”ROU”) assets and liabilities for leases with a term of 12 months or less unless the lease includes an option to renew or purchase the underlying asset that are reasonably certain to be exercised.
For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of fixed lease payments over the term. Many of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into the Company’s determination of lease payments when appropriate.
As the implicit rate is not readily determinable for the Company’s leases, the Company applies a portfolio approach using an estimated incremental borrowing rate to determine the initial present value of lease payments over the lease terms on a collateralized basis over a similar term, which is based on market and company specific information.
Leases that transfer substantially all the benefits and risks of ownership of property to the Company or otherwise meet the criteria for capitalization are accounted for as finance leases. To
F-16
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
reflect their purchase and financing, assets acquired under finance leases are recorded on the Consolidated Balance Sheets as Property and equipment, and amounts due under finance leases are recorded as liabilities, including long-term obligations. Depreciation of assets recorded under finance leases is provided on a straight-line basis over the period of their estimated useful lives and is reported on the Consolidated Statements of Income within either Cost of goods sold or Selling, general and administrative expense as determined by the nature of the asset. See the Lease Obligations Note 6 for more information.
Impairment of Long-Lived Assets
The Company’s long-lived assets consist of property and equipment, as well as intangible assets with definite lives. Intangible assets with definite lives primarily include customer lists and trademarks that are recognized as a result of acquisitions. Long-lived assets are reviewed for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
The Company groups and evaluates long-lived assets for impairment at the lowest level at which individual cash flows can be identified whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment are present, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted and without interest charges). If the estimated undiscounted future cash flows used in this analysis are less than the carrying amount of the asset group, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the asset group to the asset group’s fair value. If required, an impairment loss is recorded for the portion of the asset group’s carrying value that exceeds the asset group’s fair value. The Company concluded there was no impairment of long-lived assets during the years ended December 31, 2022 or 2023.
Goodwill
Goodwill is the excess of the consideration transferred over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. The Company does not amortize goodwill. The Company tests its goodwill annually during the fourth quarter of its fiscal year or when events and circumstances indicate that impairment may have occurred and requires impairment charges to be recognized based on the difference between the carrying amount of the reporting unit and its fair value. Impairment testing of goodwill is required at the reporting unit level (operating segment or one level below operating segment). Prior to performing the impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment in order to determine whether a detailed quantitative analysis is required. The Company’s annual impairment testing date is October 1.
No impairment of goodwill resulted from the Company’s annual impairment testing in 2022 or 2023. See the Goodwill and Intangible Assets Note 4 for more information.
Intangible Assets
The Company’s intangible assets with definite lives primarily include customer lists and trademarks. Intangible assets are stated at fair value less accumulated amortization. These assets
F-17
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
are amortized over periods ranging from one to twenty years using a straight-line method. The Company considers the period of expected cash flows and underlying data to be the best estimate in measuring fair value when determining their useful lives.
Contingent Consideration
When an acquisition involves a contingent consideration arrangement, the Company recognizes a liability as of the acquisition date equal to the fair value of expected contingent payments. This liability is remeasured each reporting period and changes in the fair value are reported within Selling, general and administrative expenses on the Consolidated Statements of Income. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well as changes in the timing or likelihood of achieving certain revenue or other targets. Payments made up to the fair value of the contingent consideration established at the acquisition date are reported as financing activities on the Consolidated Statements of Cash Flows while payments in excess of such amounts are reported as operating activities on the Consolidated Statements of Cash Flows.
The terms of the contingent consideration arrangement may include certain provisions that the Company contribute additional capital to its subsidiaries to fund payment of the contingent payment when earned. These provisions may also require the Company to issue additional equity in its subsidiaries to non-controlling interest members to avoid dilution of their ownership upon payment of contingent obligations.
Loss Contingencies
The Company may become involved in legal proceedings and other matters that may result in loss contingencies. A liability is established for such matters when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. Liabilities for loss contingencies are recorded within Other current liabilities and Other liabilities on the Company’s Consolidated Balance Sheets. See the Commitments and Contingencies Note 8 for more information.
Revenue Recognition
Revenue is recognized when control of the promised goods are transferred or services are provided to customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. Each prescription claim represents a separate performance obligation of the Company, separate and distinct from other prescription claims under customer arrangements.
A significant portion of the Company’s revenues from sales of pharmaceutical and medical products is subject to reimbursement by federal Medicare (i.e., Part A, B, D) programs and state Medicaid programs. The total net sales and receivables reported on the Company’s Consolidated Financial Statements are recorded at the amount expected to be ultimately received from these payors. Billing functions for a portion of the Company’s revenue systems are largely computerized, submitting claims for online adjudication electronically, with simultaneous feedback of the amount expected to be received at the time of sale to determine and record net revenues.
F-18
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
Patient co-payments are billed to the patient as part of the Company’s normal billing procedures. Additionally, the Company bills certain long-term care facilities for the sale of pharmaceuticals. These billings are subject to the Company’s normal accounts receivable collections procedures.
No disaggregation of revenue is necessary as the impact of economic factors is comparable due to the similarity in the types of services provided for the long-term care facilities or residents served.
Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable.
At times, cash balances at financial institutions are in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance coverage. FDIC insurance covers all deposit accounts, including checking and savings accounts, money market deposit accounts, and certificates of deposit, up to $250 per depositor, per insured bank, for each account ownership category. The Company believes it mitigates any risks by depositing cash with major financial institutions.
Credit risk on accounts receivable is generally diversified due to the number of entities comprising the customer base. The Company generally does not require collateral from its customers in connection with the extension of credit in the form of accounts receivable balances. Management regularly reviews the allowances for credit losses for appropriateness. For the years ended December 31, 2022 and 2023, no single customer accounted for 10% or more of the Company’s revenues.
Delivery Expenses
The Company incurred expenses totaling $30,893 and $35,538 for the years ended December 31, 2022 and 2023, respectively, to deliver products sold to its customers. Delivery expenses are reported within Cost of goods sold on the Consolidated Statements of Income.
Advertising and Marketing Expenses
The Company incurred advertising and marketing expenses totaling $2,897 and $3,384 for the years ended December 31, 2022 and 2023, respectively. Advertising and marketing expenses are expensed as incurred and are reported within Selling, general, and administrative expenses on the Consolidated Statements of Income.
Share-based Compensation
The Company records compensation costs related to the vesting and changes in value of liability-based awards on its Consolidated Statements of Income. See the Share-based Compensation Note 9 for more information.
Members’ Equity (all numbers presented as whole numbers)
Guardian has two classes of members: preferred and common. Generally, 1.0 preferred unit was issued for each $1,000 of capital contributed to the Company prior to March 1, 2007, and
F-19
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
0.8338 preferred units were issued for each $1,000 of capital contributed to the Company from March 1, 2007 to February 28, 2011. Subsequent to February 28, 2011, 0.5087 preferred units were issued for each $1,000 contributed to the Company. In addition, preferred unit holders were entitled to a preferred return of 6% annually on their unrecovered capital balance. As of December 31, 2022 and 2023, there was no unrecovered capital or unpaid preferred return outstanding.
Net income and distributions are allocated to the preferred and common unit holders in accordance with the Company’s Operating Agreement. In the case of certain events, the preferred units may be converted into common units on a one-to-one basis. Additionally, common units in the Company may be issued in exchange for minority interests owned in a subsidiary.
As of December 31, 2022 and 2023, there were 27,407 (issued in the amount of $31,645,099) Series A Preferred Units issued and outstanding. As of December 31, 2022 and 2023, there were 5,048 (issued in the amount of $9,000,000) Series B Preferred Units issued and outstanding. In general, Series B Preferred has distribution priority over Series A Preferred.
Income Taxes
The Company is organized as a limited liability company that is treated as a partnership for U.S. federal and state income tax purposes in most jurisdictions. Partnerships generally do not pay income tax, nor recognize income tax expenses, but pass their taxable attributes to the partners who pay income tax at the partner level. Therefore, no provision for income taxes has been made on the Consolidated Financial Statements.
Debt Issuance Costs
Debt issuance costs are amortized to interest expense, using the effective interest method, based on forecasted principal payments, over the estimated life of the related debt instrument. The Company presents debt issuance costs related to notes payable as a direct reduction of Notes payable on the Consolidated Balance Sheets. Debt issuance costs related to the line of credit are presented as Other current assets.
Segment Reporting
During 2023, the Company modified its internal management reporting including the information regularly used by the chief operating decision maker (“CODM”) to assess performance and allocate resources. As a result, the Company re-evaluated its operating segment conclusions and determined that it has a single operating segment. Changes to the Company’s operating segment conclusions have no impact on historical consolidated results of operations, financial position, or cash flows. The Company will not be required to provide recast financial information as the Company previously aggregated operating segments into one reportable segment.
F-20
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
New Accounting Pronouncements
The following table provides a description of recent accounting pronouncements that are applicable to the Company’s Consolidated Financial Statements:
| New Accounting Standards Adopted | ||||||
| ASU Number and Name |
Description |
Date of Adoption |
Effect on the Consolidated Financial | |||
| 2020-04, 2021-01, 2022-06, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | ASU 2020-04 and its subsequent corresponding updates provided optional guidance to companies to ease the potential burden associated with reference rate reform. Specifically, the guidance provides optional expedients and exceptions to apply generally accepted accounting principles to contract modifications and hedging relationships, subject to certain criteria, that reference LIBOR or another reference rate expected to be discontinued. | January 1, 2022 | Prior to April 22, 2022, the Company had LIBOR-based borrowings. Effective April 22, 2022 the Company amended its agreements and transitioned to the Term Secured Overnight Financing Rate (Term SOFR) for these instruments. The Company adopted the optional guidance in Topic 848 in conjunction with its contract amendments which allowed the Company to account for the modification to its debt agreement as a continuation of the existing contract. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements. | |||
| 2016-13, 2018-19, 2019-04, 2019-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments | ASU 2016-13 and its subsequent corresponding updates provide guidance for the impairment model for financial assets measured at amortized cost. For trade and other receivables, | January 1, 2023 | The Company adopted the standard on January 1, 2023 with no material impact on the Consolidated Financial Statements. | |||
F-21
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
| ASU Number and Name |
Description |
Date of Adoption |
Effect on the Consolidated Financial | |||
| held-to-maturity debt securities, loans and other instruments, entities are required to use a forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. There are various transition methods available upon adoption. |
| New Accounting Standard Not Yet Effective | ||||||
| ASU Number and Name |
Description |
Anticipated Date of Adoption |
Effect on the Consolidated Financial Statements upon adoption | |||
| 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | ASU 2023-07 requires companies to disclose significant segment expenses that are regularly provided to the CODM and are included within each reported measure of segment operating results. The standard also requires the companies to disclose the total amount of any other items included in segment operating results which were not deemed to be significant expenses for separate disclosure, along with a qualitative description of the composition of these | January 1st, 2024 for annual disclosures. January 1st, 2025 for interim disclosures. | The Company is currently evaluating the impact of adopting the standard on its Consolidated Financial Statements. The adoption is not expected to have a material impact on the Consolidated Financial Statements. | |||
F-22
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
| ASU Number and Name |
Description |
Anticipated Date of Adoption |
Effect on the Consolidated Financial Statements upon adoption | |||
| other items. In addition, the standard also requires disclosure of the CODM’s title and position, as well as detail on how the CODM uses the reported measure of segment operating results to evaluate segment performance and allocate resources. The standard also aligns interim segment reporting disclosure requirements with annual segment reporting disclosure requirements. The standard requires retrospective application to all prior periods presented. |
2. Property and Equipment
Property and equipment are depreciated on a straight-line basis over the period of their estimated useful lives. As of December 31, 2023, the estimated useful lives of the Company’s assets are as follows:
| Pharmacy and lab equipment | 5–7 years | |
| Automobiles | 3 years | |
| Computer equipment and software | 3 years | |
| Leasehold improvements |
Lesser of useful life or lease term | |
| Furniture, fixtures, and office equipment |
5 years | |
Property and equipment as of December 31, consisted of the following:
| 2022 | 2023 | |||||||
| Pharmacy and lab equipment |
$ | 53,723 | $ | 60,506 | ||||
| Automobiles |
14,416 | 17,918 | ||||||
| Computer equipment and software |
13,143 | 13,825 | ||||||
| Leasehold improvements |
12,287 | 14,043 | ||||||
| Furniture, fixtures, and office equipment |
6,864 | 7,696 | ||||||
|
|
|
|
|
|||||
| 100,433 | 113,988 | |||||||
| Less accumulated depreciation |
(60,801 | ) | (68,924 | ) | ||||
|
|
|
|
|
|||||
| Total property and equipment, net |
$ | 39,632 | $ | 45,064 | ||||
|
|
|
|
|
|||||
F-23
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
Depreciation expense for the years ended December 31, 2022 and 2023 was $13,196 and $15,166 respectively. Depreciation of assets is reported on the Consolidated Statements of Income as either Cost of goods sold or Selling, general and administrative expense, as determined by the nature of the asset. Depreciation expense reported in Cost of goods sold for the years ended December 31, 2022 and 2023 was $5,734 and $6,507, respectively. Depreciation expense reported in Selling, general and administrative expense for the years ended December 31, 2022 and 2023 was $7,462 and $8,659, respectively.
3. Acquisitions
The Company’s business model involves periodically acquiring institutional pharmacies servicing long-term care facilities and their residents as well as residents in other care settings. The Company’s strategy includes the acquisition of freestanding institutional pharmacy businesses as well as other assets, generally less significant in size, which are combined with existing pharmacy operations to augment internal growth.
There were no material acquisitions requiring disclosure for the periods presented in these Consolidated Financial Statements.
4. Goodwill and Intangible Assets
The Company assesses the value of its goodwill at the reporting unit level under either a qualitative or quantitative approach. When applying a qualitative approach, the Company assesses the likelihood of goodwill impairment to assess whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. On October 1, 2023, the Company performed its annual impairment assessment and no impairment was recognized in the current period as a result of the Company’s assessment. Further, no significant events or conditions occurred during the quarter ended December 31, 2023 that would have affected the conclusions of the Company’s annual assessment.
A summary of the change in the carrying amount of goodwill for the year ended December 31, 2022 is as follows:
| Balance at December 31, 2021 |
$ | 54,631 | ||
| Acquisitions |
1,542 | |||
| Dispositions |
(127 | ) | ||
|
|
|
|||
| Balance at December 31, 2022 |
$ | 56,046 | ||
|
|
|
|||
There was no change in the carrying amount of goodwill for the year ended December 31, 2023.
Intangible assets consist primarily of customer lists and trademarks related to the businesses acquired. Customer lists, trademarks and other intangible assets are amortized on a straight-line basis over the period of their estimated useful lives as follows:
| Customer lists | 4 to 10 years | |
| Trademarks and other intangible assets | 1 to 20 years |
F-24
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
The carrying amount and accumulated amortization of the customer lists, trademarks and other intangible assets as of December 31 are as follows:
| 2022 | 2023 | |||||||||||||||||||||||
| Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||||||||||||
| Intangible assets: |
||||||||||||||||||||||||
| Customer lists |
$ | 41,655 | $ | (29,304 | ) | $ | 12,351 | $ | 42,267 | $ | (31,978 | ) | $ | 10,289 | ||||||||||
| Trademarks and other intangible assets |
7,201 | (5,110 | ) | 2,091 | 7,181 | (5,491 | ) | 1,690 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total intangible assets |
$ | 48,856 | $ | (34,414) | $ | 14,442 | $ | 49,448 | $ | (37,469 | ) | $ | 11,979 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Amortization expense related to finite-lived intangible assets for the years ended December 31, 2022 and 2023 was $3,367 and $3,068, respectively.
The estimated amortization expense for the next five years ending December 31 and thereafter is as follows:
| 2024 |
$ | 3,030 | ||
| 2025 |
2,623 | |||
| 2026 |
2,071 | |||
| 2027 |
1,612 | |||
| 2028 |
1,289 | |||
| Thereafter |
1,354 | |||
|
|
|
|||
| Total |
$ | 11,979 | ||
|
|
|
|||
5. Debt Arrangements
Line of Credit
On April 22, 2022, the Company entered into the Fourth Amendment to the Third Amended and Restated Loan and Security Agreement (the “Amendment”) to the existing credit facility. The Amendment extended the line of credit from April 23, 2023 to April 23, 2025. The line of credit now bears an interest rate equal to the one-month Secured Overnight Financing Rate (“SOFR”) plus an additional rate of 1.80% to 2.80% based on certain financial ratios maintained by the Company.
See the New Accounting Pronouncements Note 1 for more information.
F-25
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
Notes Payable
As of December 31, long-term debt consisted of the following:
| 2022 | 2023 | |||||||
| Term loan |
$ | 27,000 | $ | 23,000 | ||||
| Deferred financing costs, net |
(67 | ) | (31 | ) | ||||
|
|
|
|
|
|||||
| Total notes payable |
26,933 | 22,969 | ||||||
| Less current portion |
(3,964 | ) | (3,977 | ) | ||||
|
|
|
|
|
|||||
| Notes payable, net of current portion |
$ | 22,969 | $ | 18,992 | ||||
|
|
|
|
|
|||||
As a result of the Amendment, the term loan now bears an interest rate equal to the one-month SOFR plus an additional rate of 1.80% to 2.80% based on certain financial ratios maintained by the Company. The term loan is payable in quarterly installments of $1,000 through March 31, 2025, with the remaining balance of the loan due in a final lump sum payment at maturity on April 23, 2025.
Interest expense related to Notes payable was $1,106 and $1,754 for the years ended December 31, 2022 and 2023, respectively.
As of December 31, 2023, future payment obligations for long-term debt are as follows for the years ending December 31:
| 2024 |
$ | 4,000 | ||
| 2025 |
19,000 | |||
|
|
|
|||
| Total |
$ | 23,000 | ||
|
|
|
|||
The Company was in compliance with all debt covenants at December 31, 2023.
6. Lease Obligations
Lease Population
The Company leases various real estate, including certain operating facilities. warehouses, and office space, all of which are operating leases. The Company also leases pharmacy equipment and vehicles, all of which are finance leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
F-26
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
Lease Position
The following table summarizes the lease-related assets and liabilities recorded on the Company’s Consolidated Balance Sheets as of December 31:
| December 31, | ||||||||||
| Balance Sheet Location |
2022 | 2023 | ||||||||
| Assets |
||||||||||
| Operating lease assets |
Operating lease right-of-use assets | $ | 25,561 | $ | 28,113 | |||||
| Finance lease assets |
Property and equipment, net | 6,117 | 8,192 | |||||||
|
|
|
|
|
|||||||
| Total lease assets |
$ | 31,678 | $ | 36,305 | ||||||
|
|
|
|
|
|||||||
| Liabilities |
||||||||||
| Current |
||||||||||
| Operating lease liabilities |
Operating leases, current portion | $ | 5,540 | $ | 6,229 | |||||
| Finance lease liabilities |
Other current liabilities | 2,838 | 3,915 | |||||||
| Noncurrent |
||||||||||
| Operating lease liabilities |
Operating leases, net of current portion | 20,341 | 22,803 | |||||||
| Finance lease liabilities |
Other liabilities | 3,332 | 4,236 | |||||||
|
|
|
|
|
|||||||
| Total lease liabilities |
$ | 32,051 | $ | 37,183 | ||||||
|
|
|
|
|
|||||||
| Weighted-average remaining lease term |
||||||||||
| Operating leases |
5.4 years | 5.3 years | ||||||||
| Finance leases |
3 years | 3 years | ||||||||
| Weighted-average discount rate |
||||||||||
| Operating leases |
4.42 | % | 5.09 | % | ||||||
| Finance leases |
4.39 | % | 5.77 | % | ||||||
Lease Costs
The following tables summarize the lease-related costs for finance and operating leases for the years ended December 31:
| 2022 | 2023 | |||||||
| Finance lease cost |
||||||||
| Amortization of leased assets |
$ | 2,979 | $ | 3,801 | ||||
| Interest on lease liabilities |
229 | 456 | ||||||
| Operating lease cost |
6,895 | 7,641 | ||||||
| Short-term lease cost |
607 | 247 | ||||||
| Variable lease cost |
1,612 | 1,914 | ||||||
|
|
|
|
|
|||||
| Total lease cost |
$ | 12,322 | $ | 14,059 | ||||
|
|
|
|
|
|||||
F-27
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
Other Information
| Year Ended December 31, 2022 |
Year Ended December 31, 2023 |
|||||||
| Cash paid for amounts included in the measurement of lease liabilities |
||||||||
| Operating cash flows for operating leases |
$ | 8,934 | $ | 9,104 | ||||
| Operating cash flows for finance leases |
$ | 218 | $ | 424 | ||||
| Financing cash flows for finance leases |
$ | 3,052 | $ | 3,893 | ||||
Changes in the balance of the operating lease ROU asset and operating lease liability are recorded on a net basis within Other, as adjustments to net income on the operating activities section of the Consolidated Statements of Cash Flows.
Undiscounted Cash Flows
The table below reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years to the operating lease liabilities and finance lease liabilities recorded on the December 31, 2023 Consolidated Balance Sheet.
| Operating Leases |
Finance Leases |
|||||||
| 2024 |
$ | 7,089 | $ | 4,334 | ||||
| 2025 |
6,446 | 3,154 | ||||||
| 2026 |
5,404 | 1,273 | ||||||
| 2027 |
4,922 | 184 | ||||||
| 2028 |
4,182 | 43 | ||||||
| Thereafter |
5,371 | — | ||||||
|
|
|
|
|
|||||
| Total lease payments |
33,414 | 8,988 | ||||||
| Less: amount of lease payments representing interest |
(4,382 | ) | (837 | ) | ||||
|
|
|
|
|
|||||
| Present value of future lease payments |
29,032 | 8,151 | ||||||
| Less: current obligations under leases |
(6,229 | ) | (3,915 | ) | ||||
|
|
|
|
|
|||||
| Long-term lease obligations |
$ | 22,803 | $ | 4,236 | ||||
|
|
|
|
|
|||||
7. Retirement Plan
The Company sponsors a 401(k) plan for eligible employees. All full-time employees of the Company are eligible to participate in the plan after thirty days of employment with employer contributions vesting after two years of employment. The maximum matching percentage for the
F-28
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
years ended December 31, 2022 and 2023, was 3.5% of participant contributions. The Company made matching contributions for the years ended December 31, 2022 and 2023 in the amount of $4,080 and $4,556, respectively.
8. Commitments and Contingencies
The Company is subject to legal proceedings and claims that arise in the ordinary course of business. The Company may have exposure to loss contingencies arising from pending or threatened litigation for which assessing and estimating the outcomes of these matters involve substantial uncertainties. The Company evaluates contingencies on an ongoing basis and establishes loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated.
Legal expenses include attorneys’ fees, litigation expenses and settlements. For the years ended December 31, 2022, and 2023, the Company recorded legal expenses totaling $4,506 and $24,234, respectively.
9. Share-based Compensation
Share-based compensation expense (income) relates to awards in the form of Restricted Interest Units. These cash-settled awards are recorded as liabilities until payout is made or the award is forfeited. These units vest in their entirety on the third anniversary of their grant date. Vesting is subject to continued service. Compensation costs are recognized ratably over the vesting period based upon the value of the awards as of period end.
The value of the equity awards is remeasured and reported as Share-based compensation liability on the accompanying Consolidated Balance Sheets at the end of each reporting period based on the change in calculated value of the shares pursuant to the prescribed calculation contained in the Restricted Interest Purchase Agreements. The primary inputs used to value the awards are the volume and accumulated vesting status of the issued awards, the historical adjusted earnings of the Company (inclusive of share-based compensation expense (income), outstanding capital and debt obligations of the Company as of the measurement date). The liability and corresponding expense are adjusted accordingly until the awards are settled. Vested Restricted Interest Units are typically repurchased by the Company upon termination of employment at the calculated value.
The Company had $21,361 and $15,210 of share-based compensation liability recorded within Other liabilities on its Consolidated Balance Sheets as of December 31, 2022 and 2023, respectively.
10. Related Party Transactions
The Company provides pharmaceutical related services to facilities owned or managed by certain non-controlling interest holders, which are considered to be related parties. Revenues attributed to these facilities was $19,935 and $23,450 for the years ended December 31, 2022 and 2023, respectively. Cost of goods sold attributed to these facilities was $15,858 and $18,781 for the years ended December 31, 2022 and 2023, respectively. The accounts receivable balances attributable to these related parties was $1,106 and $1,068 as of December 31, 2022 and 2023, respectively.
F-29
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
(In Thousands)
11. Subsequent Events
Events and transactions occurring through the date of issuance of the Consolidated Financial Statements have been evaluated by management and, when appropriate, recognized or disclosed in the Consolidated Financial Statements or notes to the Consolidated Financial Statements.
F-30
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
| (In thousands) | December 31, 2023 |
June 30, 2024 |
||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 752 | $ | 1,538 | ||||
| Accounts receivable, net |
77,262 | 89,823 | ||||||
| Inventories |
36,727 | 39,176 | ||||||
| Other current assets |
14,864 | 16,143 | ||||||
|
|
|
|
|
|||||
| Total current assets |
129,605 | 146,680 | ||||||
| Property and equipment, net |
45,064 | 46,102 | ||||||
| Intangible assets, net |
11,979 | 15,047 | ||||||
| Goodwill |
56,046 | 66,437 | ||||||
| Operating lease right-of-use assets |
28,113 | 30,478 | ||||||
| Other assets |
358 | 374 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 271,165 | $ | 305,118 | ||||
|
|
|
|
|
|||||
| Liabilities and equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 85,603 | $ | 97,527 | ||||
| Accrued compensation |
16,961 | 15,349 | ||||||
| Line of credit |
9,000 | 9,000 | ||||||
| Notes payable, current portion |
3,977 | 5,428 | ||||||
| Operating leases, current portion |
6,229 | 6,837 | ||||||
| Other current liabilities |
16,245 | 28,454 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
138,015 | 162,595 | ||||||
| Notes payable, net of current portion |
18,992 | 30,027 | ||||||
| Operating leases, net of current portion |
22,803 | 24,735 | ||||||
| Other liabilities |
31,496 | 30,548 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
211,306 | 247,905 | ||||||
|
|
|
|
|
|||||
| Commitments and contingencies (see Note 5) |
||||||||
| Equity: |
||||||||
| Members’ equity |
28,209 | 17,877 | ||||||
| Non-controlling interests |
31,650 | 39,336 | ||||||
|
|
|
|
|
|||||
| Total equity |
59,859 | 57,213 | ||||||
|
|
|
|
|
|||||
| Total liabilities and equity |
$ | 271,165 | $ | 305,118 | ||||
|
|
|
|
|
|||||
See accompanying notes to unaudited interim Consolidated Financial Statements.
F-31
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| (In thousands) | 2023 | 2024 | 2023 | 2024 | ||||||||||||
| Revenues |
$ | 253,439 | $ | 300,037 | $ | 502,385 | $ | 575,447 | ||||||||
| Cost of goods sold |
203,117 | 238,749 | 400,845 | 459,058 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
50,322 | 61,288 | 101,540 | 116,389 | ||||||||||||
| Selling, general, and administrative expenses |
25,027 | 44,283 | 69,788 | 91,451 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating income |
25,295 | 17,005 | 31,752 | 24,938 | ||||||||||||
| Other expenses: |
||||||||||||||||
| Interest expense |
702 | 1,066 | 1,404 | 1,831 | ||||||||||||
| Other expense, net |
151 | 91 | 192 | 164 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total other expenses |
853 | 1,157 | 1,596 | 1,995 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income |
24,442 | 15,848 | 30,156 | 22,943 | ||||||||||||
| Less net income attributable to non-controlling interests |
(2,972 | ) | (5,224 | ) | (6,982 | ) | (9,533 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income attributable to Guardian Pharmacy, LLC |
$ | 21,470 | $ | 10,624 | $ | 23,174 | $ | 13,410 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See accompanying notes to unaudited interim Consolidated Financial Statements.
F-32
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Consolidated Statements of Changes in Equity
(Unaudited)
| (In thousands) | Members’ Equity |
Non-Controlling Interests |
Total Equity | |||||||||
| Balance, December 31, 2022 |
$ | 42,729 | $ | 33,200 | $ | 75,929 | ||||||
| Contributions |
— | 195 | 195 | |||||||||
| Non-cash equity contribution |
— | 225 | 225 | |||||||||
| Net income |
1,704 | 4,010 | 5,714 | |||||||||
| Distributions |
(6,166 | ) | (3,180 | ) | (9,346 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Balance, March 31, 2023 |
38,267 | 34,450 | 72,717 | |||||||||
|
|
|
|
|
|
|
|||||||
| Contributions |
120 | 120 | ||||||||||
| Net income |
21,470 | 2,972 | 24,442 | |||||||||
| Distributions |
(15,724 | ) | (4,776 | ) | (20,500 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Balance, June 30, 2023 |
$ | 44,013 | $ | 32,766 | $ | 76,779 | ||||||
|
|
|
|
|
|
|
|||||||
| (In thousands) | Members’ Equity |
Non-Controlling Interests |
Total Equity | |||||||||
| Balance, December 31, 2023 |
$ | 28,209 | $ | 31,650 | $ | 59,859 | ||||||
| Contributions |
— | 428 | 428 | |||||||||
| Net income |
2,786 | 4,309 | 7,095 | |||||||||
| Distributions |
(7,130 | ) | (3,679 | ) | (10,809 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Balance, March 31, 2024 |
23,865 | 32,708 | 56,573 | |||||||||
|
|
|
|
|
|
|
|||||||
| Contributions |
— | 724 | 724 | |||||||||
| Non-cash equity contribution |
— | 4,989 | 4,989 | |||||||||
| Net income |
10,624 | 5,224 | 15,848 | |||||||||
| Distributions |
(16,612 | ) | (4,309 | ) | (20,921 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Balance, June 30, 2024 |
$ | 17,877 | $ | 39,336 | $ | 57,213 | ||||||
|
|
|
|
|
|
|
|||||||
See accompanying notes to unaudited interim Consolidated Financial Statements
F-33
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, |
||||||||
| (In thousands) | 2023 | 2024 | ||||||
| Operating activities |
||||||||
| Net income |
$ | 30,156 | $ | 22,943 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
8,882 | 9,625 | ||||||
| Share-based compensation expense (income) |
(4,068 | ) | 5,673 | |||||
| Provision for losses on accounts receivable |
2,799 | 3,133 | ||||||
| Other |
126 | 63 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(10,685 | ) | (15,151 | ) | ||||
| Inventories |
7,411 | (909 | ) | |||||
| Other current assets |
(2,465 | ) | (1,295 | ) | ||||
| Accounts payable |
8,483 | 11,337 | ||||||
| Accrued compensation |
(1,071 | ) | (1,913 | ) | ||||
| Other operating liabilities |
1,886 | 4,281 | ||||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
41,454 | 37,787 | ||||||
| Investing activities |
||||||||
| Purchases of property and equipment |
(7,525 | ) | (6,740 | ) | ||||
| Payment for acquisitions |
— | (10,243 | ) | |||||
| Other |
(57 | ) | 281 | |||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(7,582 | ) | (16,702 | ) | ||||
| Financing activities |
||||||||
| Borrowings from notes payable |
— | 15,000 | ||||||
| Repayment of notes payable |
(2,000 | ) | (2,375 | ) | ||||
| Borrowings from line of credit |
126,000 | 110,800 | ||||||
| Repayments of line of credit |
(126,500 | ) | (110,800 | ) | ||||
| Principal payments on finance lease obligations |
(1,779 | ) | (2,187 | ) | ||||
| Contributions from non-controlling interests |
315 | 1,152 | ||||||
| Distributions to non-controlling interests |
(7,956 | ) | (7,988 | ) | ||||
| Member distributions |
(21,890 | ) | (23,742 | ) | ||||
| Other |
— | (159 | ) | |||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(33,810 | ) | (20,299 | ) | ||||
| Net change in cash and cash equivalents |
62 | 786 | ||||||
| Cash and cash equivalents, beginning of year |
607 | 752 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of year |
$ | 669 | $ | 1,538 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of cash flow information |
||||||||
| Cash paid during the year for interest |
$ | 1,344 | $ | 1,844 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of non-cash investing and financing activities |
||||||||
| Purchases of property and equipment through finance leases |
$ | 3,632 | $ | 1,545 | ||||
|
|
|
|
|
|||||
| Non-cash equity contributions from non-controlling members |
$ | 225 | $ | 4,989 | ||||
|
|
|
|
|
|||||
See accompanying notes to unaudited interim Consolidated Financial Statements.
F-34
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(In Thousands)
| 1. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited interim Consolidated Financial Statements include the accounts of Guardian Pharmacy, LLC and all controlled subsidiaries (collectively, the “Company”). All intercompany transactions and accounts have been eliminated. Results of operations of the Company’s controlled subsidiaries have been included from the date of acquisition.
The accompanying unaudited interim Consolidated Financial Statements are prepared in conformity with the generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial reporting. Accordingly, these unaudited interim Consolidated Financial Statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. Certain footnote disclosures have been omitted that would substantially duplicate the disclosures in the Company’s audited Consolidated Financial Statements and accompanying notes as of and for the year ended December 31, 2023, unless information contained in those disclosures materially changed or is required by U.S. GAAP to be included in interim financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, necessary for a fair presentation of the unaudited interim Consolidated Financial Statements as of and for the three and six months ended June 30, 2023 and 2024 have been recorded. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024, or any other period. These interim financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying notes as of and for the year ended December 31, 2023.
F-35
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(In Thousands)
New Accounting Pronouncements
The following table provides a description of recent accounting pronouncements that are applicable to the Company’s unaudited interim Consolidated Financial Statements:
|
New Accounting Standard Adopted | ||||||
| ASU Number and Name |
Description |
Date of Adoption |
Effect on the unaudited interim Consolidated Financial Statements upon adoption | |||
| 22016-13, 2018-19, 2019-04, 2019-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments | ASU 2016-13 and its subsequent corresponding updates provide guidance for the impairment model for financial assets measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. | January 1, 2023 | The Company adopted the standard on January 1, 2023 with no material impact on its Consolidated Financial Statements. | |||
| New Accounting Standard Not Yet Effective | ||||||
| ASU Number and Name |
Description |
Anticipated Date of Adoption |
Effect on the unaudited interim Consolidated Financial Statements upon adoption | |||
| 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | ASU 2023-07 requires companies to disclose significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and are included within each reported measure of segment operating results. The standard also requires companies to disclose the total amount of any other items included in segment operating results which were not deemed to be significant expenses for | January 1, 2024 for annual disclosures. January 1, 2025 for interim disclosures. | The Company is currently evaluating the impact of adopting the standard on its Consolidated Financial Statements. The adoption is not expected to have a material impact on the Consolidated Financial Statements. | |||
F-36
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(In Thousands)
| ASU Number and Name |
Description |
Anticipated Date of Adoption |
Effect on the unaudited interim Consolidated Financial Statements upon adoption | |||
| separate disclosure, along with a qualitative description of the composition of these other items. In addition, the standard also requires disclosure of the CODM’s title and position, as well as detail on how the CODM uses the reported measure of segment operating results to evaluate segment performance and allocate resources. The standard also aligns interim segment reporting disclosure requirements with annual segment reporting disclosure requirements. The standard requires retrospective application to all prior periods presented. |
| 2. | Acquisitions |
The Company’s business model involves periodically acquiring institutional pharmacies servicing long-term care facilities and their residents as well as residents in other care settings. The Company’s strategy includes the acquisition of freestanding institutional pharmacy businesses as well as other assets, generally less significant in size, which are combined with existing pharmacy operations to augment internal growth.
During the three months ended June 30, 2024, the Company completed four acquisitions (the “Acquisitions”).
Total consideration for the Acquisitions included cash of $10,243 and contingent earnout payments of up to $1,950 if certain revenue and earnings targets are achieved by certain acquired entities during the one-year period subsequent to the acquisition dates. The fair value of the contingent consideration arrangement at the acquisition dates and at June 30, 2024 was $1,950 (see the Fair Value Measurements Note 4 for more information). The total preliminary purchase consideration for the Acquisitions was $12,193.
The Acquisitions included non-controlling interests, for which the fair value was estimated to be $4,989. The fair value of the non-controlling interests was estimated by utilizing the implied fair value of the non-controlling interests, determined based on the acquisition price, and considering discounts necessary due to the lack of marketability and lack of control associated with the non-controlling interest. During 2024, we incurred an immaterial amount of acquisition costs in connection with the Acquisitions.
F-37
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(In Thousands)
The Acquisitions were treated as a purchase in accordance with ASC 805, Business Combinations, which requires recognition of the estimated fair values of assets acquired and liabilities assumed in a transaction. Our recognition of the assets acquired and liabilities assumed was based on management’s judgement after evaluating several factors, including a preliminary valuation assessment. This recognition is preliminary and subject to changes, which could be material, as additional information becomes available and the valuation of assets and liabilities is finalized.
The preliminary recognition of the assets acquired and liabilities assumed for the Acquisitions as of June 30, 2024 is as follows:
| (in thousands) | Fair Value | |||
| Total preliminary purchase consideration |
$ | 12,193 | ||
| Net assets acquired: |
||||
| Inventory |
1,539 | |||
| Other assets |
1,860 | |||
| Intangible Assets |
4,650 | |||
| Other liabilities |
(1,258 | ) | ||
| Non-controlling interest equity |
(4,989 | ) | ||
|
|
|
|||
| Net assets acquired |
1,802 | |||
|
|
|
|||
| Goodwill |
$ | 10,391 | ||
|
|
|
|||
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable net assets acquired in the Acquisitions. Goodwill represents future economic benefits expected to arise from the Company’s expanded presence in the long-term care pharmacy industry, the assembled workforce acquired, expected revenue synergies, as well as operating efficiencies and cost savings.
Intangible assets are comprised of customer lists and trademarks. The fair values and the weighted average useful lives for the customer lists and trademarks were $4,100 and $550, and 10 years and 5 years, respectively.
Consolidated Results of Operations
The results of operations for the Acquisitions have been included in the consolidated financial statements since the date of acquisition. During both the three and six months ended June 30, 2024, the Company’s consolidated statements of income include $15,871 of revenue associated with the Acquisitions. Net income associated with the Acquisitions is not material to the consolidated financial statements.
The comparable prior period results of operations associated with the Acquisitions are not material to the consolidated financial statements, and as such, supplemental pro forma financial information is not presented.
F-38
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(In Thousands)
| 3. | Debt Arrangements |
Line of credit
On May 13, 2024, the Company entered into the Sixth Amendment to Third Amended and Restated Loan and Security Agreement (the “Amendment”) to the existing credit facility (“Credit Facility”). The amendment extended the line of credit termination date from April 23, 2025 to April 23, 2027. The line of credit now bears an interest rate equal to the one-month Secured Overnight Financing Rate (“SOFR”) plus an additional rate of 1.80% to 2.80% based on certain financial ratios maintained by the Company.
Notes Payable
Long-term debt consists of the following:
| (in thousands) | December 31, 2023 | June 30, 2024 | ||||||
| Term loan |
$ | 23,000 | $ | 35,625 | ||||
| Deferred financing costs, net |
(31 | ) | (170 | ) | ||||
|
|
|
|
|
|||||
| Total notes payable |
22,969 | 35,455 | ||||||
| Less current portion |
(3,977 | ) | (5,428 | ) | ||||
|
|
|
|
|
|||||
| Notes payable, net of current portion |
$ | 18,992 | $ | 30,027 | ||||
|
|
|
|
|
|||||
Additionally, the Amendment added a new term loan of $15,000 to the Credit Facility and extended the maturity date of the existing and new term loan (collectively referred to as the “Term Loan”) to April 23, 2027. The interest rate of the Term Loan now bears an interest rate equal to the one-month SOFR plus an additional rate of 1.80% to 2.80% based on certain financial ratios maintained by the Company. The Term Loan is payable in quarterly installments of $1,375 through March 31, 2027, with the remaining balance of the term loan due in a final lump sum payment at maturity on April 23, 2027.
As of June 30, 2024, future payment obligations for long-term debt are as follows for the years ending December 31:
| (in thousands) | ||||
| 2024 |
$ | 2,750 | ||
| 2025 |
5,500 | |||
| 2026 |
5,500 | |||
| 2027 |
21,875 | |||
|
|
|
|||
| Total |
$ | 35,625 | ||
|
|
|
|||
The Company was in compliance with all debt covenants at June 30, 2024.
F-39
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(In Thousands)
| 4. | Fair Value Measurements |
The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:
| • | Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
| • | Level 2—Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument. |
| • | Level 3—Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs that market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk. |
Financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, line of credit, and notes payable. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short maturity of these instruments. The Company estimates that the carrying amount of the line of credit and notes payable approximate fair value due to the fluctuation of their variable interest rates with market movement.
The following table summarizes the valuation of liabilities measured at fair value on a recurring basis on the Company’s Consolidated Balance Sheets:
| Level 1 | Level 2 | Level 3 | ||||||||||
| June 30, 2024 |
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| Liabilities: |
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| Contingent consideration payable |
$ | — | $ | — | $ | 1,950 | ||||||
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| Fair value of financial instruments |
$ | — | $ | — | $ | 1,950 | ||||||
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The fair value measurement of the contingent consideration obligations arising from acquisitions is based upon Level 3 inputs including, in part, the estimate of future cash flows based upon the likelihood of achieving the various criteria triggering the payment of the obligations. Changes in the fair value of the contingent consideration obligations are recorded within Selling, general and administrative expenses.
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Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(In Thousands)
The following table provides a reconciliation of the activity for the Level 3 contingent consideration fair value measurements during the six-month period ended June 30, 2024:
| Balance at December 31, 2023 |
$ | — | ||
| Current year acquisitions |
1,950 | |||
| Fair value adjustments |
— | |||
| Payments |
— | |||
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| Balance at June 30, 2024 |
$ | 1,950 | ||
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| 5. | Commitments and Contingencies |
The Company is subject to legal proceedings and claims that arise in the ordinary course of business. The Company may have exposure to loss contingencies arising from pending or threatened litigation for which assessing and estimating the outcomes of these matters involve substantial uncertainties. The Company evaluates contingencies on an ongoing basis and establishes loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated.
Legal expenses include attorneys’ fees, litigation expenses and settlements. For the six months ended June 30, 2023 and June 30, 2024, the Company recorded legal expenses totaling $1,143 and $4,058, respectively.
| 6. | Share-based Compensation |
Share-based compensation expense (income) relates to awards in the form of Restricted Interest Units. These cash-settled awards are recorded as liabilities until payout is made or the award is forfeited. These units vest in their entirety on the third anniversary of their grant date. Vesting is subject to continued service. Compensation costs are recognized ratably over the vesting period based upon the value of the awards as of period end.
The value of these awards is remeasured and reported as Share-based compensation liability on the accompanying Consolidated Balance Sheets at the end of each reporting period based on the change in calculated value of the shares pursuant to the prescribed calculation contained in the Restricted Interest Purchase Agreements. The primary inputs used to value the awards are the volume and accumulated vesting status of the issued awards, the historical adjusted earnings of the Company (inclusive of share-based compensation expense (income), outstanding capital and debt obligations of the Company as of the measurement date). The liability and corresponding expense are adjusted accordingly until the awards are settled. Vested Restricted Interest Units are typically repurchased by the Company upon termination of employment at the calculated value.
The Company recorded $15,210 and $20,864 of share-based compensation liability within Other liabilities on its Consolidated Balance Sheets as of December 31, 2023 and June 30, 2024, respectively.
| 7. | Subsequent Events |
The Company has evaluated the need for disclosures and/or adjustments to the accompanying. Consolidated Financial Statements resulting from subsequent events through August 2, 2024, the date the accompanying Consolidated Interim Financial Statements were available to be issued.
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Table of Contents
6,750,000 Shares
Class A Common Stock
P R O S P E C T U S
, 2024
Raymond James
Stephens Inc. Truist Securities
Until , 2024 (25 days after the date of this prospectus), all dealers that buy, sell or trade our shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth our costs and expenses, other than the underwriting discount, incurred and expected in connection with the sale of Class A common stock being registered hereby. All amounts shown are estimates except the SEC registration fee, the FINRA filing fee and the NYSE listing fee.
| Amount |
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| SEC registration fee |
$ | 18,331 | ||
| FINRA filing fee |
15,500 | |||
| Initial NYSE listing fee |
300,000 | |||
| Printing expenses |
750,000 | |||
| Legal fees and expenses |
6,340,000 | |||
| Accounting fees and expenses |
2,040,000 | |||
| Transfer Agent fees |
15,000 | |||
| Miscellaneous fees and expenses |
2,820,000 | |||
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| Total |
$ | 12,298,831 | ||
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Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the “DGCL”) provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by any such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent to the registrant. The DGCL provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Our bylaws that will be effective upon the completion of this offering provide for indemnification by the registrant of its directors and officers to the fullest extent permitted by the DGCL.
Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director or officer of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty, except for liability of (i) a director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) a director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) a director for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions; (iv) a director or officer for any transaction from which the director or officer derived an improper personal benefit; or (v) an officer in any action by or in the right of the corporation. Our certificate of incorporation that will be effective upon the completion of this offering provides for such limitation of liability.
We maintain standard policies of insurance under which coverage is provided (a) to our directors and officers against loss arising from claims made by reason of breach of duty or other wrongful act, and (b) to us with respect to payments we may make to our officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.
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In any underwriting agreement we enter into in connection with the sale of Class A common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
Upon the formation of Guardian Pharmacy Services, Inc., a Delaware corporation (the “Registrant”) on November 16, 2021, the Registrant issued 100 shares of common stock, par value $0.01 per share, to Guardian Pharmacy, LLC, an Indiana limited liability company (“Guardian Pharmacy, LLC”), for $0.01 per share in cash.
Immediately prior to the completion of the offering (the “offering”) contemplated by this registration statement, we will complete a series of internal reorganization transactions pursuant to which, among other things, Guardian Merger Corp., an Indiana corporation and wholly owned subsidiary of the Registrant, will merge with and into Guardian Pharmacy, LLC, with Guardian Pharmacy, LLC as the surviving entity. As a result of the merger, Guardian Pharmacy, LLC will become a wholly owned subsidiary of the Registrant, and the members of Guardian Pharmacy, LLC immediately prior to the consummation of the offering will become holders of shares of Class B common stock, par value $0.001 per share of the Registrant, all as further described under “Corporate Reorganization” in the prospectus forming a part of this registration statement.
All of the foregoing issuances were, or will be, made under an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, and no underwriters were, or will be, involved in these issuances.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
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| ** | Previously filed. |
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| # | Certain schedules and exhibits have been omitted pursuant to Rule 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the SEC upon request. |
| + | Management contract or compensatory plan. |
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Atlanta, State of Georgia on September 16, 2024.
| Guardian Pharmacy Services, Inc. | ||
| By: |
/s/ Fred P. Burke | |
| Fred P. Burke | ||
| President and Chief Executive Officer | ||
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| Signature |
Title |
Date | ||
| /s/ Fred P. Burke Fred P. Burke |
President and Chief Executive Officer and Director (Principal Executive Officer) |
September 16, 2024 | ||
| /s/ David Morris David Morris |
Chief Financial Officer and Director (Principal Financial and Accounting Officer) |
September 16, 2024 | ||
II-5
Exhibit 1.1
GUARDIAN PHARMACY SERVICES, INC.
(a Delaware corporation)
[•] Shares of Class A Common Stock, $0.001 par value
UNDERWRITING AGREEMENT
Dated: [•], 2024
GUARDIAN PHARMACY SERVICES, INC.
(a Delaware corporation)
[•] Shares of Class A Common Stock
UNDERWRITING AGREEMENT
[•], 2024
RAYMOND JAMES & ASSOCIATES, INC.
As representative of the several underwriters
listed on Schedule A hereto
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
Guardian Pharmacy, LLC, an Indiana limited liability company (“Guardian”) and Guardian Pharmacy Services, Inc., a Delaware corporation (“GPSI” and, upon the completion of the Corporate Reorganization as described below, the “Company”), each confirms its agreement with Raymond James & Associates, Inc. (“Raymond James”) and each of the other Underwriters named in Schedule A hereto (collectively, the “Underwriters,” which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Raymond James is acting as representative (in such capacity, the “Representative”), with respect to (i) the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Class A Common Stock, par value $0.001 per share, of the Company (“Common Stock”) set forth in Schedule A hereto and (ii) the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of [•] additional shares of Common Stock. The aforesaid [•] shares of Common Stock (the “Initial Securities”) to be purchased by the Underwriters and all or any part of the [•] shares of Common Stock subject to the option described in Section 2(b) hereof (the “Option Securities”) are herein called, collectively, the “Securities.”
The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representative deems advisable after this underwriting agreement (this “Agreement”) has been executed and delivered.
After entering into this Agreement, and prior to the Closing Time (as subsequently defined), the Company will complete a series of transactions (the “Transactions,” and sometimes referred to herein as the “Corporate Reorganization”), as described under the heading “Corporate Reorganization” in the Registration Statement, the General Disclosure Package and the Prospectus (as such terms are herein defined), under which, among other things, (i) Guardian and each of its Subsidiaries (as subsequently defined) will amend and restate their respective operating agreements (the “Amended and Restated Operating Agreements”), (ii) the Preferred Units of Guardian and all of the units of each of its Subsidiaries, with the exception of the Subsidiaries listed on Annex 1 hereto (collectively, the “Non-Converting Subsidiaries”), will automatically convert into Common Units of Guardian, resulting in
Guardian having only Common Units outstanding, (ii) Guardian Merger Corp., an Indiana corporation and wholly owned subsidiary of GPSI (“Merger Sub”), will merge with and into Guardian, with Guardian surviving the merger as a wholly owned subsidiary of GPSI; and, pursuant to the merger, each then-outstanding Common Unit of Guardian will be converted into (x) one share of Class B common stock, par value $0.001 per share of GPSI (“Class B common stock”) and (y) the right to receive $1.02 in cash, without interest (collectively, the “Merger Consideration”).
GPSI has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1 (No. 333-274847), including the related preliminary prospectus or prospectuses, covering the registration of the sale of the Securities under the Securities Act of 1933, as amended (the “1933 Act”), and such registration statement was originally filed with the Commission publicly at least 15 calendar days prior to any “road show” (as defined in Rule 433 under the 1933 Act). Promptly after execution and delivery of this Agreement, the Company will prepare and file a prospectus in accordance with the provisions of Rule 430A (“Rule 430A”) of the rules and regulations of the Commission under the 1933 Act (the “1933 Act Regulations”) and Rule 424(b) (“Rule 424(b)”) of the 1933 Act Regulations. The information included in such prospectus that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective pursuant to Rule 430A(b) is herein called the “Rule 430A Information.” Such registration statement, including the amendments thereto, the exhibits thereto and any schedules thereto, at the time it became effective, and including the Rule 430A Information, is herein called the “Registration Statement.” Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein called the “Rule 462(b) Registration Statement” and, after such filing, the term “Registration Statement” shall include the Rule 462(b) Registration Statement. Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “preliminary prospectus.” The final prospectus, in the form first furnished to the Underwriters for use in connection with the offering of the Securities, is herein called the “Prospectus.” For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system or any successor system (“EDGAR”).
Raymond James has agreed to reserve a portion of the Initial Securities to be purchased by it under this Agreement, up to [•] Initial Securities, for sale to the Company’s directors, officers and certain of the Company’s employees and other persons associated with the Company (collectively, “Participants”), as set forth in the preliminary prospectus and the Prospectus under the heading “Underwriting—Directed Share Program” (the “Directed Share Program”). The Initial Securities to be sold by Raymond James and its Affiliates (as defined below) pursuant to the Directed Share Program, at the direction of the Company, are referred to hereinafter as the “Directed Shares.” Any Directed Shares not confirmed verbally or electronically by designated means for purchase by any Participant by [•] [__:00 A.M.], New York city time, on [the business day following] the date on which this Agreement is executed will be offered by the Underwriters to the general public on the same basis as the other Securities offered by the preliminary prospectus.
As used in this Agreement:
“Applicable Time” means [__:00 P./A.M.], New York City time, on [INSERT DATE], 2024 or such other time as agreed by the Company and the Representative.
“General Disclosure Package” means any Issuer General Use Free Writing Prospectuses issued at or prior to the Applicable Time, the most recent preliminary prospectus that is distributed to investors prior to the Applicable Time and the information included on Schedule B-1 hereto, all considered together.
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“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the 1933 Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the 1933 Act Regulations (“Rule 405”)) relating to the Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show for an offering that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Securities or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule B-2 hereto.
“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) or Rule 163B of the 1933 Act.
“Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the 1933 Act.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents and warrants to each Underwriter as of the date hereof, the Applicable Time, the Closing Time and any Date of Delivery (as defined below), and agrees with each Underwriter, as follows:
(i) Registration Statement and Prospectuses. Each of the Registration Statement and any post-effective amendment thereto has been declared effective by the Commission under the 1933 Act. No stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued by the Commission under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated. The Company has complied with each request (if any) from the Commission for additional information.
Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, the Applicable Time, the Closing Time and any Date of Delivery complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus, the Prospectus and any amendment or supplement thereto, at the time each was filed with the Commission, and, in each case, at the Applicable Time, the Closing Time and any Date of Delivery complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus delivered to the Underwriters for use in connection with this offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
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(ii) Accurate Disclosure. Neither the Registration Statement nor any post-effective amendment thereto, when considered together with the Registration Statement, at its effective time, on the date hereof, at the Closing Time or at any Date of Delivery, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. At the Applicable Time and any Date of Delivery, none of (A) the General Disclosure Package, (B) any individual Issuer Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package and (C) any individual Written Testing-the-Waters Communication, when considered together with the General Disclosure Package, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Neither the Prospectus nor any amendment or supplement thereto, as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Time or at any Date of Delivery, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement (or any amendment thereto), the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through Raymond James expressly for use therein. For purposes of this Agreement, the only information so furnished shall be the information set forth in the fourth paragraph under the heading “Underwriting” relating to concessions, and the information under the heading “Underwriting–Stabilization, Short Positions Penalty Bid”, in each case contained in the Prospectus (collectively, the “Underwriter Information”).
(iii) Issuer Free Writing Prospectuses. Each Issuer Free Writing Prospectus listed on Schedule B-2 hereto complies or will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations on the date of first use, and the Company has complied with all prospectus delivery and any filing requirements applicable to such Issuer Free Writing Prospectus pursuant to the 1933 Act and the 1933 Act Regulations. The Company has not made any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus without the prior written consent of the Representative. The Company has retained in accordance with the 1933 Act and the 1933 Act Regulations all Issuer Free Writing Prospectuses that were not required to be filed pursuant to the 1933 Act and the 1933 Act Regulations. The Company has taken all actions necessary so that any “road show” (as defined in Rule 433 under the 1933 Act) in connection with the offering of the Securities will not be required to be filed pursuant to the 1933 Act and the rules and regulations thereunder.
Other than the Registration Statement, the General Disclosure Package, each Preliminary Prospectus and any Prospectus, the Company (including its agents and representatives, other than the Underwriters, as to which no representation or warranty is given) has not, directly or indirectly, distributed, prepared, used, authorized, approved or referred to any offering material in connection with the offering of the Securities.
(iv) Testing-the-Waters Materials. The Company (A) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representative with entities that are qualified institutional buyers within the meaning of Rule 144A under the 1933 Act or institutions that are accredited investors within the meaning of Rule 501 under the 1933 Act and (B) has not authorized anyone other than the Representative to engage in Testing-the-Waters Communications. The Company reconfirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule E hereto.
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(v) Company Not Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
(vi) Emerging Growth Company Status. From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any individual or entity (“Person”) authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the 1933 Act (an “Emerging Growth Company”).
(vii) Independent Accountants. Ernst & Young LLP, the accountants who certified the financial statements and supporting schedules (if any) included in the Registration Statement, the General Disclosure Package and the Prospectus, are independent public accountants as required by the 1933 Act, the 1933 Act Regulations, the Securities Exchange Act of 1934, as amended (the “1934 Act”), the regulations promulgated under the 1934 Act (the “1934 Act Regulations”) and the Public Company Accounting Oversight Board.
(viii) Financial Statements; Non-GAAP Financial Measures. The financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus, together with the related schedules (if any) and notes, present fairly in all material respects the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders’ equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved. The supporting schedules, if any, present fairly in all material respects, in accordance with GAAP, the information required to be stated therein. The summary historical financial information included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly in all material respects the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included therein. Except as included therein, no historical or pro forma financial statements or supporting schedules are required to be included or incorporated by reference in the Registration Statement, the General Disclosure Package or the Prospectus under the 1933 Act or the 1933 Act Regulations. All disclosures contained in the Registration Statement, the General Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply in all material respects with Regulation G of the 1934 Act and Item 10(e) of Regulation S-K of the 1933 Act, to the extent applicable. Following the completion of the Corporate Reorganization, the Non-Converting Subsidiaries will be included in the consolidated financial statements of the Company on a consolidated basis.
(ix) No Material Adverse Change in Business. Except as otherwise stated therein, since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings or business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a “Material Adverse Effect”), (B) there have been no transactions entered into by the Company or any of its Subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its Subsidiaries considered as one enterprise, and (C) except for the Merger Consideration, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.
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(x) Good Standing of Guardian and GPSI. Guardian has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Indiana and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement and to enter into and complete the Transactions; and Guardian is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not reasonably be expected to result in a Material Adverse Effect. The Corporate Reorganization has been duly authorized by Guardian. At the Closing Time and each Date of Delivery, GPSI (a) will be duly organized and validly existing as a corporation in good standing under the laws of the State of Delaware, and (b) will have the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement and to enter into and complete the Transactions, and (c) will be duly qualified as a foreign corporation to transact business and be in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not reasonably be expected to result in a Material Adverse Effect.
(xi) Good Standing of Subsidiaries. Each subsidiary of the Company (each, a “Subsidiary” and, collectively, the “Subsidiaries”), which includes the Merger Sub, has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its incorporation or organization, has corporate or similar power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not reasonably be expected to result in a Material Adverse Effect. A list identifying each of the Subsidiaries and their respective jurisdiction of incorporation or organization is attached hereto as Schedule C. All of the issued and outstanding equity interests of each Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable, and at the Closing Time will be wholly-owned by GPSI, directly or through wholly-owned Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, or claim, except with respect to the Non-Converting Subsidiaries for which GPSI will own at least 70% of each of the Non-Converting Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, or claim. None of the outstanding shares of capital stock of any Subsidiary were issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary.
(xii) Capitalization. The authorized, issued and outstanding capital stock of GPSI as of June 30, 2024 are as set forth in the Registration Statement, the General Disclosure Package and the Prospectus in the column entitled “Actual” under the caption “Capitalization” and, at the time of the purchase of the Initial Securities by the Underwriters at the Closing Time, the authorized, issued and outstanding capital stock of the Company will be as set forth in the column entitled “Pro forma and as-adjusted” (except for subsequent issuances, if any, pursuant to reservations, agreements or employee benefit plans referred to in the Registration Statement, the General Disclosure Package and the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Registration Statement, the General Disclosure Package and the Prospectus). The capital stock of the Company (including the Securities) conforms in all material respects to the description thereof contained in the section titled “Description of Capital Stock” in the Registration Statement, the General Disclosure Package and the Prospectus. The outstanding shares of
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capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and at the Closing Time and on each Date of Delivery all of the outstanding shares of capital stock of GPSI shall have been duly authorized and validly issued and be fully paid and non-assessable. None of the outstanding shares of capital stock of the Company were, and none of the outstanding shares of capital stock of GPSI as of the Closing Time and at each Date of Delivery shall be, issued in violation of the preemptive or other similar rights of any securityholder of the Company.
(xiii) Authorization of Agreement. Each of Guardian and GPSI has all requisite power and authority to enter into this Agreement and to offer, issue, sell and deliver the Securities to be sold by the Company to the Underwriters as provided herein. This Agreement has been duly and validly authorized, executed and delivered by the Company, and assuming that this Agreement is a valid and binding obligation of Raymond James and the other Underwriters party hereto, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent enforceability may be limited by (i) the application of bankruptcy, reorganization, insolvency and other laws affecting creditors’ rights generally and (ii) equitable principles being applied at the discretion of a court before which any proceeding may be brought, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws.
(xiv) Authorization of Transactions. The Transactions have been duly authorized by all necessary action of the board of directors and the stockholders or unitholders of the Company and the Subsidiaries, as applicable, and all corporate action necessary to effect the Transactions has been taken and completed. The Amended and Restated Operating Agreements, the Agreement and Plan of Merger, the Amended and Restated Certificate of Incorporation of GPSI, the Amended and Restated Bylaws of GPSI, the Stockholders’ Agreement being entered into by certain stockholders and members of the Company’s management and their affiliates and described in the Registration Statement, General Disclosure Package and Prospectus (the “Stockholders’ Agreement”) (collectively, the “Transaction Documents”) have been approved by all necessary corporate, board, unitholder or stockholder action, as applicable, do not require any governmental or third-party approval and at the Closing Time will be in full force and effect. Each of the Transaction Documents has been duly authorized, executed and delivered by each of the parties thereto and constitutes a valid and legally binding agreement of each of the parties thereto, enforceable against each of the parties thereto in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally or by equitable principles relating to enforceability. The holders of Class B common stock of the Company at the Closing Time will be subject to and legally bound by the provisions in the Company’s Amended and Restated Certificate of Incorporation relating to the Class B common stock of the Company, and the restrictions set forth therein. Each of the Transaction Documents conforms in all material respects to the descriptions thereof contained in the Registration Statement, the General Disclosure Package and the Prospectus.
(xv) Authorization and Description of Securities. The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. The Common Stock conforms to all statements relating thereto contained in the Registration Statement, the General Disclosure Package and the Prospectus and such description conforms in all material respects to the rights set forth in the instruments defining the same. No holder of Securities will be subject to personal liability by reason of being such a holder.
(xvi) Subsidiary Distributions. No Subsidiary is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock or similar ownership interest, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s properties or assets to the Company or any other Subsidiary, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus.
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(xvii) NYSE Listing. The Securities have been approved for listing on the New York Stock Exchange (the “NYSE”) under the symbol “GRDN”, subject to official notice of issuance of the Securities being sold by the Company.
(xviii) Absence of Violations, Defaults and Conflicts. Neither the Company nor any of its Subsidiaries is (A) in violation of its charter, bylaws or similar organizational document, (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound or to which any of the properties or assets of the Company or any Subsidiary is subject (collectively, “Agreements and Instruments”), except for such defaults that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Neither the Company nor the applicable Subsidiary has received notice that any other party is in breach of or default to the Company under any of such Agreements and Instruments, or (C) in violation of any law, statute, rule, regulation, judgment, order, writ or decree of any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency having jurisdiction over the Company or any of its Subsidiaries or any of their respective properties, assets or operations (each, a “Governmental Entity”), except for such violations that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The execution, delivery and performance of this Agreement and the Transaction Documents and the consummation of the transactions contemplated herein and therein, and the consummation of the transactions contemplated in the Registration Statement, the General Disclosure Package and the Prospectus (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described therein under the caption “Use of Proceeds”) and compliance by the Company with its respective obligations hereunder and thereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any Subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect), nor will any such action result in any violation of (i) the provisions of the charter, bylaws or similar organizational document of the Company, or any of its Subsidiaries or (ii) any law, statute, rule, regulation, judgment, order, writ or decree of any Governmental Entity (except with respect to clause (ii) for such violations that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect). As used herein, a “Repayment Event” means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its Subsidiaries.
(xix) Absence of Labor Dispute. No labor disturbance by or dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is threatened or imminent, the Company is not aware that any key employee or significant group of employees of the Company or any of its Subsidiaries plans to terminate employment with the Company or any of its Subsidiaries, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any Subsidiary’s principal suppliers, customers or contractors, which, with respect to each of the foregoing, would reasonably be expected to result in a Material Adverse Effect.
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(xx) Absence of Proceedings. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, there is no action, suit, proceeding, inquiry or investigation before or brought by any Governmental Entity now pending or, to the knowledge of the Company, threatened, against the Company or any of its Subsidiaries or to which any property of the Company or any of its Subsidiaries is subject that, individually or in the aggregate, if determined adversely to the Company or its Subsidiaries, would reasonably be expected to result in a Material Adverse Effect, or which would reasonably be expected to materially and adversely affect their respective properties or assets or the consummation of the transactions contemplated in this Agreement or the Transaction Documents or the performance by the Company of its obligations hereunder or thereunder; and the aggregate of all pending legal or governmental proceedings to which the Company or any such Subsidiary is a party or of which any of their respective properties or assets is the subject which are not described in the Registration Statement, the General Disclosure Package and the Prospectus, including ordinary routine litigation incidental to the business, would not reasonably be expected to result in a Material Adverse Effect.
(xxi) Underwriting Relationship. Except as disclosed in the Registration Statement, the General Disclosure Package, each Preliminary Prospectus and any Prospectus, neither the Company nor any of its Subsidiaries are a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against any of them or any Underwriter for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Securities.
(xxii) Accuracy of Exhibits. There are no contracts or documents that are required to be described in the Registration Statement, the General Disclosure Package or the Prospectus or to be filed as exhibits to the Registration Statement that have not been so described and filed as required.
(xxiii) No Violation of Regulation T, U or X. Neither the issuance, sale and delivery of Securities nor the application of the proceeds thereof by the Company, in each case, as described in the Registration Statement, the General Disclosure Package and the Prospectus, violates Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.
(xxiv) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree (collectively, “Consents”) of, any Governmental Entity is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, the Transaction Documents, the Registration Statement, the General Disclosure Package and the Prospectus, except such as have been already obtained or as may be required under the 1933 Act, the 1933 Act Regulations, the rules of the NYSE, state securities laws or the rules of the Financial Industry Regulatory Authority (“FINRA”), or where the failure to obtain such Consents would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect.
(xxv) Lock-Up Agreements. The Company has procured Lock-Up Agreements duly executed by each officer, director and equityholder of the Company set forth on Schedule D hereto, and all stockholders of the Company receiving shares of Class B common stock of the Company in the Corporate Reorganization will be subject to the transfer restrictions thereon contained in the Amended and Restated Certificate of Incorporation of the Company that will be effective upon the completion of the Corporate Reorganization.
(xxvi) Possession of Licenses and Permits. The Company and its Subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, “Governmental Licenses”) issued by the appropriate Governmental Entities necessary to conduct the business now operated by them, except where the failure so to possess would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The Company and its Subsidiaries are in compliance with the terms and
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conditions of all Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. All of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not, singly or in the aggregate, to result in a Material Adverse Effect. Neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect.
(xxvii) Title to Property. The Company does not own any real property. The Company and each Subsidiary has good and marketable title to all personal property owned by it, in each case free and clear of all liens, security interests, claims, encumbrances and defects except such as are described in the Registration Statement, the General Disclosure Package, and the Prospectus or such as do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries; and all of the leases and subleases material to the business of the Company and its Subsidiaries considered as one enterprise (collectively, the “Leases”), and under which the Company or any of its Subsidiaries holds properties described in the Registration Statement, the General Disclosure Package or the Prospectus, are in full force and effect, except where the failure of such Leases to be in full force and effect would not, in the aggregate, reasonably be expected to result in a Material Adverse Effect, and neither the Company nor any such Subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the Leases, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any Lease.
(xxviii) Possession of Intellectual Property. The Company and its Subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, “Intellectual Property”) necessary to carry on the business now operated by them, except as would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect, and neither the Company nor any of its Subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would reasonably be expected to result in a Material Adverse Effect.
(xxix) Environmental Laws. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus or would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect, (A) neither the Company nor any of its Subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any binding judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, hazardous wastes, toxic substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or mold (collectively, “Hazardous Materials”) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, “Environmental Laws”), (B) the Company and its Subsidiaries have all permits, authorizations and approvals required under any applicable Environmental
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Laws and are each in compliance with their requirements, (C) there are no pending or, to the knowledge of the Company, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings relating to any Environmental Law against the Company or any of its Subsidiaries and (D) to the knowledge of the Company, there are no events or circumstances that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or Governmental Entity, against or affecting the Company or any of its Subsidiaries relating to Hazardous Materials or any Environmental Laws.
(xxx) Accounting Controls. The Company and each of its Subsidiaries maintains a system of effective internal control over financial reporting (as defined under Rule 13a-15 and 15d-15 under the 1934 Act Regulations) and a system of internal accounting controls sufficient to provide reasonable assurances that: (A) transactions are executed in accordance with management’s general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, since the end of the Company’s most recent audited fiscal year, there has been (1) no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (2) no change in the Company’s internal control over financial reporting that has materially and adversely affected, or is reasonably likely to materially and adversely affect, the Company’s internal control over financial reporting.
(xxxi) Compliance with the Sarbanes-Oxley Act. The Company has taken all necessary actions to ensure that, upon the effectiveness of the Registration Statement, it will be in compliance in all material respects with all provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof (the “Sarbanes-Oxley Act”) that are then in effect and with which the Company is required to comply as of the effectiveness of the Registration Statement, and is actively taking steps to ensure that it will be in compliance with other provisions of the Sarbanes-Oxley Act not currently in effect, upon the effectiveness of such provisions, or which will become applicable to the Company at all times after the effectiveness of the Registration Statement.
(xxxii) Payment of Taxes. All United States federal income tax returns of the Company and its Subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except assessments against which appeals have been or will be promptly taken and as to which adequate reserves in accordance with GAAP have been provided. The United States federal income tax returns of the Company through the fiscal year ended December 31, 2023 have been settled and no assessment in connection therewith has been made against the Company. The Company and its Subsidiaries have filed all other tax returns that are required to have been filed by them pursuant to applicable foreign, state, local or other law except insofar as the failure to file such returns would not reasonably be expected to result in a Material Adverse Effect, and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company and its Subsidiaries, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves in accordance with GAAP have been established by the Company. The charges, accruals and reserves on the books of the Company in respect of any income and corporation tax liability for any tax years not yet closed by the applicable statute of limitations are adequate to meet any assessments or re-assessments for additional income tax for any tax years not yet closed by the applicable statute of limitations, except to the extent of any inadequacy that would not reasonably be expected to result in a Material Adverse Effect.
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(xxxiii) Insurance. The Company and its Subsidiaries carry or are entitled to the benefits of insurance, with financially sound and reputable insurers, in such amounts and covering such risks as the Company reasonably believes is adequate to conduct its business (and the business of its Subsidiaries), and all such insurance is in full force and effect, except where the failure to carry such insurance or have such insurance in full force and effect would not reasonably be expected to result in a Material Adverse Effect. The Company has no reason to believe that it or any of its Subsidiaries will not be able (A) to renew its existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not reasonably be expected to result in a Material Adverse Effect. Neither of the Company nor any of its subsidiaries has been denied any insurance coverage which it has sought or for which it has applied.
(xxxiv) Investment Company Act. The Company is not required, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Registration Statement, the General Disclosure Package and the Prospectus will not be required, to register as an “investment company” under the Investment Company Act of 1940, as amended.
(xxxv) Absence of Manipulation. Other than permissible activity pursuant to Regulation M under the Exchange Act, the Company has not taken, directly or indirectly, any action designed to, or that might reasonably be expected to cause or result in or constitute, under the 1933 Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
(xxxvi) Foreign Corrupt Practices Act. None of the Company, any of its Subsidiaries, or, to the knowledge of the Company, any director, officer, controlled affiliates or employees of the Company or its Subsidiaries or any agent, employee, affiliate or other person acting on behalf of the Company or any of its Subsidiaries is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA and the Company and, to the knowledge of the Company, the Company’s controlled affiliates have conducted their businesses in compliance with the FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.
(xxxvii) Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions where the Company and/or any of its Subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity of jurisdictions where the Company and its Subsidiaries conduct business (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any such Governmental Entity involving the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
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(xxxviii) Sanctions. Neither the Company nor any of its Subsidiaries, directors or officers, nor, to the knowledge of the Company, any agent, employee or Affiliate of the Company or any of its Subsidiaries acting on behalf of the Company or any of its Subsidiaries, is (i) currently the subject or the target of any economic, financial, or trade sanctions administered or enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the United Nations Security Council, the European Union, His Majesty’s Treasury of the United Kingdom, or any other applicable sanctions authority (collectively, “Sanctions”); (ii) located, operating, organized or resident in the so-called Donetsk People’s Republic, the so-called Luhansk People’s Republic, and the Crimea regions of Ukraine, Cuba, Iran, North Korea, and Syria, or in any other country, region or territory, that is the subject of Sanctions (a “Sanctioned Jurisdiction”); and the Company will not directly or indirectly use the proceeds of the offering and sale of the Securities hereunder, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities, business, transaction with, or investment in any person that, at the time of such funding or facilitation, is the subject or the target of Sanctions, (ii) to fund or facilitate any activities, business, transaction with, or investment in any Sanctioned Jurisdiction or (iii) in any other manner that would result in the violation of any Sanctions by any Person (including any Person participating in the offering). Since April 24, 2019, the Company and its Subsidiaries have not knowingly engaged in and are not now knowingly engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions, or with any Sanctioned Jurisdiction, in each case to the extent that would, at the time of such dealings or transactions, be prohibited for any Person (including any Person participating in the offering) required to comply with Sanctions.
(xxxix) Lending Relationship. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company (i) does not have any material lending or other relationship with any bank or lending affiliate of any Underwriter and (ii) does not intend to use any of the proceeds from the sale of the Securities to repay any outstanding debt owed to any affiliate of any Underwriter.
(xl) Statistical and Market-Related Data. Any statistical and market-related data included in the Registration Statement, the General Disclosure Package or the Prospectus are based on or derived from sources that the Company believes, after reasonable inquiry, to be reliable and accurate in all material respects and, to the extent required, the Company has obtained the written consent to the use of such data from such sources.
(xli) Cybersecurity. (A) To the Company’s knowledge, there has been no security breach or incident, unauthorized access or disclosure, or other compromise of or relating to the Company or any of its Subsidiaries’ information technology and computer systems, networks, hardware, software, data and databases (including the data and information of their respective customers, employees, suppliers, vendors and any third party data maintained, processed or stored by the Company or any or its Subsidiaries, and any such data processed or stored by third parties on behalf of the Company or any its Subsidiaries), equipment or technology (collectively, “IT Systems and Data”); (B) neither the Company nor any of its Subsidiaries have been notified of, and none of them have any knowledge of any event or condition that could result in, any security breach or incident, unauthorized access or disclosure or other compromise to their IT Systems and Data; (C) the Company and its Subsidiaries have implemented appropriate controls, policies, procedures, and technological safeguards to maintain and protect the integrity, continuous operation, redundancy and security of their IT Systems and Data reasonably consistent with industry standards and practices, or as required by applicable regulatory standards; and (D) the Company and its Subsidiaries are presently in compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except in each case with respect to Clauses (A) through (D) hereof, as would not singly or in the aggregate reasonably be expected to result in a Material Adverse Effect. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the information technology assets and
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equipment, computers, systems, networks, hardware, software, websites, applications and databases owned or controlled by the Company and its Subsidiaries are adequate for the operation of the business of the Company or its Subsidiaries as currently conducted, free and clear, to the knowledge of the Company, of all material bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants.
(xlii) Healthcare Regulations. The statements in the Registration Statement, the General Disclosure Package and the Prospectus under the captions: “Risk Factors—Risks Related to Our Business—The impact of ongoing healthcare reform efforts on our business cannot accurately be predicted, and continuing government and private efforts to lower pharmaceutical costs, including by capping the prices for certain drugs and by limiting reimbursements, may adversely impact our profitability, results of operations and financial condition”, “Risk Factors—Risks Related to Our Business—Further modifications to the Medicare Part D program may reduce revenue and impose additional costs to the industry”, “Risk Factors—Risks Related to Our Business—If we fail to comply with fraud and abuse laws, false claims provisions or other applicable laws, we may need to curtail operations, and could be subject to significant penalties”, and “Business—Government Regulation”, insofar as such statements describe the state, federal and foreign administrative healthcare laws, rules and regulations which are applicable to the Company and its Subsidiaries (the “Healthcare Laws”), are true and correct in all material respects; and to the knowledge of the Company, there are no applicable state, federal and/or administrative healthcare laws, rules and regulations which as of this date are material to the businesses of the Company taken as a whole, which are not described in the Registration Statement, the General Disclosure Package or the Prospectus. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, none of the Company or its Subsidiaries is in violation of any Healthcare Laws, except for any violation that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. To the knowledge of the Company, none of the Company or its Subsidiaries has received notice from any governmental or regulatory authority of potential or actual material non-compliance by, or liability of, such entity under any Healthcare Laws.
(xliii) On the date of this Agreement, the Applicable Time, the Closing Time and any Date of Delivery, each of the Registration Statement, the preliminary prospectus, the Prospectus and any Issuer Free Writing Prospectus complied or will comply in all material respects, and such documents and any further amendments or supplements thereto will comply in all material respects, with any applicable laws or regulations of each jurisdiction in which the preliminary prospectus, the Prospectus or any Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program.
(xliv) The Company has not offered or sold, or caused the Underwriters to offer or sell, any shares of Securities to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (a) a customer or supplier of the Company to alter the customer’s or supplier’s level or type of business with the Company or (b) a trade journalist or publication to write or publish favorable information about the Company or its products.
(b) Officer’s Certificates. Any certificate signed by any officer of the Company or any of its Subsidiaries delivered to the Representative or to counsel for the Underwriters pursuant to this Agreement shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby.
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SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule A, that number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, subject, in each case, to such adjustments among the Underwriters as Raymond James in its sole discretion shall make to eliminate any sales or purchases of fractional shares.
(b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional [•] shares of Common Stock, at the price per share set forth in Schedule A, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted may be exercised for 30 days after the date hereof and may be exercised in whole or in part at any time within that 30 day period from time to time upon written notice by the Representative to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a “Date of Delivery”) shall be determined by the Representative, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject, in each case, to such adjustments as Raymond James in its sole discretion shall make to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of certificates or security entitlements for, the Initial Securities shall be made at the offices of Mayer Brown LLP, 1221 Avenue of the Americas, New York, NY 10020, or at such other place as shall be agreed upon by the Representative and the Company, at 9:00 A.M. (New York City time) on the first (or second, if the pricing occurs after 4:30 P.M. (New York City time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representative and the Company (such time and date of payment and delivery being herein called “Closing Time”).
In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates or security entitlements for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representative and the Company, on each Date of Delivery as specified in the notice from Raymond James to the Company.
Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company against delivery to the Representative for the respective accounts of the Underwriters of certificates or security entitlements for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representative, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Raymond James, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.
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SECTION 3. Covenants of the Company. The Company covenants with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A, and will notify the Representative promptly, and confirm the notice in writing (which may be by electronic mail), (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission with respect to the Registration Statement or the Prospectus, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the 1933 Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities. The Company will effect all filings required under Rule 424(b), in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will use its commercially reasonable efforts to prevent the issuance of any stop order, prevention or suspension of the Registration Statement and, if any such order is issued, to use commercially reasonable efforts to promptly obtain the lifting thereof at the earliest possible moment.
(b) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Registration Statement, the General Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172 of the 1933 Act Regulations (“Rule 172”), would be) required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) amend or supplement the General Disclosure Package or the Prospectus in order that the General Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the General Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly (A) give the Representative notice of such event, (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the General Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or counsel for the Underwriters shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company has given the Representative notice of any filings made pursuant to the 1934 Act or 1934 Act Regulations within 48 hours prior to the Applicable Time; the Company will give the Representative notice of its intention to make any such filing from the Applicable Time to the Closing Time and will furnish the Representative with copies of any such documents a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or counsel for the Underwriters shall reasonably object.
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(c) Delivery of Registration Statements. The Company has furnished or will deliver to the Representative and counsel for the Underwriters, without charge and upon request, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Representative, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Blue Sky Qualifications. The Company will use its reasonable best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may reasonably designate and to maintain such qualifications in effect so long as required to complete the distribution of the Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
(f) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(g) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Registration Statement, the General Disclosure Package and the Prospectus under “Use of Proceeds.”
(h) Listing. The Company will use its best efforts to effect and maintain the listing of the Common Stock (including the Securities) on the NYSE.
(i) Restriction on Sale of Securities and Certain Amendments. During a period of one hundred eighty (180) days from the date of the Prospectus, the Company will not, without the prior written consent of the Representative, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file or confidentially submit any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the
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Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) the issuance of shares of Common Stock or Class B common stock pursuant to the Corporate Reorganization, (C) the issuance by the Company of stock options, restricted stock, restricted stock units, or other equity-based awards pursuant to the Company’s equity or other incentive plans described in the Registration Statement, the General Disclosure Package and the Prospectus or (D) the filing of a registration statement on Form S-8 or other appropriate forms, and any amendments thereto, as required by the 1933 Act, relating to the Common Stock or other equity-based securities issuable pursuant to the Company’s equity or other incentive plans or employee stock purchase plans, or options to purchase Common Stock granted, pursuant to the Company’s equity or other incentive plans described in the Registration Statement, the General Disclosure Package and the Prospectus, but which in any event shall not vest during the one hundred eighty (180) day period. During a period of one hundred eighty (180) days from the date of the Prospectus, the Company will not, without the prior written consent of the Representative, take any action, including, without limitation, any waiver of any provision or any amendment of its Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws, that would permit, directly or indirectly, any holder of Class B common stock of the Company to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of Class B common stock of the Company.
(j) Waiver. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in a lock-up agreement described in Section 5(i) hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.
(k) Reporting Requirements. The Company, during the period when a Prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and 1934 Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Securities as may be required under Rule 463 under the 1933 Act.
(l) Issuer Free Writing Prospectuses. The Company agrees that, unless it obtains the prior written consent of the Representative, it will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative will be deemed to have consented to the Issuer Free Writing Prospectuses listed on Schedule B-2 hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representative. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representative as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement, any preliminary prospectus or the Prospectus or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representative and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
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(m) Certification Regarding Beneficial Owners. The Company will deliver to the Representative, on the date of execution of this Agreement, a properly completed and executed Certification Regarding Beneficial Owners of Legal Entity Customers, together with copies of identifying documentation, and the Company undertakes to provide such additional supporting documentation as the Representative may reasonably request in connection with the verification of the foregoing certification.
(n) Testing-the-Waters Materials. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing subsequent to the time at which such Written Testing-the-Waters Communication was made, not misleading, the Company will promptly notify the Representative and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
(o) Emerging Growth Company Status. The Company will promptly notify the Representative if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Securities within the meaning of the 1933 Act and (ii) completion of the 180-day restricted period referred to in Section 3(i).
(p) Directed Share Program. The Company will comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of copies of each preliminary prospectus, each Issuer Free Writing Prospectus and the Prospectus and any amendments or supplements thereto and any costs associated with electronic delivery of any of the foregoing by the Underwriters to investors, (iii) the preparation, issuance and delivery of the certificates or security entitlements for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company’s counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(e) hereof, including filing fees and the reasonable and documented fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the fees and expenses of any transfer agent or registrar for the Securities, (vii) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the Securities, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of transportation chartered in connection with the road show, (viii) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by FINRA of the terms of the sale of the Securities, (ix) the fees and expenses incurred in connection with the listing of the Securities on the NYSE, (x) the costs and expenses (including, without limitation, any
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damages or other amounts payable in connection with legal or contractual liability) associated with the reforming of any contracts for sale of the Securities made by the Underwriters caused by a breach of the representation contained in the third sentence of Section 1(a)(ii), and (xi) fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program; provided, however, that in no event will this Section 4(a) be construed to make the Company responsible for the fees and expenses of legal counsel to Underwriters (except as provided in clauses (viii), (ix), (x) and (xi) above).
(b) Termination of Agreement. If this Agreement is terminated by the Representative in accordance with the provisions of Section 5, Section 9(a)(i) or (iii) or Section 10 hereof, the Company shall reimburse the Underwriters for all of their reasonable and documented out-of-pocket expenses, including the reasonable and documented fees and disbursements of counsel for the Underwriters; provided that if this Agreement is terminated by the Representative pursuant to Section 10 hereof, the Company will have no obligation to reimburse any defaulting Underwriter.
SECTION 5. Conditions of Underwriters’ Obligations. The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained herein or in certificates of any officer of the Company or any of its Subsidiaries delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and, at the Closing Time, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated; and the Company has complied with each request (if any) from the Commission for additional information. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) without reliance on Rule 424(b)(8) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.
(b) Opinion of Counsel for Company. At the Closing Time, the Representative shall have received the favorable opinion, dated the Closing Time, of (i) Jones Day, counsel for the Company, and (ii) Ice Miller LLP, Indiana counsel for Guardian, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibits A-1 and A-2 hereto, respectively.
(c) Opinion of Counsel for Underwriters. At the Closing Time, the Representative shall have received the favorable opinion, dated the Closing Time, of Mayer Brown LLP, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters with respect to such matters as the Representative may reasonably request. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the General Corporation Law of the State of Delaware and the federal securities laws of the United States, upon the opinions of counsel satisfactory to the Representative. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers and other representatives of the Company and its Subsidiaries and certificates of public officials.
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(d) Officers’ Certificate. At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representative shall have received a certificate of the Chief Executive Officer or the President of the Company and of the chief financial or chief accounting officer of the Company, dated the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties of the Company in this Agreement are true and correct in all material respects (except for such representations, warranties and statements or portions thereof that are qualified by materiality or a Material Adverse Effect, which shall be true and correct in all respects) with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement under the 1933 Act has been issued, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to their knowledge, contemplated.
(e) Chief Financial Officers’ Certificate. At the time of the execution of this Agreement and at the Closing Time, the Representative shall have received a certificate of the Chief Financial Officer of the Company, dated the respective dates of its delivery and addressed to the Underwriters, with respect to certain financial information contained in each of the Registration Statement, the General Disclosure Package or the Prospectus, in form and substance satisfactory to the Representative.
(f) Accountant’s Comfort Letter. At the time of the execution of this Agreement, the Representative shall have received from each of Ernst & Young LLP and Cherry Bekaert LLP a letter, dated such date, in form and substance satisfactory to the Representative, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the General Disclosure Package and the Prospectus.
(g) Bring-down Comfort Letter. At the Closing Time, the Representative shall have received from Ernst & Young LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (f) of this Section, except that the specified date referred to shall be a date not more than three business days prior to the Closing Time.
(h) Approval of Listing. At the Closing Time, the Securities shall have been approved for listing on the NYSE, subject only to official notice of issuance.
(i) No Objection. FINRA has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements relating to the offering of the Securities.
(j) Lock-up Agreements. At the date of this Agreement, the Representative shall have received an agreement substantially in the form of Exhibit B hereto signed by the persons listed on Schedule D hereto.
(k) Maintenance of Rating. Neither the Company nor its Subsidiaries have any debt securities or preferred stock that are rated by any “nationally recognized statistical rating organization” (as defined in Section 3(a)(62) of the 1934 Act).
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(l) Completion of the Transactions. The Company and its Subsidiaries shall have consummated fully the Transactions as contemplated by the Registration Statement, the General Disclosure Package and the Prospectus.
(m) Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company and any of its Subsidiaries hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representative shall have received:
(i) Officers’ Certificate. A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery.
(ii) Chief Financial Officers’ Certificate. If requested by the Representative, a certificate, dated such Date of Delivery, of the Chief Financial Officer of the Company confirming that the certificate delivered at Closing Time pursuant to Section 5(e) hereof remains true and correct as of such Date of Delivery.
(iii) Opinion of Counsel for Company. If requested by the Representative, the favorable opinion of Jones Day, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof.
(iv) Opinion of Counsel for Underwriters. If requested by the Representative, the favorable opinion of Mayer Brown LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof.
(v) Bring-down Comfort Letter. If requested by the Representative, a letter from Ernst & Young LLP, in form and substance satisfactory to the Representative and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representative pursuant to Section 5(f) hereof, except that the “specified date” in the letter furnished pursuant to this paragraph shall be a date not more than three business days prior to such Date of Delivery.
(n) Additional Documents. At the Closing Time and at each Date of Delivery (if any) counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representative and counsel for the Underwriters.
(o) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, unless due to or as a result of a breach of this Agreement by any of the Underwriters, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representative by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7, 8, 14, 15, 16 and 17 shall survive any such termination and remain in full force and effect.
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SECTION 6. Indemnification.
(a) Indemnification of Underwriters.
(i) The Company agrees to indemnify and hold harmless each Underwriter, its affiliates (as such term is defined in Rule 501(b) under the 1933 Act (each, an “Affiliate”)), its selling agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(A) against any and all loss, liability, claim, damage and reasonable and documented expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included (A) in any preliminary prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto), or (B) in any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the offering of the Securities (“Marketing Materials”), including any roadshow or investor presentations made to investors by the Company (whether in person or electronically), or the omission or alleged omission in any preliminary prospectus, Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, Prospectus or in any Marketing Materials of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(B) against any and all loss, liability, claim, damage and reasonable and documented expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and
(C) against any and all reasonable and documented expense whatsoever, as incurred (including the reasonable and documented fees and disbursements of counsel chosen by Raymond James; provided, however, that the Company shall not be liable for the expenses of more than one separate counsel in the aggregate for all Underwriters, in addition to any local counsel), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with the Underwriter Information.
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(ii) The Company agrees to indemnify and hold harmless the Representative and its affiliates, directors and officers and each person, if any, who controls the Representative within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act (each, a “Designated Entity”), from and against any and all losses, claims, damages and liability (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (A) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (B) arising out of or based upon the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (C) arising out of, related to, or in connection with the Directed Share Program, other than damages (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith, willful misconduct or gross negligence of the Designated Entities.
(b) Indemnification of Company, Directors and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with the Underwriter Information.
(c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. If any such action or proceeding shall be brought or asserted against an indemnified party and it shall have notified the indemnifying party thereof, the indemnifying party shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party in such action or proceeding and shall pay the reasonable and documented fees and expenses of such counsel related to such action or proceeding, as incurred. Without limiting the foregoing, in any such action or proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the contrary; (ii) the indemnifying party has failed within a reasonable time to retain counsel reasonably satisfactory to the indemnified party; (iii) if such counsel is acting as counsel to both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the indemnifying party; or (iv) if such counsel is acting as counsel to both the indemnified party and the indemnifying party and the indemnifying- party shall have reasonably concluded that representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances.
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No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 6(c) above, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(i)(B) effected without its written consent if (i) such settlement is entered into in good faith by the indemnified party more than 60 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and of the Underwriters, on the other hand, in connection with the statements or omissions, which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company, on the one hand, and the total underwriting discount received by the Underwriters, on the other hand, in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth on the cover of the Prospectus.
The relative fault of the Company, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
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Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the underwriting commissions received by such Underwriter in connection with the Securities underwritten by it and distributed to the public.
No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Underwriter’s Affiliates and selling agents shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters’ respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its Subsidiaries submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company and (ii) delivery of and payment for the Securities.
SECTION 9. Termination of Agreement.
(a) Termination. The Representative may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, in the reasonable judgment of the Representative, since the time of execution of this Agreement or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any Material Adverse Effect with respect to the Company and its Subsidiaries, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the reasonable judgment of the Representative, impracticable or inadvisable to proceed with the completion of the offering or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission, or (iv) if trading generally on the NYSE MKT or the NYSE has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by order of the Commission, FINRA or any other governmental authority, or (v) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States or with respect to Clearstream or Euroclear systems in Europe, or (vi) if a banking moratorium has been declared by either federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7, 8, 14, 15, 16 and 17 and this Section 9(b) shall survive such termination and remain in full force and effect.
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SECTION 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the “Defaulted Securities”), the Representative shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase, and the Company to sell, the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the (i) Representative or (ii) the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement, the General Disclosure Package or the Prospectus or in any other documents or arrangements. As used herein, the term “Underwriter” includes any person substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to Raymond James at 880 Carillon Parkway, St. Petersburg, Florida 33716, attention of Syndicate Department (facsimile: (646) 855-3073), with a copy, which shall not constitute notice, to Mayer Brown LLP, 1221 Avenue of the Americas, New York, New York 10020, attention of Anna T. Pinedo; notices to the Company shall be directed to it at Guardian Pharmacy Services, Inc., 300 Galleria Parkway SE, Suite 800, Atlanta, Georgia 30339, attention of Douglas Towns, General Counsel, with a copy, which shall not constitute notice, to Mark L. Hanson, Jones Day at 1221 Peachtree Street NE, Suite 400, Atlanta, Georgia 30361.
SECTION 12. No Advisory or Fiduciary Relationship. The Company acknowledges and agrees that (a) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the initial public offering price of the Securities and any related discounts and commissions, is an arm’s-length commercial transaction between the Company, on the one hand, and the several Underwriters, on the other hand, and does not constitute a recommendation, investment advice, or solicitation of any action by the Underwriters, (b) in connection with the offering of the Securities and the process leading thereto, each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of the Company, any of its subsidiaries or their respective stockholders, creditors, employees or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the Company with respect to the offering of the Securities or the process leading thereto (irrespective of whether such
27
Underwriter has advised or is currently advising the Company or any of its subsidiaries on other matters) and no Underwriter has any obligation to the Company with respect to the offering of the Securities except the obligations expressly set forth in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company and (e) the Underwriters have not provided any legal, accounting, regulatory, investment or tax advice with respect to the offering of the Securities and the Company and each of the Selling Shareholders has consulted its own respective legal, accounting, financial, regulatory and tax advisors to the extent it deemed appropriate, and (f) none of the activities of the Underwriters in connection with the transactions contemplated herein constitutes a recommendation, investment advice or solicitation of any action by the Underwriters with respect to any entity or natural person.
SECTION 13. Recognition of the U.S. Special Resolution Regimes.
(a) In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.
(b) In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.
For purposes of this Section 13, a “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k). “Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b). “Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable. “U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.
SECTION 14. Parties. This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 15. Trial by Jury. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
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SECTION 16. GOVERNING LAW. THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK WITHOUT REGARD TO ITS CHOICE OF LAW PROVISIONS.
SECTION 17. Consent to Jurisdiction; Waiver of Immunity. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby (“Related Proceedings”) shall be instituted in (i) the federal courts of the United States of America located in the City and County of New York, Borough of Manhattan or (ii) the courts of the State of New York located in the City and County of New York, Borough of Manhattan (collectively, the “Specified Courts”), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a “Related Judgment”), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party’s address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 18. TIME. TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.
SECTION 20. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
[signature page(s) follow]
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If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters and the Company in accordance with its terms.
| Very truly yours, | ||
| GUARDIAN PHARMACY, LLC | ||
| By | ||
| Name: | ||
| Title: | ||
| GUARDIAN PHARMACY SERVICES, INC. | ||
| By | ||
| Name: | ||
| Title: | ||
| CONFIRMED AND ACCEPTED, | ||
| as of the date first above written: | ||
| RAYMOND JAMES & ASSOCIATES, INC. | ||
| By: | ||
| Authorized Signatory | ||
For itself and as Representative of the other Underwriters named in Schedule A hereto.
[Signature Page to Underwriting Agreement]
Annex 1
NON-CONVERTING SUBSIDIARIES
| 1. | Guardian Pharmacy of Boise, LLC |
| 2. | Guardian Pharmacy of Colorado, LLC |
| 3. | Guardian Pharmacy of Columbus, LLC |
| 4. | Guardian Pharmacy of Denver, LLC |
| 5. | Guardian Pharmacy of Idaho Falls, LLC |
| 6. | Guardian Pharmacy of Kansas City, LLC |
| 7. | Guardian Pharmacy of Minneapolis, LLC |
| 8. | Guardian Pharmacy of Omaha, LLC |
| 9. | Guardian Pharmacy of Utah, LLC |
SCHEDULE A
The initial public offering price per share for the Securities shall be $•.
The purchase price per share for the Securities to be paid by the several Underwriters shall be $•, being an amount equal to the initial public offering price set forth above less $• per share, subject to adjustment in accordance with Section 2(b) for dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities.
| Name: |
Number of Initial Securities |
Number of Optional Securities |
||||||
| Raymond James & Associates, Inc. |
[• | ] | [• | ] | ||||
| Stephens Inc. |
[• | ] | [• | ] | ||||
| Truist Securities, Inc. |
[• | ] | [• | ] | ||||
|
|
|
|
|
|||||
| Total |
[• | ] | [• | ] | ||||
|
|
|
|
|
|||||
Sch A - 1
SCHEDULE B-1
Pricing Terms
1. The Company is selling [•] shares of Common Stock.
2. The Company has granted an option to the Underwriters, severally and not jointly, to purchase up to an additional [•] shares of Common Stock.
3. The initial public offering price per share for the Securities shall be $[•].
SCHEDULE B-2
Free Writing Prospectuses
[SPECIFY EACH ISSUER GENERAL USE FREE WRITING PROSPECTUS]
Sch B - 1
SCHEDULE C
List of Subsidiaries
| Subsidiary Name |
Jurisdiction of Formation | |
| 1. Guardian Pharmacy of Arizona, LLC |
Indiana | |
| 2. Guardian Pharmacy of Atlanta, LLC |
Georgia | |
| 3. Guardian Pharmacy of Birmingham, LLC |
Georgia | |
| 4. Guardian Pharmacy of Boise, LLC |
Georgia | |
| 5. Guardian Pharmacy of Cincinnati, LLC |
Georgia | |
| 6. Guardian Pharmacy of Colorado, LLC |
Georgia | |
| 7. Guardian Pharmacy of Columbus, LLC |
Georgia | |
| 8. Guardian Pharmacy of Daytona, LLC |
Georgia | |
| 9. Guardian Pharmacy of Denver, LLC |
Georgia | |
| 10. Guardian Pharmacy of Eastern NC, LLC |
Georgia | |
| 11. Guardian Pharmacy of Grand Island, LLC |
Georgia | |
| 12. Guardian Pharmacy of Grand Rapids, LLC |
Georgia | |
| 13. Guardian Pharmacy of Idaho Falls, LLC |
Georgia | |
| 14. Guardian Pharmacy of Indianapolis LTC, LLC |
Georgia | |
| 15. Guardian Pharmacy of Indianapolis Nuclear, LLC |
Georgia | |
| 16. Guardian Pharmacy of Iowa, LLC |
Georgia | |
| 17. Guardian Pharmacy of Jacksonville, LLC |
Georgia | |
| 18. Guardian Pharmacy of Kansas City, LLC |
Georgia | |
| 19. Guardian Pharmacy of Knoxville, LLC |
Georgia | |
| 20. Guardian Pharmacy of Madison, LLC |
Georgia | |
| 21. Guardian Pharmacy of Minneapolis, LLC |
Georgia | |
| 22. Guardian Pharmacy of Maine, LLC |
Georgia | |
| 23. Guardian Pharmacy of Minnesota, LLC |
Georgia | |
| 24. Guardian Pharmacy of Missouri, LLC |
Georgia | |
| 25. Guardian Pharmacy of Northern Virginia, LLC |
Georgia | |
| 26. Guardian Pharmacy of NW Florida, LLC |
Georgia | |
| 27. Guardian Pharmacy of Oklahoma, LLC |
Georgia | |
| 28. Guardian Pharmacy of Oklahoma City, LLC |
Georgia | |
| 29. Guardian Pharmacy of Omaha, LLC |
Georgia | |
| 30. Guardian Pharmacy of Orlando, LLC |
Georgia | |
| 31. Guardian Pharmacy of Piedmont Carolinas, LLC |
Georgia | |
| 32. Guardian Pharmacy of South Carolina One, LLC |
Georgia | |
| 33. Guardian Pharmacy of Southeast Florida, LLC |
Georgia | |
| 34. Guardian Pharmacy of Southeast Georgia, LLC |
Georgia | |
| 35. Guardian Pharmacy of Southern California, LLC |
Georgia | |
| 36. Guardian Pharmacy of Southwest Florida, LLC |
Georgia | |
| 37. Guardian Pharmacy of St. Louis, LLC |
Georgia | |
| 38. Guardian Pharmacy of Tampa, LLC |
Georgia | |
| 39. Guardian Pharmacy of Tennessee One, LLC |
Georgia | |
| 40. Guardian Pharmacy of Tennessee Two, LLC |
Georgia | |
| 41. Guardian Pharmacy of Tennessee Three, LLC |
Georgia | |
| 42. Guardian Pharmacy of Texas, LLC |
Georgia | |
| 43. Guardian Pharmacy of Tucson, LLC |
Georgia | |
| 44. Guardian Pharmacy of Tulsa, LLC |
Georgia | |
| 45. Guardian Pharmacy of Utah, LLC |
Georgia | |
| 46. Guardian Pharmacy of Virginia, LLC |
Georgia | |
| 47. Guardian Pharmacy Services Management, LLC |
Georgia | |
| 48. Guardian Pharmacy, LLC |
Indiana | |
Sch C - 1
SCHEDULE D
List of Persons and Entities Subject to Lock-up
Fred Burke
David Morris
Kendall Forbes
William Bindley
John Ackerman
Thomas Salentine, Jr.
Steve Cosler
Randall Lewis
Mary Sue Patchett
Bindley Capital Partners I, LLC
Cardinal Equity Fund LP
Pharmacy Investors, LLC
Sch D - 1
SCHEDULE E
Written Testing-the-Waters Communication
Sch E - 1
Exhibit A-1
FORM OF OPINION OF COMPANY’S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
A-1-1
Exhibit A-2
FORM OF OPINION OF COMPANY’S INDIANA COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
A-2-1
Exhibit B
Lock-up Agreement
September 16, 2024
GUARDIAN PHARMACY SERVICES, INC.
300 Galleria Parkway SE, Suite 800
Atlanta, GA 30339
RAYMOND JAMES & ASSOCIATES, INC.,
As Representative (as defined below) of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, FL 33716
| Re: | Guardian Pharmacy Services, Inc. (the “Company”)—Restriction on Stock Sales |
Ladies and Gentlemen:
This letter agreement is delivered to you pursuant to the Underwriting Agreement (the “Underwriting Agreement”) to be entered into by Guardian Pharmacy, LLC (“Guardian”), its wholly owned subsidiary, the Company, as issuer, and Raymond James & Associates, Inc. as representative of the Underwriters as named and defined therein (the “Representative” or “you”).
Capitalized terms used but not defined herein have the respective meanings assigned to such terms in the Underwriting Agreement.
Upon the terms and subject to the conditions of the Underwriting Agreement, the Underwriters intend to effect a public offering (the “Offering”) of the Class A Common Stock, $0.001 par value per share of the Company (the “Shares”), as described in and contemplated by the registration statement of the Company on Form S-1, File No. 333-274847, originally filed with the Securities and Exchange Commission (the “Commission”) on October 3, 2023 and amended on August 22, 2024 and September 16, 2024 (and as may be further amended or supplemented from time to time, the “Registration Statement”). Pursuant to the Corporate Reorganization, immediately prior to the Closing Time under the Underwriting Agreement, Guardian will become a wholly owned subsidiary of the Company, all as described in the Registration Statement.
B-1
The undersigned recognizes that it is in the best financial interests of the undersigned, as an officer or director, or owner of stock, options, warrants, other securities of the Company or derivative instruments that have as a reference asset Company stock, options, warrants or other securities (collectively, the “Company Securities”) that the Company complete the proposed Offering immediately following the Corporate Reorganization.
The undersigned further recognizes that the Company Securities held by the undersigned are, or may be, subject to certain restrictions on transferability, including those imposed by U.S. federal securities laws. Notwithstanding these restrictions, the undersigned has agreed to enter into this letter agreement to further assure the Underwriters that the Company Securities of the undersigned, now held or hereafter acquired, will not enter the public market at a time that might impair the underwriting effort.
Therefore, as an inducement to the Underwriters to execute the Underwriting Agreement, the undersigned hereby acknowledges and agrees that the undersigned will not (i) offer, sell, contract to sell, pledge, grant any option to purchase or otherwise dispose of (collectively, a “Disposition”) of any Company Securities, or any securities convertible into or exercisable or exchangeable for, or any rights to purchase or otherwise acquire, any Company Securities held by the undersigned or acquired by the undersigned after the date hereof, or that may be deemed to be beneficially owned by the undersigned (collectively, the “Lock-Up Securities”), pursuant to the rules and regulations promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), for a period commencing on the date hereof and ending 180 days after the date of the Company’s Prospectus first filed pursuant to Rule 424(b) under the Securities Act (the “Lock-Up Period”), without the prior written consent of the Representative or (ii) exercise or seek to exercise or effectuate in any manner any rights of any nature that the undersigned has or may have hereafter to require the Company to register under the Securities Act the Disposition of any of the Lock-Up Securities or to otherwise participate as a selling securityholder in any manner in any registration effected by the Company under the Securities Act, including under the Registration Statement, during the Lock-Up Period. The foregoing restrictions are expressly agreed to preclude the undersigned from engaging in any hedging, collar (whether or not for any consideration) or other transaction that is designed to or reasonably expected to lead or result in a Disposition of Lock-Up Securities during the Lock-Up Period, even if such Lock-Up Securities would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include any short sale or any purchase, sale or grant of any right (including any put or call option or reversal or cancellation thereof) with respect to any Lock-Up Securities or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from Lock-Up Securities.
The foregoing paragraph shall not apply to (a) transactions relating to Lock-Up Securities or other securities acquired in the open market after the completion of the Offering; provided that it shall be a condition to any transfer pursuant to this clause (a) that neither the transferor nor the transferee shall be required by law (including without limitation the disclosure requirements of the Securities Act and the Exchange Act) to make, and shall agree to not voluntarily make, any filing or public announcement of the transfer prior to the expiration of the Lock-Up Period; (b) bona fide gifts, or transfers, sales or other dispositions of Lock-up Securities that are made exclusively
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between and among the undersigned or members of the undersigned’s family or any trust for the benefit of the undersigned or members of the undersigned’s family, or affiliates of the undersigned, including its partners (if a partnership) or members (if a limited liability company); provided that it shall be a condition to any transfer pursuant to this clause (b) that (i) the transferee/donee agrees to be bound by the terms of this letter agreement (including, without limitation, the restrictions set forth in the preceding sentence) to the same extent as if the transferee/donee were a party hereto, (ii) each party (donor, donee, transferor or transferee) shall not be required by law (including without limitation the disclosure requirements of the Securities Act and the Exchange Act) to make, and shall agree to not voluntarily make, any filing or public announcement of the transfer or disposition prior to the expiration of the Lock-Up Period, and (iii) the undersigned notifies the Representative at least two business days prior to the proposed transfer or disposition; and (c) any exercise of options or vesting or exercise of any other equity-based award, in each case, under the Company’s equity incentive plan or any other compensation plan or agreement described in the Registration Statement, General Disclosure Package and Prospectus, including any Company Securities withheld by the Company for the payment of taxes due upon such exercise or vesting; provided that (A) no filing or public announcement by any party under the Exchange Act or otherwise shall be required or shall be voluntarily made in connection with such exercise or vesting and (B) any Company Securities received upon such exercise or vesting, following any applicable net settlement or net withholding, will also be subject to the terms of this letter agreement.
It is understood that, if the Underwriting Agreement (other than the provisions thereof that survive termination) shall terminate or be terminated prior to payment for and delivery of the Shares, you will release the undersigned from the obligations under this letter agreement.
In furtherance of the foregoing, the Company and its transfer agent and registrar are hereby authorized to decline to make any transfer of Lock-Up Securities if such transfer would constitute a violation or breach of this letter agreement. This letter agreement shall be binding on the undersigned and the respective successors, heirs, personal representatives and assigns of the undersigned.
If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing restrictions in this Lock-Up Agreement shall be equally applicable to any issuer directed Company Securities the undersigned may purchase in the Offering.
This letter agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to choice of law principles thereunder. All claims arising out of the interpretation, application or enforcement, or otherwise relating to the subject matter, of this letter agreement, including, without limitation, any breach of this letter agreement, shall be settled by final and binding arbitration (the “Arbitration”) in New York, New York, in accordance with the commercial rules then prevailing of the American Arbitration Association by a panel of three (3) arbitrators appointed in accordance with the American Arbitration Association commercial rules. The decision of the arbitrators shall be binding on the undersigned and may be entered and enforced in any court of competent jurisdiction by the undersigned. The undersigned shall initially bear its own legal fees and costs in connection with the Arbitration; provided, however, that it shall pay one-half of any filing fees, fees and expenses of the Arbitration. However, after the issuance of the award, the non-prevailing party (as determined by the
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arbitrators) will (i) bear all costs of Arbitration including the cost and expenses of the arbitrators and the cost of the proceedings and (ii) reimburse the prevailing party for its costs, expenses, attorneys’ fees and other legal expenses incurred in connection with the related dispute and the Arbitration. The Arbitration shall be pursued and brought to conclusion as rapidly as is possible. TO THE EXTENT PERMITTED BY LAW, THE UNDERSIGNED VOLUNTARILY AND IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS LETTER AGREEMENT.
[Signature page follows]
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| Very truly yours, |
| Signature of Securityholder |
| Name of Securityholder |
[Signature page to Lock-up Agreement]
Exhibit C
FORM OF PRESS RELEASE
TO BE ISSUED PURSUANT TO SECTION 3(j)
GUARDIAN PHARMACY SERVICES, INC.
[Date]
GUARDIAN PHARMACY SERVICES, INC. (the “Company”) announced today that Raymond James, the lead book-running manager in the Company’s recent public sale of [•] shares of common stock, is [waiving] [releasing] a lock-up restriction with respect to shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 20 , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is entered into this ___ day of _______, 2024 among Guardian Merger Corp., an Indiana corporation (“Merger Sub”), Guardian Pharmacy, LLC, an Indiana limited liability company (“Guardian Pharmacy”), and Guardian Pharmacy Services, Inc., a Delaware corporation (“Guardian Services”).
RECITALS
WHEREAS, Merger Sub and Guardian Pharmacy desire to merge into a single limited liability company (the “Merger”) pursuant to Chapter 2 of the Indiana Uniform Business Organization Transactions Act (the “IN Act”);
WHEREAS, the board of directors of Merger Sub and the sole stockholder of Merger Sub have duly adopted and approved the execution and performance of this Agreement in accordance with the IN Act; and
WHEREAS, the board of directors of Guardian Services and the sole stockholder of Guardian Services have duly adopted and approved the execution and performance of this Agreement in accordance with the IN Act; and
WHEREAS, the board of managers of Guardian Pharmacy and a supermajority in interest of the preferred members of Guardian Pharmacy have duly adopted and approved the execution and performance of this Agreement in accordance with the IN Act and the Amended and Restated Operating Agreement of Guardian Pharmacy, dated May 1, 2018, as amended (the “Operating Agreement”).
NOW, THEREFORE, both parties to this Agreement, in consideration of the mutual covenants, agreements and provisions hereinafter contained, do hereby prescribe the terms and conditions of the Merger and mode of carrying the same into effect as follows:
AGREEMENT
1. Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the applicable provisions of the IN Act, at the Effective Time, Merger Sub will be merged with and into Guardian Pharmacy, the separate corporate existence of Merger Sub will cease, and Guardian Pharmacy will continue as the surviving limited liability company in the Merger (the “Surviving Entity”).
2. Filings; Effective Time. As soon as practicable following the execution hereof, the parties will cause articles of merger with respect to the Merger to be executed and filed with the Secretary of State of the State of Indiana. The Merger will become effective upon the filing of such documents or at such later time as indicated therein (such time, the “Effective Time”).
3. Articles of Organization and Operating Agreement. As of the Effective Time, (a) the articles of organization of Guardian Pharmacy in effect immediately prior to the Effective Time will continue as the articles of organization of the Surviving Entity, and (b) the Operating Agreement in effect immediately prior to the Effective Time will continue as the operating agreement of the Surviving Entity, until amended or amended and restated in accordance with its terms.
4. Managers of the Surviving Entity. The managers of Guardian Pharmacy immediately prior to the Effective Time will be the managers of the Surviving Entity until the earlier of the death, resignation or removal of any such person or until their respective successors are duly elected or appointed, as applicable.
5. Effects Generally. The Merger will have the effects set forth in the IN Act.
6. Effects on Equity Interests. At the Effective Time, by virtue of the Merger and without any action on the part of the parties hereto or any other person or entity, (a) each issued and outstanding share of capital stock of Merger Sub will be converted into one thousand (1,000) Common Units of Guardian Pharmacy, (b) each issued and outstanding Common Unit of Guardian Pharmacy as of immediately prior to the Effective Time (other than Common Units held by Guardian Investor, Inc.) will be converted into the right to receive one fully paid and non-assessable share of Class B Common Stock, par value $0.001 per share, of Guardian Services, plus the right to receive $1.02 in cash, without interest, and (c) each issued and outstanding Common Unit of Guardian Pharmacy held by Guardian Investor, Inc. as of immediately prior to the Effective Time will be unaffected by the Merger and will remain outstanding immediately following the Merger as a Common Unit of the Surviving Entity.
7. Miscellaneous.
a. Amendments. This Agreement may only be amended by a written instrument executed by the parties hereto.
b. Counterparts. This Agreement may be executed in multiple original or .pdf counterparts (including by electronic signature and/or transmission), each of which will be deemed an original, and all of which taken together will be considered one and the same agreement.
c. Governing Law. This Agreement shall in all respects be construed, interpreted and enforced in accordance with and governed by the laws of the State of Indiana without regard to the conflict of laws principles thereof.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.
| GUARDIAN PHARMACY, LLC | ||
| By: |
| |
| Name: David K. Morris | ||
| Title: Chief Financial Officer | ||
| GUARDIAN MERGER CORP. | ||
| By: |
| |
| Name: Fred P. Burke | ||
| Title: President and Chief Executive Officer | ||
| GUARDIAN PHARMACY SERVICES, INC. | ||
| By: |
| |
| Name: Fred P. Burke | ||
| Title: President and Chief Executive Officer | ||
[Signature Page to Agreement and Plan of Merger]
Exhibit 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GUARDIAN PHARMACY SERVICES, INC.
Guardian Pharmacy Services, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby certifies as follows:
1. The original Certificate of Incorporation of the Company was filed with the Office of the Secretary of State of the State of Delaware on November 16, 2021 (the “Original Certificate”).
2. The Company is filing this Amended and Restated Certificate of Incorporation of the Company, which amends and restates the Original Certificate, and which was duly adopted by all necessary action of the board of directors of the Company and the stockholders of the Company in accordance with the provisions of Sections 242, 245 and 228 of the General Corporation Law of the State of Delaware.
3. The text of the Original Certificate is hereby amended and restated in its entirety by this Amended and Restated Certificate of Incorporation to read as follows:
ARTICLE I
The name of the corporation is Guardian Pharmacy Services, Inc. (the “Company”).
ARTICLE II
The address of the Company’s registered office in the State of Delaware is 9 E. Loockerman Street, Suite 311, Dover, Kent County, Delaware 19901. The name of the Company’s registered agent at such address is Registered Agent Solutions, Inc.
ARTICLE III
The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as amended (the “DGCL”).
ARTICLE IV
Section 1. Authorized Capital Stock. The total number of shares of capital stock that the Company shall have authority to issue is 850,000,000, consisting of 700,000,000 shares of Class A Common Stock, par value $0.001 per share (“Class A Common Stock”), 100,000,000 shares of Class B Common Stock, par value $0.001 per share (“Class B Common Stock”), and 50,000,000 shares of Preferred Stock, par value $0.001 per share (“Preferred Stock”).
Upon the effectiveness of the filing of this Amended and Restated Certificate of Incorporation of the Company with the Secretary of State of the State of Delaware (the “Effective Time”), each share of Common Stock (as defined in the Original Certificate) issued and outstanding immediately prior to the Effective Time shall be reclassified as and converted into one fully-paid and non-assessable share of Class B Common Stock (the “Reclassification”). The Reclassification shall occur automatically as of the Effective Time without any further action by the Company or the holders of the shares affected thereby and whether or not any certificates representing such shares are surrendered to the Company. Upon the Effective Time, each certificate that as of immediately prior to the Effective Time represented shares of Common Stock shall be deemed to represent an equivalent number of shares of Class B Common Stock. The Reclassification shall also apply to any outstanding securities or rights convertible into, or exchangeable or exercisable for, Common Stock and all references to the Common Stock in agreements, arrangements, documents and plans relating thereto or any option or right to purchase or acquire shares of Common Stock shall be deemed to be references to the Class B Common Stock or options or rights to purchase or acquire shares of Class B Common Stock, as the case may be.
Section 2. Preferred Stock. The Preferred Stock may be issued in one or more series. The Board of Directors of the Company (the “Board”) is hereby authorized to issue the shares of Preferred Stock in one or more series and to fix from time to time before issuance the number of shares to be included in any such series and the designation, powers, preferences and relative participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each such series will include, without limiting the generality of the foregoing, the determination of any or all of the following:
(a) the number of shares of any series, which number the Board may (except where otherwise provided in the Preferred Stock Designation (as defined below)) increase or decrease, and the designation to distinguish the shares of such series from the shares of all other series, which may be by distinguishing number, letter or title;
(b) the voting powers, if any, and whether such voting powers are full or limited in such series;
(c) the redemption provisions, if any, applicable to such series, including the redemption price or prices to be paid;
(d) whether dividends, if any, will be cumulative or noncumulative, the dividend rate of such series, and the dates and preferences of dividends on such series;
(e) the rights of such series upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Company;
(f) the provisions, if any, pursuant to which the shares of such series are convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock, or any other security, of the Company or any other corporation or other entity, and the rates or other determinants of conversion or exchange applicable thereto;
(g) the right, if any, to subscribe for or to purchase any securities of the Company or any other corporation or other entity;
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(h) the provisions, if any, of a sinking fund applicable to such series; and
(i) any other relative, participating, optional, or other special powers, preferences or rights and qualifications, limitations, or restrictions thereof;
all as may be determined from time to time by the Board and stated or expressed in the resolution or resolutions providing for the issuance of such Preferred Stock (collectively, a “Preferred Stock Designation”). Subject to the rights of the holders of any series of Preferred Stock, the number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the approval of the Board of Directors and by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Company entitled to vote generally in an election of directors, without the separate vote of the holders of the Preferred Stock as a class, irrespective of the provisions of Section 242(b)(2) of the DGCL.
Section 3. Rights of Class A Common Stock and Class B Common Stock. The relative powers, rights, qualifications, limitations and restrictions granted to or imposed on the shares of Class A Common Stock and Class B Common Stock are as follows:
(a) Voting Rights. Except as otherwise expressly provided herein or required by applicable law, the holders of Class A Common Stock and Class B Common Stock shall vote together as one class on all matters submitted to a vote of the stockholders, and each share of Class A Common Stock and each share of Class B Common Stock shall entitle the holder thereof to one vote per share on any matter submitted to a vote of the stockholders. The number of authorized shares of Class A Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the approval of the Board of Directors and by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in an election of directors, without the separate vote of the holders of the Class A Common Stock as a class, irrespective of the provisions of Section 242(b)(2) of the DGCL.
(b) Identical Rights. Except as otherwise expressly provided herein or required by applicable law, shares of Class A Common Stock and Class B Common Stock shall have the same rights and privileges and rank equally, share ratably and be identical in all respects as to all matters, including, without limitation:
(1) Dividends. Subject to the terms of any series of Preferred Stock, shares of Class A Common Stock and Class B Common Stock shall be treated equally, identically and ratably, on a per share basis, with respect to any dividend paid by the Company, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, each voting separately as a class; provided, however, that in the event a dividend is paid in the form of Class A Common Stock or Class B Common Stock (or rights to acquire such stock), then holders of Class A Common Stock shall receive Class A Common Stock (or rights to acquire such stock, as the case may be) and holders of Class B Common Stock shall receive Class B Common Stock (or rights to acquire such stock, as the case may be).
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(2) Subdivision, Combination or Reclassification. If the Company in any manner subdivides, combines or reclassified the outstanding shares of Class A Common Stock or Class B Common Stock, the outstanding shares of the other such class will be subdivided, combined or reclassified in the same proportion and manner, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, each voting separately as a class.
(3) Liquidation, Dissolution or Winding Up. Subject to the terms of any series of Preferred Stock, upon the dissolution, distribution of assets, liquidation or winding up of the Corporation, whether voluntary or involuntary, holders of Class A Common Stock and Class B Common Stock will be entitled to receive ratably all assets of the Company available for distribution to its stockholders unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
(4) Merger or Consolidation. In the case of any distribution or payment in respect of the shares of Class A Common Stock or Class B Common Stock, or any consideration into which such shares are converted, upon the consolidation or merger of the Company with or into any other entity, such distribution, payment or consideration that the holders of shares of Class A Common Stock or Class B Common Stock have the right to receive, or the right to elect to receive, shall be made ratably on a per share basis among the holders of the Class A Common Stock and Class B Common Stock as a single class; provided, however, that shares of such classes may receive, or have the right to elect to receive, different or disproportionate consideration in connection with such consolidation, merger or other transaction if such different treatment is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
(c) Transfer Restriction. Shares of Class B Common Stock may not be Transferred by the holder thereof, unless such Transfer is a Permitted Transfer.
(d) Automatic Conversion of Class B Common Stock.
(i) On the 182nd day following any Class B Issuance Date (“First Conversion Date”), one-fourth (1/4) of each Qualified Stockholder’s then outstanding shares of Class B Common Stock issued on such Class B Issuance Date shall automatically convert into an equal number of shares of Class A Common Stock, without any further action by the holder thereof.
(ii) On the one-year anniversary of any Class B Issuance Date (“Second Conversion Date”), one-third (1/3) of each Qualified Stockholder’s then outstanding shares of Class B Common Stock relating to such First Conversion Date shall automatically convert into an equal number of shares of Class A Common Stock, without any further action by the holder thereof.
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(iii) On the one-year anniversary of the First Conversion Date, one-half (1/2) of each Qualified Stockholder’s then outstanding shares of Class B Common Stock issued on such Class B Issuance Date shall automatically convert into an equal number of shares of Class A Common Stock, without any further action by the holder thereof.
(iv) On the two-year anniversary of any Class B Issuance Date, all of each Qualified Stockholder’s then outstanding shares of Class B Common Stock issued on such Class B Issuance Date shall automatically convert into an equal number of shares of Class A Common Stock, without any further action by the holder thereof.
(v) If the conversion of any shares of Class B Common Stock pursuant to the foregoing provisions of this Article IV, Section 4(d)(1) would result in the conversion of any fractional share of Class B Common Stock, the number of shares so converted shall be rounded down to the nearest whole number.
(e) Conversion by Action of the Board. All or any portion of the issued and outstanding shares of Class B Common Stock shall be converted into an equal number of shares of Class A Common Stock pursuant to an action of the Board.
(f) Procedures. The Company may, from time to time, establish such policies and procedures relating to the conversion of Class B Common Stock to Class A Common Stock and the general administration of this dual class stock structure, including the issuance of stock certificates (or the establishment of book-entry positions) with respect thereto, as it may deem reasonably necessary or advisable, and may from time to time request that holders of shares of Class B Common Stock furnish to the Company such certifications, affidavits or other evidence as the Company deems necessary to verify the ownership of Class B Common Stock or to assess other related administrative matters.
(g) Effects of Conversion. Upon the effectiveness of any conversion of Class B Common Stock to Class A Common Stock, all rights of any holder of shares of Class B Common Stock so converted shall cease and such holder shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock into which such shares of Class B Common Stock were converted.
(h) Reservation of Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of Class B Common Stock, such number of its shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock into shares of Class A Common Stock.
(i) Treatment of Class B Stock Upon Conversion. Each share of Class B Common Stock that is converted pursuant to this Article IV shall be retired by the Company and returned to the authorized but unissued shares of Class B Common Stock.
(j) Defined Terms: For purposes of this Article IV, the following terms have the meanings set forth below:
(1) “Class B Issuance Date” means the date of initial issuance of such share of Class B Common Stock, as recorded in the stock records of the Company.
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(2) “Distribution” means (i) any dividend of cash, property or shares of the Company’s capital stock, and (ii) any distribution following or in connection with any liquidation, dissolution or winding up of the Company, either voluntary or involuntary.
(3) “Family Member” means with respect to any natural person who is a Qualified Stockholder, the spouse, domestic partner, parents, grandparents, lineal descendants, siblings and lineal descendants of siblings of such Qualified Stockholder. Lineal descendants shall include adopted persons, but only so long as they are adopted while a minor.
(4) “Permitted Entity” means with respect to a Qualified Stockholder: (i) a Permitted Trust solely for the benefit of (A) such Qualified Stockholder, (B) one or more Family Members of such Qualified Stockholder, or (C) any other Permitted Entity of such Qualified Stockholder; or (ii) any general partnership, limited partnership, limited liability company, corporation or other entity exclusively owned by (A) such Qualified Stockholder, (B) one or more Family Members of such Qualified Stockholder, or (C) any other Permitted Entity of such Qualified Stockholder.
(5) “Permitted Transfer” means, and be restricted to, any Transfer of a share of Class B Common Stock:
(i) approved in advance by the Board, in its discretion;
(ii) by a Qualified Stockholder (A) to one or more Family Members of such Qualified Stockholder, (B) to any Permitted Entity of such Qualified Stockholder, (C) to such Qualified Stockholder’s revocable living trust, which revocable living trust is a Permitted Trust, or (D) upon such Qualified Stockholder’s death by will, intestate succession or operation of law; or
(iii) by a Permitted Entity of a Qualified Stockholder to (A) such Qualified Stockholder or one or more Family Members of such Qualified Stockholder, or (B) any other Permitted Entity of such Qualified Stockholder.
(6) “Permitted Transferee” means a transferee of shares of Class B Common Stock received in a Permitted Transfer.
(7) “Permitted Trust” means a bona fide trust where each trustee is (i) a Qualified Stockholder, (ii) a Family Member, or (iii) a professional in the business of providing trustee services, including private professional fiduciaries, trust companies and bank trust departments.
(8) “Qualified Stockholder” means (i) the record holder of a share of Class B Common Stock upon the initial issuance thereof, and (ii) a Permitted Transferee.
(9) “Transfer” of a share of Class B Common Stock means any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law. The term “Transferred” shall have a correlative meaning.
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ARTICLE V
The Board may make, amend, and repeal the Bylaws of the Company.
ARTICLE VI
Section 1. Action by Written Consent of Stockholders. Subject to the rights of the holders of any series of Preferred Stock, from and after the time the Company ceases to be a “controlled company” (within the meaning of Nasdaq rules), any action required or permitted to be taken by the stockholders of the Company may only be taken at a duly called annual or special meeting of stockholders of the Company and may not be taken without a meeting by means of any consent in writing of such stockholders.
Section 2. Special Meetings of Stockholders. Subject to the rights of the holders of any series of Preferred Stock, special meetings of stockholders of the Company may be called only (i) by the Chairman of the Board (the “Chairman”) or (ii) by the Secretary of the Company (the “Secretary”) acting at the request of the Chairman or a majority of the total number of directors of the Company (the “Directors”).
Section 3. Business Conducted at Meetings of Stockholders. At any annual meeting or special meeting of stockholders of the Company, only such business will be conducted or considered as has been brought before such meeting in the manner provided in the Bylaws of the Company.
ARTICLE VII
Section 1. Number, Election and Terms of Directors. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional Directors under circumstances specified in any Preferred Stock Designation, the number of Directors of the Company will not be less than 5 nor more than 9 and will be fixed from time to time in the manner provided in the Bylaws of the Company. The Directors, other than those who may be elected by the holders of any series of Preferred Stock, will be classified with respect to the time for which they severally hold office into three classes, as nearly equal in number as possible, designated Class I, Class II, and Class III. At any meeting of stockholders at which Directors are to be elected, the number of Directors elected may not exceed the greatest number of Directors then in office in any class of Directors. The Board shall assign members of the Board already in office to Class I, Class II or Class III. The Directors first appointed to Class I will hold office for a term expiring at the annual meeting of stockholders to be held in 2025; the Directors first appointed to Class II will hold office for a term expiring at the annual meeting of stockholders to be held in 2026; and the Directors first appointed to Class III will hold office for a term expiring at the annual meeting of stockholders to be held in 2027, with the members of each class to hold office until their successors are elected and qualified. At each succeeding annual meeting of the stockholders of the Company, the successors to the class of Directors whose term expires at that meeting will be elected by plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their successors are elected and qualified. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional Directors under circumstances specified in a Preferred Stock Designation. Election of Directors need not be by written ballot.
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Section 2. Nomination of Director Candidates. Advance notice of stockholder nominations for the election of Directors must be given in the manner provided in the Bylaws of the Company.
Section 3. Newly Created Directorships and Vacancies. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional Directors under circumstances specified in a Preferred Stock Designation, newly created directorships resulting from any increase in the number of Directors and any vacancies on the Board resulting from death, resignation, disqualification, removal, or other cause will be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board, or by a sole remaining Director. Any Director elected in accordance with the preceding sentence will hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such Director’s successor has been elected and qualified. No decrease in the authorized number of Directors constituting the Board may shorten the term of any incumbent Director.
Section 4. Removal. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional Directors under circumstances specified in a Preferred Stock Designation, so long as the Board is divided into classes, any Director may be removed from office by the stockholders only for cause.
ARTICLE VIII
To the fullest extent permitted by the DGCL and any other applicable law currently or hereafter in effect, no Director or officer of the Company will be personally liable to the Company or its stockholders for monetary damages for or with respect to any breach of fiduciary duty or other act or omission as a Director or officer of the Company. No repeal or modification of this Article VIII will adversely affect the protection of any Director or officer of the Company provided hereby in relation to any breach of fiduciary duty or other act or omission as a Director or officer of the Company occurring prior to the effectiveness of such repeal or modification.
ARTICLE IX
Section 1. Forum Generally. Unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, this Certificate of Incorporation or the Bylaws of the Company (as either may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine, shall be the Court of Chancery in the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware).
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Section 2. Securities Act Matters. Notwithstanding Section 1 of this Article IX, unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
Section 3. Deemed Notice. Any person or entity purchasing or otherwise acquiring any interest in any security of the Company shall be deemed to have notice of and consented to the provisions of this Article IX.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Amended and Restated Certificate of Incorporation to be signed on this _____ day of ________, 2024.
| GUARDIAN PHARMACY SERVICES, INC. | ||
| By: | ||
| Name: | Fred P. Burke | |
| Title: | President and Chief Executive Officer | |
[Signature Page to Amended and Restated Certificate of Incorporation]
Exhibit 3.4
GUARDIAN PHARMACY SERVICES, INC.
AMENDED AND RESTATED BYLAWS
As Adopted and Effective
on [•], 2024
TABLE OF CONTENTS
| Page | ||||||
| STOCKHOLDERS MEETINGS | 1 | |||||
| 1. |
Time and Place of Meetings |
1 | ||||
| 2. |
Annual Meetings |
1 | ||||
| 3. |
Special Meetings |
1 | ||||
| 4. |
Notice of Meetings; Adjournment |
1 | ||||
| 5. |
Inspectors |
2 | ||||
| 6. |
Quorum |
2 | ||||
| 7. |
Voting; Proxies |
2 | ||||
| 8. |
Organization; Conduct of Meetings |
2 | ||||
| 9. |
Notice of Stockholder Proposals |
3 | ||||
| 10. |
Notice of Director Nominations |
5 | ||||
| 11. |
Additional Provisions Relating to the Notice of Stockholder Business and Director Nominations |
8 | ||||
| 12. |
Record Dates |
10 | ||||
| 13. |
List of Stockholders Entitled to Vote |
11 | ||||
| DIRECTORS |
11 | |||||
| 14. |
Authority |
11 | ||||
| 15. |
Number, Election and Terms |
11 | ||||
| 16. |
Newly Created Directorships and Vacancies |
11 | ||||
| 17. |
Removal |
12 | ||||
| 18. |
Resignation |
12 | ||||
| 19. |
Regular Meetings |
12 | ||||
| 20. |
Special Meetings |
12 | ||||
| 21. |
Quorum |
12 | ||||
| 22. |
Participation in Meetings by Remote Communications |
12 | ||||
| 23. |
Committees |
12 | ||||
| 24. |
Compensation |
13 | ||||
| 25. |
Rules |
13 | ||||
| 26. |
Chairman of the Board |
13 | ||||
| 27. |
Action by Unanimous Consent of Directors |
13 | ||||
(i)
TABLE OF CONTENTS
(continued)
| Page | ||||||
| NOTICES | 13 | |||||
| 28. |
Generally |
13 | ||||
| 29. |
Waivers |
14 | ||||
| OFFICERS | 14 | |||||
| 30. |
Generally |
14 | ||||
| 31. |
Compensation |
14 | ||||
| 32. |
Succession |
14 | ||||
| 33. |
Authority and Duties |
15 | ||||
| STOCK | 15 | |||||
| 34. |
Certificates |
15 | ||||
| 35. |
Transfer |
15 | ||||
| 36. |
Lost, Stolen or Destroyed Certificates |
15 | ||||
| INDEMNIFICATION | 15 | |||||
| 37. |
Right to Indemnification |
15 | ||||
| 38. |
Right to Advancement of Expenses |
16 | ||||
| 39. |
Contract Rights |
16 | ||||
| 40. |
Right of Indemnitee to Bring Suit |
16 | ||||
| 41. |
Non-Exclusivity of Rights |
17 | ||||
| 42. |
Insurance |
17 | ||||
| 43. |
No Duplication of Payments |
17 | ||||
| GENERAL | 17 | |||||
| 44. |
Fiscal Year |
17 | ||||
| 45. |
Reliance Upon Books, Reports and Records |
17 | ||||
| 46. |
Amendments |
17 | ||||
(ii)
STOCKHOLDERS MEETINGS
1. Time and Place of Meetings. All meetings of stockholders will be held at such time and place, within or without the State of Delaware, as may be designated by resolution of the Board of Directors (the “Board”) of Guardian Pharmacy Services, Inc., a Delaware corporation (the “Company”), from time to time or, in the absence of a designation by the Board, by the Chairman of the Board (the “Chairman”) or Secretary of the Company (the “Secretary”), and stated in the notice of the meeting. Notwithstanding the foregoing, the Board may, in its sole discretion, determine that a meeting of stockholders will not be held at any place, but may instead be held by means of remote communications in accordance with Section 211(a) of the General Corporation Law of the State of Delaware (the “DGCL”), subject to such guidelines and procedures as the Board may adopt from time to time. The Board may cancel, postpone or reschedule to an earlier or later date any previously scheduled annual or special meeting of stockholders.
2. Annual Meetings. An annual meeting of stockholders shall be held at such date and time as may be designated by resolution of the Board from time to time. At each annual meeting of stockholders, the stockholders will elect the directors and transact such other business as may properly be brought before the meeting.
3. Special Meetings. A special meeting of stockholders for any purpose or purposes may be called only (i) by the Chairman or (ii) by the Secretary acting at the request of the Chairman or a majority of the Board, and may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
4. Notice of Meetings; Adjournment. Notice of every meeting of stockholders, stating the place, if any, date and time thereof, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, will be given, not less than ten nor more than 60 calendar days before the date of the meeting to each stockholder of record entitled to vote at such meeting as of the record date for determining stockholders entitled to notice of the meeting, except as otherwise provided by law, the certificate of incorporation (as may amended and/or restated from time to time, the “Certificate of Incorporation”) or these Bylaws. When a meeting is adjourned to another place, if any, date, or time, notice need not be given of the adjourned meeting if the place, if any, date and time thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such recessed or adjourned meeting, are announced at the meeting at which the recess or adjournment is taken or are provided in any other matter permitted by the DGCL; provided, however, that if the adjournment is for more than 30 calendar days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the place, if any, date and time thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, must be given in conformity herewith.
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5. Inspectors. The Board may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer of the meeting will appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have such duties as provided by law.
6. Quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the holders of a majority in voting power of the shares of stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, will constitute a quorum at a meeting of stockholders for the transaction of business thereat. A quorum, once established, will not be broken by the subsequent withdrawal of enough votes to leave less than a quorum. If, however, such a quorum shall not be present or represented at any meeting of the stockholders, the presiding officer of the meeting or the stockholders so present, by the affirmative vote of the holders of a majority in voting power of the shares of the corporation which are present in person or by proxy and entitled to vote thereon, may adjourn the meeting from time to time, in the manner provided in Bylaw 4, until a quorum is present or represented.
7. Voting; Proxies.
(a) General. Except as otherwise provided by law or the Certificate of Incorporation, each stockholder will be entitled at every meeting of the stockholders to one vote for each share of stock having voting power standing in the name of such stockholder on the books of the Company on the record date for the meeting. Such votes may be cast either in person or by another person or persons who have been authorized by the stockholder to act for such stockholder by proxy. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Every proxy must be authorized in a manner permitted by Section 212 of the DGCL (or any successor provision).
(b) Vote Required for Stockholder Action. At all meetings of stockholders for the election of directors at which a quorum is present a plurality of the votes cast shall be sufficient to elect. All other matters presented to the stockholders at a meeting at which a quorum is present, shall, unless a different or minimum vote is required by the Certificate of Incorporation, these Bylaws, the rules or regulations of any stock exchange applicable to the Company, or any law or regulation applicable to the Company or its securities, in which case such different or minimum vote shall be the applicable vote on the matter, be decided by the affirmative vote of a majority of the votes properly cast on the matter (excluding any abstentions or broker non-votes).
8. Organization; Conduct of Meetings. The Chairman, or an officer of the Company designated from time to time by the Board, will call meetings of stockholders to order and will act as presiding officer thereof. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person officer of the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations adopted by the Board, the presiding officer of any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding officer, are appropriate for the proper conduct
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of the meeting. Such rules and regulations or procedures, whether adopted by the Board or prescribed by the presiding officer of the meeting, may include without limitation: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the presiding officer of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions or comments by participants. The presiding officer at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding officer should so determine, such presiding officer shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered.
9. Notice of Stockholder Proposals.
(a) Business to Be Conducted at Annual Meeting. At an annual meeting of stockholders, only such business may be conducted as has been properly brought before the meeting. To be properly brought before an annual meeting, business (other than the nomination of a person for election as a director, which is governed by Bylaw 10, and, to the extent applicable, Bylaw 11), must be brought before the meeting only (i) pursuant to the Company’s notice of meeting, (ii) by or at the direction of the Board or (iii) by a stockholder who (A) has complied with all applicable requirements of this Bylaw 9 and Bylaw 11 in relation to such business, (B) was a stockholder of record of the Company at the time of giving the notice required by this Bylaw 9 and is a stockholder of record of the Company at the time of the annual meeting, and (C) is entitled to vote at the annual meeting. For the avoidance of doubt, the foregoing clause (iii) will be the exclusive means for a stockholder to submit business before an annual meeting of stockholders (other than proposals properly made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (such act, and the rules and regulations promulgated thereunder, the “Exchange Act”) and included in the notice of meeting given by or at the direction of the Board). For business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Bylaw 9(a), the stockholder must have given timely notice thereof in writing to the Secretary of the Company in accordance with this Bylaw 9 and Bylaw 11 and any such proposed business must constitute a proper matter for stockholder action.
(b) Required Form for Stockholder Proposals. To be in proper form, a stockholder’s notice to the Secretary must set forth in writing:
(i) Information Regarding the Proposing Person. As to each Proposing Person (as such term is defined in Bylaw 11(e)(ii)):
(A) the name and address of such stockholder, as they appear on the Company’s books and the name and address of any other Proposing Person;
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(B) the class, series and number of shares of the Company’s stock directly or indirectly beneficially owned or held of record by such Proposing Person (including any shares of any class or series of the Company as to which such Proposing Person has a right to acquire beneficial ownership, whether such right is exercisable immediately or only after the passage of time);
(C) a representation (1) that the stockholder giving the notice is a holder of record of stock of the Company entitled to vote at the annual meeting and intends to appear in person or by proxy at the annual meeting to bring such business before the annual meeting and (2) as to whether any Proposing Person intends or is part of a group which intends to (x) deliver a proxy statement and form of proxy to holders of at least the percentage of shares of the Company entitled to vote and required to approve the proposal, (y) otherwise to solicit proxies or votes from stockholders in support of such proposal and (z) solely with respect to nominations pursuant to Bylaw 10, to solicit proxies in support of any proposed nominee in accordance with Rule 14a-19 promulgated under the Exchange Act;
(D) a description of any (1) option, warrant, convertible security, stock appreciation right or similar right or interest (including any derivative securities, as defined under Rule 16a-1 under the Exchange Act), whether or not presently exercisable, with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of securities of the Company or with a value derived in whole or in part from the value of any class or series of securities of the Company, whether or not such instrument or right is subject to settlement in whole or in part in the underlying class or series of securities of the Company or otherwise, directly or indirectly held of record or owned beneficially by such Proposing Person and (2) each other direct or indirect right or interest that may enable such Proposing Person to profit or share in any profit derived from, or to manage the risk or benefit from, any increase or decrease in the value of the Company’s securities, in each case regardless of whether (x) such right or interest conveys any voting rights in such security to such Proposing Person, (y) such right or interest is required to be, or is capable of being, settled through delivery of such security, or (z) such Proposing Person may have entered into other transactions that hedge the economic effect of any such right or interest (any such right or interest referred to in this clause (D) being a “Derivative Interest”);
(E) any proxy, contract, arrangement, understanding or relationship pursuant to which the Proposing Person has a right to vote any shares of the Company or which has the effect of increasing or decreasing the voting power of such Proposing Person;
(F) any rights directly or indirectly held of record or beneficially by the Proposing Person to dividends on the shares of the Company that are separated or separable from the underlying shares of the Company;
(G) any performance-related fees (other than an asset-based fee) to which the Proposing Person may be entitled as a result of any increase or decrease in the value of shares of the Company or Derivative Interests; and
(H) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required pursuant to Section 14(a) of the Exchange Act to be made in connection with a general solicitation of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting.
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(ii) Information Regarding the Proposal: As to each item of business that the stockholder giving the notice proposes to bring before the annual meeting:
(A) a description in reasonable detail of the business desired to be brought before the annual meeting and the reasons why such stockholder or any other Proposing Person believes that the taking of the action or actions proposed to be taken would be in the best interests of the Company and its stockholders;
(B) a description in reasonable detail of any material interest of any Proposing Person in such business and a description in reasonable detail of all agreements, arrangements and understandings among the Proposing Persons or between any Proposing Person and any other person or entity in connection with the proposal; and
(C) the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws, the language of the proposed amendment).
(c) No Right to Have Proposal Included. A stockholder is not entitled to have its proposal included in the Company’s proxy statement and form of proxy solely as a result of such stockholder’s compliance with the foregoing provisions of this Bylaw 9.
(d) Requirement to Attend Annual Meeting. Notwithstanding the foregoing provisions of this Bylaw 9, if a stockholder (or a qualified representative of the stockholder) does not appear at the annual meeting to present its proposal, such proposal will be disregarded and not transacted (notwithstanding that such proposal is set forth in the notice of meeting and notwithstanding that proxies in respect of such proposal may have been solicited, obtained or delivered). For purposes of this Bylaw 9 and Bylaw 10, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
10. Notice of Director Nominations.
(a) Nomination of Directors. Subject to the rights, if any, of any series of Preferred Stock to nominate or elect directors under circumstances specified in a Preferred Stock Designation, only persons who are nominated in accordance with the procedures set forth in this Bylaw 10 will be eligible to elected or serve as directors. Nominations of persons for election as directors of the Company may be made at an annual meeting of stockholders only (i) by or at the direction of the Board or (ii) by a stockholder who (A) has complied with all applicable requirements of this Bylaw 10 and Bylaw 11 in relation to such nomination, (B) was a stockholder of record of the Company at the time of giving the notice required by this Bylaw 10 and is a stockholder of record of the Company at the time of the annual meeting, and (C) is entitled to vote at the annual meeting. For a nomination to be properly made at an annual meeting by a stockholder pursuant to clause (ii) of this Bylaw 10(a), the stockholder must have given timely notice thereof in writing to the Secretary of the Company in accordance with this Bylaw 10 and Bylaw 11. The
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number of nominees a stockholder may nominate for election at the annual meeting (or in the case of one or more stockholders giving the notice on behalf of a beneficial owner, the number of nominees such stockholders may collectively nominate for election at the annual meeting on behalf of such beneficial owner) shall not exceed the number of directors to be elected at such annual meeting.
(b) Required Form for Director Nominations. To be in proper form, a stockholder’s notice to the Secretary must set forth in writing:
(i) Information Regarding the Proposing Person. As to each Nominating Person (as such term is defined in Bylaw 11(d)(iii)), the information set forth in Bylaw 9(b)(i) (except that for purposes of this Bylaw 10, the term “Nominating Person” will be substituted for the term “Proposing Person” in all places where it appears in Bylaw 9(b)(i) and any reference to “business” or “proposal” therein will be deemed to be a reference to the “nomination” contemplated by this Bylaw 10).
(ii) Information Regarding the Nominee: As to each person whom the stockholder giving notice proposes to nominate for election as a director:
(A) all information with respect to such proposed nominee that would be required to be set forth in a stockholder’s notice pursuant to Bylaw 9(b)(i) if such proposed nominee were a Proposing Person;
(B) all information relating to such proposed nominee that would be required to be disclosed in a proxy statement or other filing required pursuant to Section 14(a) under the Exchange Act to be made in connection with a general solicitation of proxies for an election of directors in a contested election (including such proposed nominee’s written consent to be named in the proxy statement as a nominee and to serve as a director if elected);
(C) all information that would be required to be disclosed pursuant to Items 403 and 404 under Regulation S-K if the stockholder giving the notice or any other Nominating Person were the “registrant” for purposes of such rule and the proposed nominee were a director or executive officer of such registrant;
(D) a completed questionnaire (in the form provided by the Secretary upon written request) with respect to the identity, background and qualification of the proposed nominee and the background of any other person or entity on whose behalf the nomination is being made; and
(E) a written representation and agreement (in the form provided by the Secretary upon written request) that the proposed nominee (1) is not and will not become a party to (x) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how the proposed nominee, if elected as a director of the Company, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Company or (y) any Voting Commitment that could limit or interfere with the proposed nominee’s ability to comply, if elected as a director of the Company, with the proposed nominee’s fiduciary duties under applicable law, (2) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Company with
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respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (3) if elected as a director of the Company, the proposed nominee would be in compliance and will comply, with all applicable publicly disclosed corporate governance, ethics, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Company.
The Company may require any proposed nominee to furnish such other information as may be reasonably required by the Company to determine the qualifications and eligibility of such proposed nominee to serve as a director.
(c) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Company’s notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Company’s notice of meeting (i) by or at the direction of the Board (ii) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder who (A) has complied with all applicable requirements of this Bylaw 10 and Bylaw 11 in relation to such nomination, (B) was a stockholder of record of the Company at the time of giving the notice required by this Bylaw 10 and is a stockholder of record of the Company at the time of the special meeting, and (C) is entitled to vote at the special meeting. The number of nominees a stockholder may nominate for election at the special meeting at which directors are to be elected (or in the case of one or more stockholders giving the notice on behalf of a beneficial owner, the number of nominees such stockholders may collectively nominate for election at the special meeting on behalf of such beneficial owner) shall not exceed the number of directors to be elected at such special meeting. In the event a special meeting of stockholders is duly called for the purpose of electing one or more directors to the Board of Directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by this Bylaw 10 shall be delivered to the Secretary in accordance with Bylaw 11.
(d) No Right to Have Nominees Included. A stockholder is not entitled to have its nominees included in the Company’s proxy statement solely as a result of such stockholder’s compliance with the foregoing provisions of this Bylaw 10.
(e) Requirement to Attend Annual Meeting; Compliance with Rule 14a-19. If a stockholder (or a qualified representative of the stockholder) does not appear at the annual meeting to present its nomination, such nomination will be disregarded (notwithstanding that such nomination is set forth in the notice of meeting and notwithstanding that that proxies in respect of such nomination may have been solicited, obtained or delivered). Notwithstanding anything to the contrary in these Bylaws, unless otherwise required by law, if any stockholder or Nominating Person (i) provides notice pursuant to Rule 14a-19(b) promulgated under the Exchange Act with respect to any proposed nominee and (ii) subsequently fails to comply with the requirements of Rule 14a-19(a)(2) or Rule 14a-19(a)(3) promulgated under the Exchange Act (or fails to timely provide reasonable evidence sufficient to satisfy the Corporation that such stockholder has met the requirements of Rule 14a-19(a)(3) promulgated under the Exchange Act in accordance with the following sentence), then the nomination of each such proposed nominee shall be disregarded, notwithstanding that the nominee is included as a nominee in the Company’s proxy statement,
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notice of meeting or other proxy materials for any annual meeting (or any supplement thereto) and notwithstanding that proxies or votes in respect of the election of such proposed nominees may have been received by the Company (which proxies and votes shall be disregarded). Upon request by the Corporation, if any stockholder or Nominating Person provides notice pursuant to Rule 14a-19(b) promulgated under the Exchange Act, such stockholder shall deliver to the Corporation, no later than five (5) business days prior to the applicable meeting, reasonable evidence that it or such Nominating Person has met the requirements of Rule 14a-19(a)(3) promulgated under the Exchange Act.
11. Additional Provisions Relating to the Notice of Stockholder Business and Director Nominations.
(a) Timely Notice.
(i) To be timely, a stockholder’s notice required by Bylaw 9(a)(iii) or Bylaw 10(a)(ii) must be delivered to or mailed and received by the Secretary at the principal executive offices of the Company not less than 90 nor more than 120 calendar days prior to the first anniversary of the date on which the Company held the preceding year’s annual meeting of stockholders (which preceding year’s annual meeting shall, for purposes of the Company’s first annual meeting after the Company’s shares are first publicly traded, be deemed to have occurred on [ ]); provided, however, that if the date of the annual meeting is scheduled for a date more than 30 calendar days prior to or more than 30 calendar days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than 120 calendar days prior to such annual meeting and not later than the close of business on the later of the 90th calendar day prior to such annual meeting and the 10th calendar day following the day on which public disclosure of the date of such meeting is first made. In no event will a recess or adjournment of an annual meeting (or any announcement of any such recess or adjournment) commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(ii) Notwithstanding anything in this Bylaw 11(a) to the contrary, in the event that the number of directors to be elected to the Board at the annual meeting is increased effective after the time period for which nominations would otherwise be due under this Bylaw 11(a) and there is no public announcement by the Company naming the nominees for the additional directorships at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this this Bylaw 11(a) shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Company not later than the close of business on the 10th day following the day on which such public announcement is first made by the Company.
(iii) In the event a special meeting of stockholders is duly called for the purpose of electing one or more directors to the Board, stockholder’s notice required by Bylaw 10(c) must be delivered to or mailed and received by Secretary at the principal executive offices of the Company not earlier than 120 calendar day prior to such special meeting and not less than the later of 90 calendar days prior to such special meeting or the 10th day following the day on which the Company first makes a public announcement of the date of the special meeting at which directors are to be elected. In no event will a recess or adjournment of an annual meeting (or any announcement of any such recess or adjournment) commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
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(b) Updating Information in Notice. A stockholder providing notice of business proposed to be brought before an annual meeting pursuant to Bylaw 9 or notice of any nomination to be made at an annual meeting pursuant to Bylaw 10 must further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to Bylaw 9 or Bylaw 10, as applicable, is true and correct (x) as of the record date for notice and voting at the meeting and (y) as of the date that is fifteen (15) days prior to the meeting or any adjournment or postponement thereof. Any such update and supplement must be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Company (i) in the case of any update and supplement required to be made as of any record date for the meeting that is at least ten (10) days prior to the meeting, not later than five (5) days after such record date for the meeting and (ii) in the case of any update or supplement required to be made as of fifteen (15) days prior to the meeting or adjournment or postponement thereof, not later than ten (10) days prior to the date for the meeting or any adjournment or postponement thereof. For the avoidance of doubt, the obligation to update and supplement as set forth in this Bylaw 11(b) or any other section of these Bylaws shall not limit the Company’s rights with respect to any deficiencies in any stockholder’s notice, including, without limitation, any representation required herein, extend any applicable deadlines under these Bylaws or enable or be deemed to permit a stockholder who has previously submitted a stockholder’s notice under these Bylaws to amend or update any proposal or to submit any new proposal, including by changing or adding nominees, matters, business and/or resolutions proposed to be brought before a meeting of stockholders.
(c) Determinations Regarding Compliance. The presiding officer of any annual meeting will, if the facts warrant, determine that a proposal was not made in accordance with the procedures prescribed by Bylaw 9 and this Bylaw 11 or that a nomination was not made in accordance with the procedures prescribed by Bylaw 10 and this Bylaw 11, and if he or she should so determine, he or she will so declare to the meeting and the defective proposal or nomination, as applicable, will be disregarded.
(d) Compliance with the Exchange Act. Notwithstanding the foregoing provisions of Bylaws 9, 10, and 11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in Bylaws 9, 10, and 11; provided however, that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to Bylaws 9, 10, and 11, and compliance with Bylaws 9, 10, and 11 shall be the exclusive means for a stockholder to make nominations or submit other business (other than, as provided in the penultimate sentence of Bylaw 9(a), business other than nominations brought properly under and in compliance with Rule 14a-8 of the Exchange Act, as may be amended from time to time). Nothing in Bylaws 9, 10, and 11 shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals other than nominations in the Company’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of a Preferred Stock Designation.
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(e) Certain Definitions.
(i) For purposes of Bylaw 9 and Bylaw 10 and this Bylaw 11, “public disclosure” means disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document filed by the Company with the Securities and Exchange Commission pursuant to Exchange Act or furnished by the Company to stockholders.
(ii) For purposes of Bylaw 9 and this Bylaw 11, “Proposing Person” means (A) the stockholder providing the notice of business proposed to be brought before an annual meeting, (B) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be brought before the annual meeting is given, and (C) any Affiliate or Associate (each within the meaning of Rule 12b-2 under the Exchange Act) of such stockholder or beneficial owner.
(iii) For purposes of Bylaw 10 and this Bylaw 11, “Nominating Person” means (A) the stockholder providing the notice of the nomination proposed made to be at an annual meeting, (B) the beneficial owner or beneficial owners, if different, on whose behalf the notice of nomination proposed to be made at the annual meeting is given, and (C) any Affiliate or Associate (each within the meaning of Rule 12b-2 under the Exchange Act) of such stockholder or beneficial owner.
12. Record Dates.
(a) Voting Record Dates. In order that the Company may determine the stockholders entitled to notice of any meeting of stockholders, the Board may fix a record date, which will not precede the date upon which the Board resolution fixing the same is adopted and will not be more than 60 nor less than 10 calendar days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders will be at the close of business on the calendar day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the calendar day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of the stockholders will apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to such notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the foregoing provisions of this Bylaw 12(a) at the adjourned meeting.
(b) Payment Record Dates. In order that the Company may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date will not be more than 60 calendar days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose will be at the close of business on the calendar day on which the Board adopts the resolution relating thereto.
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(c) Identity of Registered Holder. The Company will be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes, and will not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Company has notice thereof, except as expressly provided by applicable law.
13. List of Stockholders Entitled to Vote. The corporation shall prepare, no later than the tenth day before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than 10 days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of 10 days ending on the day before the meeting date (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the corporation. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Bylaw 13 or to vote in person or by proxy at any meeting of stockholders.
DIRECTORS
14. Authority. The business and affairs of the Company will be managed by and under the direction of the Board.
15. Number, Election and Terms. Subject to the rights, if any, of any series of Preferred Stock to elect additional directors under circumstances specified in the Certificate of Incorporation including any Preferred Stock Designation, and to the minimum and maximum number of authorized directors provided in the Certificate of Incorporation, the authorized number of directors may be fixed from time to time only by a resolution adopted by a majority of the Board. The terms of directors shall be as set forth in the Certificate of Incorporation.
16. Newly Created Directorships and Vacancies. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional directors under circumstances specified in the Certificate of Incorporation including any Preferred Stock Designation, newly created directorships resulting from any increase in the authorized number of directors and any vacancies on the Board resulting from death, resignation, disqualification, removal or other cause may be filled solely by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board, or by a sole remaining director. Any director elected in accordance with the preceding sentence will hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director’s successor is elected and qualified. No decrease in the authorized number of directors will shorten the term of any incumbent director.
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17. Removal. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional directors under circumstances specified in the Certificate of Incorporation including any Preferred Stock Designation, any director may be removed from office by the stockholders only in the manner provided in the Certificate of Incorporation.
18. Resignation. Any director may resign at any time upon notice given in writing or by electronic transmission to the Chairman or the Secretary. Any resignation is effective when the resignation is delivered to the Company unless the resignation specifies a later effective date or an effective date that is contingent upon the occurrence or non-occurrence of one or more specified events.
19. Regular Meetings. Regular meetings of the Board may be held at such places either within or without the State of Delaware and at such times as may from time to time be determined by the Board. Notice of regular meetings of the Board need not be given.
20. Special Meetings. Special meetings of the Board may be called by the Chairman on at least 24 hours’ notice to each director and will be called by the Chairman, in like manner and on like notice, upon the request of a majority of the Board. The time and place, if any, of any such special meeting shall be as specified in the notice of such meeting.
21. Quorum. At all meetings of the Board, a majority of the Board will constitute a quorum for the transaction of business. Except for actions required by these Bylaws or the Certificate of Incorporation to be taken by a majority of the Board, the act of a majority of the directors present at any meeting at which there is a quorum will be the act of the Board. If a quorum is not present at any meeting of the Board, the directors present thereat may adjourn the meeting from time to time to another place, if any, time, or date, without notice other than announcement at the meeting, until a quorum is present.
22. Participation in Meetings by Remote Communications. Members of the Board or any committee designated by the Board may participate in a meeting of the Board or any such committee, as the case may be, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting will constitute presence in person at the meeting.
23. Committees. The Board may designate one or more committees, each committee to consist of one or more of the directors. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, or in these Bylaws, will have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers which may require it; but no such committee will have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to
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stockholders for approval or (b) making, adopting, amending or repealing any provision of these Bylaws. Unless the Board provides otherwise, each committee designated by the Board may make, alter and repeal rules and procedures for the conduct of its business. In the absence of such rules and procedures, each committee shall conduct its business in the same manner as the Board conducts its business. Any resolution of the Board establishing or directing any committee of the Board or establishing or amending the charter of any such committee may establish requirements or procedures relating to the governance and/or operation of such committee that are different from, or in addition to, those set forth in these Bylaws and, to the extent that there is any inconsistency between these Bylaws and any such resolution or charter, the terms of such resolution or charter shall be controlling.
24. Compensation. The Board may establish the compensation of directors, including without limitation compensation for membership on the Board and on committees of the Board, attendance at meetings of the Board or committees of the Board, and for other services provided to the Company or at the request of the Board.
25. Rules. The Board may adopt rules and regulations for the conduct of meetings and the oversight of the management of the affairs of the Company.
26. Chairman of the Board. The Board, by a majority vote of the Board, shall elect a Chairman from among the members of the Board. The Chairman shall not be considered an officer of the Company in his or her capacity as such. The Chairman may be removed from that capacity by a majority vote of the Board. The Chairman shall preside at meetings of the Board and of the stockholders of the Company and exercise and perform such other powers and duties as may from time to time be assigned to him or her by the Board or as may be prescribed by these Bylaws. In the absence of the Chairman, such other director of the Company designated by the Chairman or by the Board shall act as chairman of any meeting of the Board. The Chairman or the Board may appoint a Vice Chairman of the Board to exercise and perform such other powers and duties as may from time to time be assigned to him or her by the Chairman or by the Board.
27. Action by Unanimous Consent of Directors. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission. After an action is taken, the consent or consents relating thereto shall be filed with the minutes of proceedings of the board or committee in the same paper or electronic form as the minutes are maintained.
NOTICES
28. Generally.
(a) Form of Notices. Except as otherwise provided by law, these Bylaws, or the Certificate of Incorporation, whenever by law or under the provisions of the Certificate of Incorporation or these Bylaws notice is required to be given to any director or stockholder, it will not be construed to require personal notice, but such notice may be given in writing, by mail or courier service or, to the extent permitted by the DGCL, by electronic transmission, addressed to
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such director or stockholder. Any notice sent to stockholders by mail or courier service shall be sent to the address of such stockholder as it appears on the records of the Company, with postage thereon prepaid, and such notice will be deemed to be given, if mailed, at the time when the same is deposited in the United States mail, postage prepaid, or, if delivered by courier service, at the earlier of when the notice is received or left at such stockholders’ address. Notices sent by electronic transmission shall be deemed given as set forth in Section 232 of the DGCL. For purposes of this Bylaw 28, “electronic transmission” shall be defined as set forth in Section 232 of the DGCL.
(b) Notices to Directors. Notices to directors may be given by mail or courier service, telephone, electronic transmission or as otherwise may be permitted by these Bylaws.
29. Waivers. Whenever any notice is required to be given by law or under the provisions of the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, signed by the person entitled to such notice, or a waiver by electronic transmission by the person entitled to such notice, whether before or after the time of the event for which notice is to be given, will be deemed equivalent to such notice. Attendance of a person at a meeting will constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
OFFICERS
30. Generally. The officers of the Company will be elected annually by the Board and will consist of a Chief Executive Officer, a Secretary and a Treasurer. The Board may also choose any or all of the following: a President, one or more Vice Presidents (who may be given particular designations with respect to authority, function, or seniority), one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as the Board may from time to time determine. Notwithstanding the foregoing, the Board may authorize the Chief Executive Officer to appoint any person to any office other than the Secretary or Treasurer. Any number of offices may be held by the same person. Any of the offices may be left vacant from time to time as the Board may determine. In the case of the absence or disability of any officer of the Company or for any other reason deemed sufficient by the Board, the Board may delegate the absent or disabled officer’s powers or duties to any other officer or to any director.
31. Compensation. The compensation of all directors who are also officers and agents of the Company and the executive officers of the Company will be fixed by the Board or by a committee of the Board. The Board may fix or delegate the power to fix, the compensation of other officers and agents of the Company to an officer of the Company.
32. Succession. The officers of the Company will hold office until their successors are elected and qualified or until such officer’s earlier death, resignation or removal. Any officer may be removed at any time by the affirmative vote of a majority of the Board. Any vacancy occurring in any office of the Company may be filled by the Board or by the Chief Executive Officer as provided in Bylaw 30.
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33. Authority and Duties. Each of the officers of the Company will have such authority and will perform such duties as are customarily incidental to their respective offices or as may be specified from time to time by the Board.
STOCK
34. Certificates. The shares of the Company shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of the stock of the Company shall be uncertificated shares. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the Company by, any two authorized officers of the Company (it being understood that each of the Chairman, Chief Executive Officer, Chief Financial Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary shall be an authorized officer for such purpose). Any or all of the signatures on a certificate may be a facsimile signature. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
35. Transfer. Transfers of shares shall be made upon the books of the Company (a) only by the holder of record thereof, or by a duly authorized agent, transferee or legal representative and (b) in the case of certificated shares, upon the surrender to the Company of the certificate or certificates for such shares. No transfer shall be made that is inconsistent with the provisions of applicable law.
36. Lost, Stolen or Destroyed Certificates. The Secretary may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the Company alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact, satisfactory to the Secretary, by the person claiming the certificate of stock to be lost, stolen or destroyed. As a condition precedent to the issuance of a new certificate or certificates, the Company may require the owners of such lost, stolen or destroyed certificate or certificates to give the Company a bond in such sum and with such surety or sureties as the Secretary may direct as indemnity against any claims that may be made against the Company with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of the new certificate or uncertificated shares.
INDEMNIFICATION
37. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise subject to or involved in any claim, demand, action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he or she is or was a director or an officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another company or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (an “Indemnitee”), whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified by the Company to the fullest extent
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permitted or required by the DGCL and any other applicable law, as the same exists or may hereafter be amended against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith (“Indemnifiable Losses”); provided, however, that, except as provided in Bylaw 40 with respect to Proceedings to enforce rights to indemnification, the Company shall indemnify any such Indemnitee pursuant to this Bylaw 37 in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board.
38. Right to Advancement of Expenses. The right to indemnification conferred in Bylaw 37 shall include the right to advancement by the Company of any and all expenses (including, without limitation, attorneys’ fees and expenses) incurred in defending any such Proceeding in advance of its final disposition (an “Advancement of Expenses”); provided, however, that, if the DGCL so requires, an Advancement of Expenses incurred by an Indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such Indemnitee, including without limitation service to an employee benefit plan) shall be made pursuant to this Section 2 only upon delivery to the Company of an undertaking (an “Undertaking”), by or on behalf of such Indemnitee, to repay, without interest, all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (a “Final Adjudication”) that such Indemnitee is not entitled to be indemnified for such expenses under this Bylaw 38. An Indemnitee’s right to an Advancement of Expenses pursuant to this Bylaw 38 is not subject to the satisfaction of any standard of conduct and is not conditioned upon any prior determination that Indemnitee is entitled to indemnification under Bylaw 37 with respect to the related Proceeding or the absence of any prior determination to the contrary.
39. Contract Rights. The rights to indemnification and to the Advancement of Expenses conferred in Bylaws 37 and 38 shall be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the Indemnitee’s heirs, executors and administrators.
40. Right of Indemnitee to Bring Suit. If a claim under Bylaw 37 or 38 is not paid in full by the Company within 60 calendar days after a written claim has been received by the Company, except in the case of a claim for an Advancement of Expenses, in which case the applicable period shall be 30 calendar days, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Company to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee shall be entitled to the fullest extent permitted or required by the DGCL, as the same exists or may hereafter be amended, to be paid also the expense of prosecuting or defending such suit. In any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an Advancement of Expenses), the Company may raise as a defense that the Indemnitee has not met any applicable standard for indemnification set forth in the DGCL. In any suit brought by the Company to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Company shall be entitled to recover such expenses, without interest, upon a Final Adjudication that the Indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Company (including its Board or a committee thereof, its
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stockholders or independent legal counsel) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Company (including its Board or a committee thereof, its stockholders or independent legal counsel) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by an Indemnitee to enforce a right to indemnification or to an Advancement of Expenses hereunder, or brought by the Company to recover an Advancement of Expenses hereunder pursuant to the terms of an Undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such Advancement of Expenses, shall be on the Company.
41. Non-Exclusivity of Rights. The rights to indemnification and to the Advancement of Expenses conferred these Bylaws shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Company’s Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Nothing contained in these Bylaws shall limit or otherwise affect any such other right or the Company’s power to confer any such other right.
42. Insurance. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the DGCL.
43. No Duplication of Payments. The Company’s obligation under these Bylaws to make any payment to an Indemnitee in respect of any Indemnifiable Losses shall be reduced by any amount that the Indemnitee has otherwise actually received payment (net of any expenses incurred in connection therewith and any repayment by the Indemnitee made with respect thereto) under any insurance policy or from any other source in respect of such Indemnifiable Losses.
GENERAL
44. Fiscal Year. The fiscal year of the Company will end on December 31 of each calendar year or such other date as may be fixed from time to time by the Board.
45. Reliance Upon Books, Reports and Records. Each director, each member of a committee designated by the Board, and each officer of the Company will, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports, or statements presented to the Company by any of the Company’s officers or employees, or committees of the Board, or by any other person or entity as to matters the director, committee member, or officer believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company.
46. Amendments. These Bylaws or any of them may be amended in any respect or repealed at any time, either by the Board or the stockholders.
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EXHIBIT B
Amended Certificate
(See attached).
Exhibit 4.1
STOCKHOLDERS’ AGREEMENT
This STOCKHOLDERS’ AGREEMENT (this “Agreement”) is entered into as of [•], 2024 among Guardian Pharmacy Services, Inc., a Delaware corporation (the “Company”), Bindley Capital Partners I, LLC, an Indiana limited liability company (“Bindley Capital”), Pharmacy Investors, LLC, an Indiana limited liability company (“Pharmacy Investors”), Cardinal Equity Fund LP, a Delaware limited partnership (“Cardinal” and, collectively with Pharmacy Investors, the “Cardinal Stockholders”), Fred P. Burke, an individual (“Burke”), David K. Morris, an individual (“Morris”), and G. Kendall Forbes, an individual, and any Person who becomes a party hereto pursuant to Section 3.1 (collectively, the “Stockholders”, and each individually, a “Stockholder”).
RECITALS
A. The Stockholders and the Company are entering into this Agreement in connection with the underwritten initial public offering (the “IPO”) of shares of Class A Common Stock, par value $0.001 per share of the Company (“Class A Shares”) in order to govern certain of their rights and obligations with respect to the Stockholders’ ownership of Shares and the governance of the Company following consummation of the IPO.
B. After giving effect to the IPO, the Stockholders own the equity securities of the Company in the respective amounts indicated on Schedule I hereto.
Accordingly, the Company and the Stockholders agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Certain Defined Terms. As used herein, the following terms will have the following meanings:
“Affiliate” means (a) with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, such Person, and (b) with respect to any natural person, any spouse or lineal descendant of such person, and in each case, any trust therefor.
“beneficial owner” or “beneficially own” has the meaning given such term in Rule 13d-3 under the Exchange Act, and a Person’s beneficial ownership of Shares or other Equity Securities of the Company will be calculated in accordance with the provisions of such rule. For the avoidance of doubt, no Person will be deemed to beneficially own any security solely as a result of such Person’s execution of this Agreement.
“Board” means the Board of Directors of the Company.
“Business Day” means any day that is not a Saturday, Sunday or other day on which banks are required or authorized by law to be closed in New York City.
“Bylaws” means the Bylaws of the Company, as in effect on the date hereof and as may be amended from time to time in accordance with the terms thereof.
“Charter” means the Certificate of Incorporation of the Company, as in effect on the date hereof and as may be amended from time to time in accordance with the terms thereof.
“Class B Shares” means shares of Class B Common Stock, par value $0.001 per share, of the Company.
“Competing Entity” means any Person that competes, directly or indirectly, with the Company or any of its Subsidiaries.
“control” (including the terms “controlling”, “controlled by” and “under common control with”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise.
“Director” means any member of the Board.
“Equity Securities” means any and all Shares or other equity securities of the Company, securities of the Company convertible into, or exchangeable or exercisable for (whether presently convertible, exchangeable or exercisable or not) Shares or other equity securities, and options, warrants or other rights (whether presently convertible, exchangeable or exercisable or not) to Shares or other equity securities of the Company.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Group” has the meaning set forth in Section 13(d)(3) of the Exchange Act.
“Independent Director” means a Director who would qualify as an “Independent Director” pursuant to the listing standards of the corporate governance rules for The NASDAQ Stock Market.
“Information” means all confidential information about the Company or any of its Subsidiaries that is or has been furnished to any Stockholder or any of its Representatives by or on behalf of the Company or any of its Subsidiaries, or any of their respective Representatives (whether written or oral or in electronic or other form and whether prepared by the Company or any of its Subsidiaries or their respective Representatives), together with that portion of all written or electronically stored documentation prepared by such Stockholder or its Representatives based on or reflecting, in whole or in part, such information; provided, however, that the term “Information” will not include any information that (a) is or becomes generally available to the public through no action or omission by such Stockholder or its Representatives in violation of this Agreement, (b) is or becomes available to such Stockholder on a non-confidential basis from
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a source, other than the Company or any of its Subsidiaries, or any of their respective Representatives, that, to such Stockholder’s knowledge, after reasonable inquiry, is not prohibited from disclosing to such Stockholder by a contractual, legal or fiduciary obligation or (c) is independently developed by a Stockholder or its Representatives or Affiliates without use of any Information.
“Law” means the law of any jurisdiction, whether international, multilateral, multinational, national, federal, state, provincial, local or common law, or an order, act, statute, ordinance, regulation, rule, extension order or code promulgated by a governmental authority (including any department, court, agency or official, or non-governmental self-regulatory organization, agency or authority and any political subdivision or instrumentality thereof).
“Person” means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivisions thereof or any Group comprised of two or more of the foregoing.
“Representatives” means with respect to any Person, any of such Person’s, or its Affiliates’, directors, officers, employees, general partners, Affiliates, direct or indirect shareholders, members or limited partners, attorneys, accountants, financial and other advisers, and other agents and representatives, including, in the case of any Stockholder, any designee nominated for election to the Board or a committee thereof by such Stockholder.
“Restricted Group” means, with respect to any Stockholder, (a) such Stockholder, (b) any Affiliate of such Stockholder (other than any portfolio company), and (c) any Group (that would be deemed to be a “person” under Section 13(d)(3) of the Exchange Act with respect to securities of the Company) of which such Stockholder or its Affiliate (other than any portfolio company) is a member, other than the Group formed by virtue of the existence of this Agreement.
“Sale of the Company” means, in any one or more related transactions, a merger (other than a merger solely for the purpose of forming a holding company with no change in indirect ownership or to effect a change in the Company’s state of incorporation), business combination or sale of all or substantially all of the Company’s assets, in each case, as a result of which the Directors immediately prior to such transaction do not represent a majority of the Board immediately following the consummation of such transaction (or series of transactions), or the stockholders of the Company immediately prior to such transaction do not, immediately following the consummation of such transaction (or series of transactions), continue to own equity securities representing more than 50% of the vote and of the equity of the Company, of the ultimate controlling Person (in the case of a merger or business combination) or Person succeeding to ownership of all or substantially all of the Company’s assets (in the case of a sale of assets).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Shares” means Class A Shares and Class B Shares.
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“Significant Stockholder” means each Stockholder who, together with its Affiliates, beneficially owns 10% or more of the Company’s outstanding Shares.
“Subsidiary” means, with respect to any Person, (a) any corporation of which a majority of the securities entitled to vote generally in the election of directors thereof, at the time as of which any determination is being made, or a majority of the economic interests in such Person’s equity, are owned by such Person, either directly or indirectly, and (b) any joint venture, general or limited partnership, limited liability company or other legal entity in which such Person is the record or beneficial owner, directly or indirectly, of a majority of the voting or equity interests or of which such Person is the general partner or managing member.
“Transfer” means mean any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition, whether or not for value and whether voluntary or involuntary or by operation of law. The term “Transferred” has a correlative meaning.
“Transferee” means any Person to whom any Stockholder or any transferee thereof Transfers Equity Securities.
“Voting Securities” means at any time the then-issued and outstanding Shares and any other Equity Securities having power generally to vote for the election of Directors.
Section 1.2. As used herein, each capitalized term set forth below has the meaning set forth in the corresponding Section of this Agreement set forth below.
| Agreement | Preamble | |
| Bindley Capital | Preamble | |
| Burke | Preamble | |
| Cardinal | Preamble | |
| Cardinal Stockholders | Preamble | |
| Class A Shares | Recitals | |
| Company | Preamble | |
| Covered Claims | 5.15(a) | |
| Designating Stockholder | 2.1(d)(ii) | |
| IPO | Recitals | |
| Morris | Preamble | |
| Pharmacy Investors | Preamble | |
| Secondary Indemnitors | 5.15 | |
| Specified Indemnitee | 5.15 | |
| Stockholders | Preamble |
Section 1.3. Other Definitional Provisions. Unless otherwise expressly provided, for the purposes of this Agreement, the following rules of interpretation will apply:
(a) When a reference is made in this Agreement to an article or a section, paragraph, exhibit or schedule, such reference will be to an article or a section, paragraph, exhibit or schedule hereof unless otherwise clearly indicated to the contrary.
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(b) Whenever the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation.”
(c) The words “hereof,” “herein” and “herewith” and words of similar import will, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement.
(d) The meaning assigned to each term defined herein will be equally applicable to both the singular and the plural forms of such term, and words denoting any gender will include all genders. Where a word or phrase is defined herein, each of its other grammatical forms will have a corresponding meaning.
(e) A reference to any period of days will be deemed to be to the relevant number of calendar days, unless otherwise specified.
(f) The word “dollars” and symbol “$” mean U.S. dollars.
(g) References herein to any Person will include such Person’s heirs, executors, personal representatives, administrators, successors and assigns.
(h) The word “or” will be disjunctive but not exclusive.
(i) The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provisions hereof.
(j) Any statute or rule defined or referred to herein or in any agreement or instrument that is referred to herein means such statute or rule as from time to time amended, modified or supplemented, including by succession of comparable successor statutes or rules and references to all attachments thereto and instruments incorporated therein.
ARTICLE II
CORPORATE GOVERNANCE; VOTING
Section 2.1. Board of Directors Matters.
(a) Board Size and Composition. Effective as of the consummation of the IPO, in accordance with Section 15 of the Bylaws, the size of the Board has been fixed at eight Directors.
(b) Nomination of Directors. Subject to Section 2.1(e), each Stockholder agrees with the Company that it will: (i) appear in person or by proxy at each annual meeting or special meeting of the stockholders of the Company at which Directors are to be elected for the purposes of obtaining a quorum; (ii) at each such stockholders’ meeting, vote, in person or by proxy, all of the Voting Securities owned by it on the date of such meeting in favor of election of the following designees nominated for election to the Board pursuant to this Section 2.1(b) and in accordance with the Bylaws and the nomination procedures of the Company; and (iii) in any action by written consent of the holders of Voting Securities for the purpose of electing Directors, consent to election of the following designees nominated for election to the Board pursuant to this Section 2.1(b) and in accordance with the Bylaws and the nomination procedures of the Company:
(i) one individual designated as nominee for election to the Board by the Cardinal Stockholders;
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(ii) two individuals designated as nominees for election to the Board by Bindley Capital;
(iii) Burke, whom the Stockholders agree to nominate, or cause to be nominated, for election to the Board;
(iv) Morris, whom the Stockholders agree to nominate, or cause to be nominated, for election to the Board; and
(v) three other Persons nominated for election to the Board by the Board, each of whom must quality as an Independent Director (with respect to both the Company and each Stockholder).
The rights of the Stockholders to designate nominees for election to the Board as set forth in Section 2.1(b)(i) and (ii) are personal to such Stockholders and may not be exercised by any Transferee, except that in the event a Stockholder no longer holds any Shares but its Affiliates continue to hold Shares transferred by such Stockholder to such Affiliates (whether directly or by Transfers through other Affiliates of such Stockholder), and such rights have not been terminated pursuant to Section 2.1(e), the rights of such Stockholder may be exercised by the Affiliates of such Stockholder to which such Shares were Transferred.
(c) Chairman of the Board. William Bindley will be the initial Chairman of the Board.
(d) Removal and Replacement; Vacancies.
(i) If a vacancy on the Board is created at any time by the death, disability, retirement, resignation or removal of any Director nominated for election to the Board pursuant to Section 2.1(b), the Company, by action of the remaining Directors, will, and the Stockholders will use their reasonable best efforts to cause the remaining Directors to, fill the vacancy created thereby with a replacement nominee designated by the Person or Persons that had designated such Director for nomination pursuant to Section 2.1(b) as promptly as practicable. Notwithstanding the foregoing, if such vacant position had been held by a Person nominated under Section 2.1(b)(iii), (iv) or (v), then the vacancy will be filled by action of the majority of the Board.
(ii) If a vacancy on the Board is created at any time by the death, disability, retirement, resignation or removal of any Director nominated for election to the Board pursuant to Section 2.1(b) and the remaining Directors have not caused the vacancy created thereby to be filled pursuant to Section 2.1(d)(i) by a new designee of the appropriate Person promptly after the Stockholders have been notified of such vacancy, then in such case the Company will take all such actions as and when requested by the Stockholder entitled, pursuant to Section 2.1(b) to designate a Person to fill such vacancy (the “Designating Stockholder”), and each other Stockholder will vote, or act by written consent with respect to, all Voting Securities beneficially owned by it on the date of the relevant vote or action to fill the vacancy with a Person designated as a replacement by the Designating Stockholder in accordance with Section 2.1(b). Upon the written request of any Person having rights under Section 2.1(b), each other Stockholder will vote, or act by written consent with respect to, all Voting Securities beneficially owned by it on the date of the relevant action to, remove any Director nominated by such Person for election to the Board pursuant to Section 2.1(b) and to elect any replacement Director designated for nomination by such Person pursuant to this Section 2.1(d).
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(iii) Subject to Section 2.1(e), unless otherwise requested in writing by the Person entitled to nominate such Person for election to the Board under Section 2.1(b), no other Stockholder will take any action to cause the removal of any Directors nominated by such Person for election to the Board pursuant to Section 2.1(b).
(iv) Any vacancy on the Board that results from the termination of rights of nomination pursuant to Section 2.1(e) may be filled by action of a majority of the Board, in accordance with the Bylaws and applicable nomination procedures of the Company.
(e) Termination of Rights of Nomination. Notwithstanding anything in Section 2.1(b) to the contrary:
(i) In the case of the Cardinal Stockholders, upon the earlier of (A) such time as the Cardinal Stockholders and their Affiliates, collectively, cease to beneficially own at least 6,084,400 Shares, as such number may be proportionately adjusted for stock splits, reverse stock splits and the like after the date hereof, and (B) the date, if any, on which the Cardinal Stockholders or their Affiliates acquire beneficial ownership of, collectively, more than 10% of the outstanding equity of any Competing Entity, the Cardinal Stockholders will cease to have the right to designate any nominee for election to the Board pursuant to Section 2.1(b)(i).
(ii) In the case of Bindley Capital:
(A) upon the earlier of (A) such time as Bindley Capital and its Affiliates cease to beneficially own, collectively, at least 15,211,000 Shares, as such number may be proportionately adjusted for stock splits, reverse stock splits and the like after the date hereof, and (B) the date, if any, on which Bindley Capital or its Affiliates acquire beneficial ownership of, collectively, more than 10% of the outstanding equity of any Competing Entity, Bindley Capital will cease to have the right to designate two nominees for election to the Board pursuant to Section 2.1(b)(ii), and will thereafter only have the right to designate on such nominee pursuant to Section 2.1(b)(ii), subject to Section 2.1(e)(ii)(B) below; and
(B) upon the earlier of (A) such time as Bindley Capital and its Affiliates cease to beneficially own, collectively, at least 6,084,400 Shares, as such number may be proportionately adjusted for stock splits, reverse stock splits and the like after the date hereof, and (B) the date, if any, on which Bindley Capital or its Affiliates acquire beneficial ownership of, collectively, more than 10% of the outstanding equity of any Competing Entity, Bindley Capital will cease to have the right to designate any nominee for election to the Board pursuant to Section 2.1(b)(ii).
(iii) If at any time Burke or Morris ceases to be an executive officer of the Company, the obligation of the Stockholders to nominate such Person for election to the Board pursuant to Section 2.1(b)(iii) or (iv), as applicable, will terminate.
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Section 2.2. Company Cooperation. The Company will take such action as may be required under applicable Law, the Charter and the Bylaws (subject to such vote of the Board as may be required) (a) to cause the Board to consist of the number of Directors specified in Section 2.1(a), (b) to cause one of the Directors to be appointed and serve as the Chairman of the Board in accordance with Section 2.1(c), and (c) to include in the slate of nominees to be voted upon by stockholders of the Company the Persons designated for nomination to the Board in accordance with Section 2.1(b).
Section 2.3. Affiliate Transactions. Except for such transactions as are contemplated by agreements to which the Company is a party on the date hereof or to be entered into on the date hereof, any transaction between the Company or any Subsidiary of the Company, on the one hand, and a Stockholder or any Affiliate of such Stockholder, on the other, will require the approval of a majority of the disinterested members of the Board.
Section 2.4. Stockholder Votes. In connection with any vote taken at any meeting of the stockholders of the Company or any action by written consent of the stockholders of the Company in lieu thereof (other than with respect to the election of Directors, which is governed by Section 2.1), each Stockholder will vote, or act by written consent with respect to, all of its Voting Securities in the manner determined by the Stockholders holding a majority of the Voting Securities held by all Stockholders at the time of such vote or action.
ARTICLE III
TRANSFERS
Section 3.1. Rights and Obligations of Transferees. No Stockholder will Transfer any Equity Securities, except in compliance with the Securities Act, the Charter, any applicable state or foreign securities Laws, and this Agreement. Any Transfers in violation of this Agreement will be null and void, and the Company will not in any way give effect to any such impermissible Transfer. Prior to the consummation of a Transfer by any Stockholder to an Affiliate, and as a condition thereto, the applicable Transferee will agree in writing to be bound by the terms of this Agreement (if not already bound hereby) to the same extent as the Transferring Stockholder is bound hereunder prior to giving effect to such Transfer.
Section 3.2. Standstill Agreement.
(a) Prior to the seventh anniversary of the date hereof, without the prior written consent of the Board, except (i) by way of stock dividend, stock split, reorganization, recapitalization, merger, consolidation or other like distributions made to holders of Equity Securities generally or (ii) pursuant to the terms of any stock option, stock purchase or other similar plans for Directors or officers of the Company, if any, each Significant Stockholder (so long as it is a Significant Stockholder) will not, and will not permit any other member of its Restricted Group to, directly or indirectly, acquire, agree to acquire or make a proposal to acquire (or publicly announce or otherwise disclose an intention to propose to acquire) or offer to acquire, by purchase or otherwise, beneficial ownership of any Equity Securities not beneficially owned by them as of the date hereof.
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(b) Notwithstanding anything in this Section 3.2 to the contrary, a Significant Stockholder or any member of its Restricted Group will not be prohibited from making a confidential proposal to the Board to acquire additional Equity Securities if the Board (i) determines to effect, or to solicit proposals to effect, a Sale of the Company, or (ii) causes the Company to enter into a definitive agreement providing for the Sale of the Company.
Section 3.3. Going Private Transactions. Prior to the seventh anniversary of the date hereof, without the prior written consent of the Board, no Significant Stockholder (so long as it is a Significant Stockholder) will, or will permit any other member of its Restricted Group to, make any public announcement with respect to, or submit a proposal for, or offer in respect of (with or without conditions) any transaction or series of transactions that would constitute or result in a Going-Private Transaction, unless such Going-Private Transaction: (a) which is not a tender or exchange offer made by any member of such Significant Stockholder’s Restricted Group, is (i) approved by the Board and determined by the Board to be fair to the stockholders of the Company who are not members of such Significant Stockholder’s Restricted Group, in each case with the approval of a majority of the disinterested members of the Board, and (ii) approved by a majority of the outstanding Voting Securities not beneficially owned by members of such Significant Stockholder’s Restricted Group; or (b) which is a tender or exchange offer made by a member of such Significant Stockholder’s Restricted Group and is contingent upon (i) the acquisition of a majority of the outstanding Shares not beneficially owned by members of such Significant Stockholder’s Restricted Group, and accompanied by an undertaking that such member of such Significant Stockholder’s Restricted Group shall acquire all of the Shares, if any, that remain outstanding after the completion of such tender or exchange offer in a merger at the same price per share paid in such tender or exchange offer and (ii) the disinterested members of the Board, being authorized on behalf of the full Board to take and disclose a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act with respect to such tender or exchange offer, not recommending that holders of Shares refrain from tendering their Shares in such tender or exchange offer.
Section 3.4. Additional Stock Transfer Limitations. Without the prior written consent of the Board, no Significant Stockholder will, and each Significant Stockholder will use commercially reasonable efforts to cause members of its Restricted Group not to, directly or indirectly, Transfer Equity Securities to (a) any Person who is a Competing Entity or (b) any Person who, together with its Affiliates, would beneficially own 10% or more of the Company’s outstanding Shares following such Transfer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Representations and Warranties of the Company. The Company represents and warrants to each Stockholder as follows:
(a) the Company has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder, and to consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable
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against the Company in accordance with its terms, except to the extent that the enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting the enforcement of creditors’ rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity; and
(b) the execution and delivery of this Agreement by the Company, the performance of its obligations hereunder, and the consummation of the transactions contemplated hereby will not violate, conflict with or result in a breach, or constitute a default (with or without notice or lapse of time or both) under any provision of the Charter or Bylaws.
Section 4.2. Representations and Warranties of the Stockholders. Each Stockholder, severally and not jointly, represents and warrants, solely with respect to itself, to each other Stockholder and to the Company as follows:
(a) such Stockholder has all requisite power and authority to enter into this Agreement and to perform its obligations hereunder, and to consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by such Stockholder and constitutes a valid and binding obligation of such Stockholder enforceable against such Stockholder in accordance with its terms, except to the extent that the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting the enforcement of creditors’ rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity; and
(b) the execution and delivery of this Agreement by such Stockholder, the performance of its obligations hereunder, and the consummation of the transactions contemplated hereby will not violate, conflict with or result in a breach, or constitute a default (with or without notice or lapse of time or both) under any provision of its charter, bylaws or other similar organizational documents.
ARTICLE V
MISCELLANEOUS
Section 5.1. Termination. This Agreement will terminate upon the earlier of (a) the 15th anniversary of the date of this Agreement, (b) a Sale of the Company, and (c) the date on which both (i) the rights of each Stockholder pursuant to Section 2.1(b) to nominate individuals for election to the Board (or to be nominated for election to the Board), have terminated in accordance with the terms of Section 2.1(e), and (ii) no Stockholder continues to be a Significant Stockholder; provided, however, that, notwithstanding anything in this Section 5.1 to the contrary, the rights and obligations of each Stockholder under this Agreement will terminate on the date on which such Stockholder no longer beneficially owns any Equity Securities.
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Section 5.2. Confidentiality. Each Stockholder agrees with the Company to, and agrees with the Company to use commercially reasonable efforts to cause its Representatives to, keep confidential and not divulge any Information; provided, however, that nothing herein will prevent any Stockholder from disclosing such Information (a) upon the order of any court or administrative agency, (b) upon the request or demand of any regulatory agency or authority having jurisdiction over such Stockholder or Representative, (c) to the extent required by Law or legal process or required or requested pursuant to subpoena, interrogatories or other discovery requests, (d) to the extent necessary in connection with the exercise of any remedy hereunder, (e) to other Stockholders, or (f) to such Stockholder’s Representatives that in the reasonable judgment of such Stockholder need to know such Information; provided, further, that, in the case of clause (a), (b) or (c), such Stockholder will notify the Company of the proposed disclosure as far in advance of such disclosure as reasonably practicable and, if requested by the Company, use commercially reasonable efforts (but at the sole expense of the Company) to ensure that any Information so disclosed is accorded confidential treatment, when and to the extent available.
Section 5.3. Amendments and Waivers. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement will be effective without the approval of the Company and the Stockholders holding a majority of the outstanding Shares held by all Stockholders; provided, however, that (a) this Agreement may not be amended, modified or waived in any manner adversely affecting the rights or obligations of any Stockholder without the prior written consent of such Stockholder, (b) no amendment, modification or waiver to Section 2.1 (directly or by amendment of the definitions used therein) will adversely affect the rights of a Stockholder to designate nominee(s) for election to the Board in accordance with this Agreement without the consent of such Stockholder, as the case may be, (c) amendment, modification or waiver of this Section 5.3 will require the prior written consent of each Stockholder, and (d) any Stockholder may terminate or waive (in writing) the benefit of any provision of this Agreement with respect to itself for any purpose.
Section 5.4. Successors, Assigns and Transferees. Except as expressly set forth herein, this Agreement will bind and inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns.
Section 5.5. Notices. All notices and other communications to be given to any party hereunder will be sufficiently given for all purposes hereunder if in writing and delivered by hand, courier or overnight delivery service, or when received in the form of an email or other electronic transmission (receipt confirmation requested), and will be directed to the address set forth below (or at such other address or email address as such party will designate by like notice):
if to the Company, to:
Guardian Pharmacy Services, Inc.
300 Galleria Parkway SE, Suite 800
Atlanta, Georgia 30339
Attention: Fred P. Burke
Email: Fred.Burke@guardianpharmacy.net
if to any Stockholder, to the address of such Stockholder as shown in Schedule I hereto.
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Section 5.6. Further Assurances. At any time or from time to time after the date hereof, the parties agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder.
Section 5.7. Entire Agreement; Third Party Beneficiaries. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, that they may have related to the subject matter hereof in any way. This Agreement is not intended to confer in or on behalf of any Person not a party to this Agreement any rights, benefits, causes of action or remedies with respect to the subject matter or any provision thereof.
Section 5.8. Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement, will impair any such right, power or remedy, nor will it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on the part of any party hereto of any breach, default or noncompliance under this Agreement or any waiver on such party’s part of any provisions or conditions of this Agreement, must be in writing and will be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by Law, or otherwise afforded to any party, will be cumulative and not alternative.
Section 5.9. Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of Delaware applicable to contracts made and to be performed within the State of Delaware, without giving effect to conflicts of law rules that would require or permit the application of the Laws of another jurisdiction.
Section 5.10. Specific Performance; Jurisdiction.
(a) The parties agree that irreparable damage would occur for which money damages would not suffice in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and that the parties would not have any adequate remedy at law. It is accordingly agreed that any non-breaching party will be entitled to seek an injunction, temporary restraining order or other equitable relief exclusively in the Delaware Court of Chancery enjoining any such breach and enforcing specifically the terms and provisions hereof, or in the event (but only in the event) that such court does not have subject matter jurisdiction over such action or proceeding, in the United States District Court for the District of Delaware or another court sitting in the state of Delaware. Each party agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of such party under this Agreement. The provisions of this Section 5.10(a) are in addition to any other remedy to which any party is entitled at law, in equity or otherwise.
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(b) Each of the parties hereto irrevocably agrees that any legal action or proceeding in connection with or with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by the other party hereto or its successors or assigns will be brought and determined exclusively in the Delaware Court of Chancery, or in the event (but only in the event) that such court does not have subject matter jurisdiction over such action or proceeding, in the United States District Court for the District of Delaware or another court sitting in the state of Delaware. Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action in connection with or relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding in connection with or with respect to this Agreement, (i) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to serve in accordance with this Section 5.10, (ii) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (iii) to the fullest extent permitted by the applicable Law, any claim that (A) the suit, action or proceeding in such court is brought in an inconvenient forum, (B) the venue of such suit, action or proceeding is improper or (C) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
(c) Each of the parties hereto irrevocably consents to the service of any summons and complaint and any other process in any other action in connection with or relating to this Agreement, on behalf of itself or its property, by the personal delivery of copies of such process to such party or by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 4.5. Nothing in this Section 5.10 will affect the right of any party hereto to serve legal process in any other manner permitted by Law.
Section 5.11. Waiver of Jury Trial. Each party hereby waives, to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in respect of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each party (a) certifies and acknowledges that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, and (b) acknowledges that it understands and has considered the implications of this waiver and makes this waiver voluntarily, and that it and the other parties have been induced to enter into the Agreement by, among other things, the mutual waivers and certifications in this Section 5.11.
Section 5.12. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement will remain in full force and effect and will in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party hereto. Upon such a determination, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
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Section 5.13. Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and will not affect the meaning or interpretation of this Agreement.
Section 5.14. Counterparts; Electronic Signatures. This Agreement may be executed in counterparts, each of which will constitute one and the same instrument. Signatures provided by electronic transmission in “pdf” or equivalent format will be deemed to be original signatures.
Section 5.15. Certain Indemnification Matters. The Company hereby acknowledges that an Indemnitee (as defined in the Charter) who is an officer, director, partner, member, manager, employee, managing director or Affiliate of, or a Director nominee pursuant to Section 2.1 of, a Stockholder (each such Indemnitee, a “Specified Indemnitee”) may have certain rights to indemnification, advancement of expenses and/or insurance pursuant to charter documents, constitutive agreements or other agreements with such Stockholder or Affiliates of such Stockholder or other Person (other than the Company and its Affiliates) of which such Specified Indemnitee is an officer, director, partner, member, manager, employee, managing director or Affiliate (collectively, the “Secondary Indemnitors”). In furtherance of the foregoing, the Company hereby covenants and agrees as follows:
(a) The Company will be the indemnitor of first resort for any claims or proceedings (collectively, “Covered Claims”) for which any Specified Indemnitee is entitled, under the Charter or otherwise, to indemnification by the Company (i.e., the Company’s obligations to each such Specified Indemnitee with respect to any Covered Claim are primary and any obligations of any Secondary Indemnitor to advance expenses or to provide indemnification for the same expenses or liabilities incurred by any such Specified Indemnitee with respect Covered Claims are secondary).
(b) Subject to Sections 1 and 2 of Article IX of the Charter, the Company will pay the expenses (including attorneys’ fees and expenses) incurred by any Specified Indemnitee in defending any Covered Claim in advance of such Covered Claim’s final disposition, without regard to any rights any such Specified Indemnitee may have against any Secondary Indemnitor.
(c) The Company hereby irrevocably waives, relinquishes and releases each Secondary Indemnitor from any and all claims against such Secondary Indemnitor for contribution, subrogation or any other recovery of any kind in respect of any Covered Claim.
The Company further agrees that no advancement or payment by any Secondary Indemnitor on behalf of any such Specified Indemnitee with respect to any Covered Claim for which any such Specified Indemnitee has sought indemnification from the Company will affect the foregoing and any such Secondary Indemnitor will have a right of contribution and/or subrogation to the extent of such advancement or payment to all of the rights of recovery of such Specified Indemnitee against the Company. Any amendment, repeal or modification of this Section 5.15 will not adversely affect any right or protection of a Specified Indemnitee or Secondary Indemnitor existing prior to such repeal or modification.
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IN WITNESS WHEREOF, the parties hereto have caused this Stockholders’ Agreement to be executed effective as of the date set forth in the first paragraph hereof.
| GUARDIAN PHARMACY SERVICES, INC. | ||
| By: | ||
| Name |
Fred P. Burke | |
| Title: | President and Chief Executive Officer | |
[Signature Page to Stockholders’ Agreement]
| BINDLEY CAPITAL PARTNERS I, LLC | ||
| By: | ||
| Name: | Thomas J. Salentine, Jr. | |
| Title: | President | |
| PHARMACY INVESTORS, LLC | ||
| By: | ||
| Name: | James L. Smeltzer | |
| Title: | Managing Member | |
| CARDINAL EQUITY FUND LP | ||
| By: Cardinal Equity Partners, LLC, its General Partner | ||
| By: | ||
| Name: | James L. Smeltzer | |
| Title: | Managing Member | |
|
| ||
| FRED P. BURKE | ||
|
| ||
| DAVID K. MORRIS | ||
|
| ||
| G. KENDALL FORBES | ||
[Signature Page to Stockholders’ Agreement]
Schedule I--Stockholder Information
| Stockholder |
Equity Securities |
Notice Information |
Exhibit 5.1
1221 PEACHTREE STREET, N.E. • SUITE 400 • ATLANTA, GEORGIA 30361
TELEPHONE: +1.404.521.3939 • JONESDAY.COM
September 16, 2024
Guardian Pharmacy Services, Inc.
300 Galleria Parkway SE
Suite 800
Atlanta, Georgia 30339
| Re: | Registration Statement on Form S-1, as amended (File No. 333-274847) |
Relating to the Initial Public Offering of up to
7,762,500 shares of Class A Common Stock of Guardian Pharmacy Services, Inc.
Ladies and Gentlemen:
We are acting as counsel for Guardian Pharmacy Services, Inc., a Delaware corporation (the “Company”), in connection with the initial public offering and sale of up to 7,762,500 shares (the “Shares”) of the Company’s Class A common stock, par value $0.001 per share (the “Common Stock”), by the Company pursuant to the Underwriting Agreement (the “Underwriting Agreement”) proposed to be entered into by and among the Company, Guardian Pharmacy, LLC, as predecessor to the Company, and Raymond James & Associates, Inc., for itself and acting as representative of the several underwriters to be named in Schedule A thereto.
In connection with the opinion expressed herein, we have examined such documents, records and matters of law as we have deemed relevant or necessary for purposes of such opinion. Based upon the foregoing and subject to the further assumptions, qualifications and limitations set forth herein, we are of the opinion that the Shares, when issued and delivered pursuant to the Underwriting Agreement against payment of the consideration therefor, as provided in the Underwriting Agreement, will be validly issued, fully paid and nonassessable.
In rendering the opinion set forth above, we have assumed that the Underwriting Agreement will have been executed and delivered by the parties thereto, and the resolutions authorizing the Company to issue and deliver the Shares pursuant to the Underwriting Agreement will be in full force and effect at all times at which the Shares are issued and delivered by the Company. In rendering the opinion set forth above, we have also assumed that the Company will issue and deliver the Shares after filing the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, to be in effect upon completion of the Company’s initial public offering, in the form approved by us and filed as an exhibit to the Registration Statement on Form S-1 (SEC File No. 333-274847), filed by the Company to effect registration of the Shares under the Securities Act of 1933 (the “Act”).
The opinion expressed herein is limited to the General Corporation Law of the State of Delaware, as currently in effect, and we express no opinion as to the effect of the laws of any other jurisdiction on the opinion expressed herein.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to us under the caption “Legal Matters” in the prospectus constituting a part of such Registration Statement. In giving such consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
| Very truly yours, |
| /s/ Jones Day |
AMSTERDAM • ATLANTA • BEIJING • BOSTON • BRISBANE • BRUSSELS • CHICAGO • CLEVELAND • COLUMBUS • DALLAS • DETROIT DUBAI • DÜSSELDORF • FRANKFURT • HONG KONG • HOUSTON • IRVINE • LONDON • LOS ANGELES • MADRID • MELBOURNE MEXICO CITY • MIAMI • MILAN • MINNEAPOLIS • MUNICH • NEW YORK • PARIS • PERTH • PITTSBURGH • SAN DIEGO • SAN FRANCISCO SÃO PAULO • SAUDI ARABIA • SHANGHAI • SILICON VALLEY • SINGAPORE • SYDNEY • TAIPEI • TOKYO • WASHINGTON
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT by and between Guardian Pharmacy Services Management, LLC, a Georgia limited liability company with its principal place of business located at 300 Galleria Parkway SE, Suite 800, Atlanta, GA 30339 (the “Company”) and a wholly owned subsidiary of Guardian Pharmacy Services, Inc. (“Parent”), and Fred P. Burke (“Executive”), is dated as of the ____ day of September, 2024 (the “Agreement”).
The Company wishes to employ Executive on the terms and conditions, and for the consideration, hereinafter set forth, and Executive desires to be employed by the Company on such terms and conditions and for such consideration.
In consideration of the promises provided for in this Agreement, the Company and Executive agree as follows:
1. Employment Period. This Agreement shall become effective as of September ____, 2024 (the “Effective Date”). The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, on an at-will basis on the terms and conditions set-forth herein for the period commencing on the Effective Date and ending as provided in Section 3 hereof (the “Employment Period”).
2. Terms of Employment.
(a) Position and Duties. (i) During the Employment Period, Executive shall (A) serve as President and Chief Executive Officer of the Parent with such duties and responsibilities as are customarily commensurate with or incident to such position for an entity similar in size to, and in a business similar to that of, Parent, (B) report to the Board of Directors of Parent, and (C) perform Executive’s services at 300 Galleria Parkway SE, Suite 800, Atlanta, GA 30339 (subject to reasonable travel requirements commensurate with Executive’s position).
(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote Executive’s full business time and attention to the business and affairs of the Company, Parent and their affiliates. During the Employment Period, it will not be a violation of this Agreement for Executive to (A) serve on civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities described in clauses (A), (B) and (C) do not significantly interfere with the performance of Executive’s responsibilities as an employee of the Company in accordance with this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, Executive shall receive an annual base salary (“Annual Base Salary”) of $450,000 paid in accordance with the normal payroll practices of the Company as may be in effect from time to time, which Annual Base Salary shall be reviewed for increase at least annually.
(ii) Annual Cash Bonus. Executive shall be eligible, for each fiscal year of Parent (beginning with fiscal year 2025) ending during the Employment Period, for an annual incentive bonus in cash (the “Annual Bonus”), with a target Annual Bonus opportunity equal to no less than 60% of Annual Base Salary (“Target Bonus”) and a maximum Annual Bonus opportunity of no less than 150% of the Target Bonus. For each such fiscal year, Parent’s Board of Directors (the “Board”) (or an applicable committee of the Board) will establish the performance metrics and their relative weighting to be used in, and any specific performance goals applicable to, the determination of the Annual Bonus for Executive for such period. There is no guaranteed Annual Bonus under this Agreement, and for each applicable fiscal year, Executive’s Annual Bonus could be as low as zero or as high as the maximum percentage set forth in this paragraph. Notwithstanding anything in this Agreement to the contrary, each Annual Bonus shall be on the terms and subject to such conditions as are specified for the particular Company or Parent plans or programs pursuant to which the Annual Bonus is granted. Any Annual Bonus earned with respect to a particular fiscal year will be paid no later than March 15 following the end of the fiscal year to which the Annual Bonus relates.
(iii) Equity Compensation Program. During the Employment Period, subject to approval by the Board (or an applicable committee of the Board), Executive shall be eligible to participate in Parent’s long-term incentive compensation program as may be in effect from time to time for senior executives of Parent and the Company generally, with such participation occurring in accordance with the approval of the Board (or an applicable committee of the Board), Parent and the Company’s policies, and the applicable award agreement and incentive compensation plan under which such awards will be granted, as in effect from time to time.
(iv) Employee Benefits. During the Employment Period, Executive shall be eligible to participate in the employee benefit plans, programs, and policies, as may be in effect from time to time, for senior executives of Parent and the Company generally.
(v) Vacation. During the Employment Period, Executive shall be entitled to paid vacation during each calendar year, consistent with the Company’s policies then applicable to executive officers.
(vi) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the performance of Executive’s duties under this Agreement and in accordance with the Company’s business expense reimbursement policy.
3. Termination of Employment.
(a) Generally. Except as hereinafter provided, the Employment Period shall continue until, and shall end upon, the second anniversary of the Effective Date (the “Initial Employment Period”). At the end of the Initial Employment Period and on each anniversary thereafter, unless the Company shall have given Executive sixty (60) days written notice that the Employment Period will not be extended, the Employment Period shall be extended for an additional year. The term “Employment Period” as used in this Agreement shall refer to the Initial Employment Period or the Employment Period as so extended. If the Company gives Executive sixty (60) days written notice that the Employment Period will not be extended, then, unless otherwise agreed by the Company and Executive, Executive’s employment with the Company shall terminate immediately following the last day of the Employment Period. Notwithstanding the foregoing, the Employment Period (to the extent then in effect) will cease on the Date of Termination (as defined in Section 3(g)).
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(b) Death or Disability. Executive’s employment shall terminate automatically if Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of Executive has occurred during the Employment Period (pursuant to the definition of “Disability” set forth below), it may give to Executive written notice in accordance with Section 14(b) of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. “Disability” means the absence of Executive from Executive’s duties with the Company on a full-time basis for 90 consecutive business days, or 90 business days during any period of 120 consecutive business days, as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to Executive or Executive’s legal representative (such agreement as to acceptability not to be unreasonably withheld).
(c) By the Company. The Company may terminate Executive’s employment during the Employment Period for any, or no reason, with or without Cause. For purposes of this Agreement, “Cause” will be deemed to exist upon:
(i) any use or misappropriation by Executive of the funds, assets or property of Parent, the Company, or their subsidiaries or affiliates for any personal or other improper purpose;
(ii) any act of moral turpitude, dishonesty, fraud by or felony conviction of Executive whether or not such acts were committed in connection with the business of the Company, an affiliate or a subsidiary, if such act or conviction, in the reasonable good faith judgment of the Board, could reasonably be expected to be materially injurious to the financial condition or business reputation of Parent, the Company, or their subsidiaries or affiliates;
(iii) any failure by Executive substantially to perform the lawful instructions of the person(s) to whom Executive reports (other than as a result of total or partial incapacity due to physical or mental illness) following written notice by the Company to Executive of such failure and 15 days within which to cure such failure;
(iv) any willful or gross misconduct by Executive in connection with Executive’s duties to the Company which, in the reasonable good faith judgment of the Board, could reasonably be expected to be materially injurious to the financial condition or business reputation of Parent, the Company or their subsidiaries or affiliates;
(v) any failure by Executive to follow a material Company or Parent policy; or
(vi) any material breach by Executive of this Agreement.
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The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (excluding Executive, if Executive is a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel for Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive has engaged in the conduct described in Section 3(c), and specifying the particulars thereof in detail.
(d) By Executive. Executive’s employment may be terminated during the Employment Period by Executive for Good Reason or by Executive without Good Reason. For purposes of this Agreement, “Good Reason” shall mean, in the absence of the prior written consent of Executive:
(i) a material diminution in Executive’s duties, authorities or responsibilities;
(ii) a material reduction of Executive’s Annual Base Salary or Target Bonus;
(iii) relocation of Executive’s primary workplace, as assigned to Executive by the Company in accordance with Section 2(a)(i), beyond a 50 mile radius from such workplace; or
(iv) any other material breach by the Company of this Agreement;
provided, however, that Executive’s termination of employment shall not be deemed to be for Good Reason unless (A) Executive has notified the Company in writing describing the occurrence of one or more Good Reason events within 90 days of such occurrence, (B) the Company fails to cure such Good Reason event within 30 days after its receipt of such written notice and (C) the termination of employment occurs within 180 days after the occurrence of the applicable Good Reason event.
(e) Notice of Termination; Expiration of Employment Period. Any termination of employment by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(b) of this Agreement. “Notice of Termination” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s respective rights hereunder.
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(f) Resignation. Upon any termination of Executive’s employment with the Company, Executive shall be deemed to resign from any position as an officer, director, or fiduciary of the Company, Parent and any related entity.
(g) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or such later date specified in the Notice of Termination, as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies Executive of such termination, (iii) if Executive resigns without Good Reason, the date on which Executive notifies the Company of such termination, and (iv) if Executive’s employment is terminated by reason of death or Disability, the date of Executive’s death or the Disability Effective Date, as the case may be. Notwithstanding the foregoing, in no event shall the Date of Termination occur until Executive experiences a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the date on which such separation from service takes place shall be the “Date of Termination.” Upon the expiration of the Employment Period and in the event Executive continues employment with the Company, Executive’s employment will be at-will and the terms of this Agreement (other than Section 8) will have no further effect.
4. Obligations of the Company upon Termination.
(a) By Executive for Good Reason or by the Company other than for Cause, Death or Disability Not During the Change in Control Period. If, during the Employment Period, the Company terminates Executive’s employment other than for Cause, death or Disability, including by providing notice to Executive pursuant to Section 3(a) that the Employment Period will not be extended and Executive’s employment is terminated, or Executive terminates employment for Good Reason, and, in each case, Executive is not entitled to any amounts or benefits pursuant to Section 4(b):
(i) The Company shall pay to Executive, in a lump sum in cash within 30 days after the Date of Termination (or earlier, if required by applicable law), the aggregate of the following amounts: the sum of (A) Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (B) Executive’s business expenses that are reimbursable pursuant to Section 2(b)(vi) of this Agreement but have not been reimbursed by the Company as of the Date of Termination; (C) Executive’s Annual Bonus for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs, if such Annual Bonus has been earned but not paid as of the Date of Termination; and (D) any accrued vacation pay to the extent not theretofore paid (the sum of the amounts described in subclauses (A), (B), (C) and (D), the “Accrued Obligations”);
(ii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) two by (B) the sum of (1) Executive’s Annual Base Salary (without regard to any reduction thereto) and (2) Executive’s Target Bonus (without regard to any reduction thereto);
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(iii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) Executive’s Target Bonus for the fiscal year in which the Date of Termination occurs, by (B) a fraction, the numerator of which is the total number of days that have elapsed during such fiscal year through the Date of Termination and the denominator of which is the total number of days in the applicable fiscal year;
(iv) If Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by Executive for Executive and Executive’s dependents and the monthly premium amount paid by Executive for such coverage immediately prior to the Date of Termination. Such reimbursement shall be paid to Executive on the first of the month immediately following the month in which Executive timely remits the premium payment. Executive shall be eligible to receive such reimbursement until the earliest of (A) 24 months following the Date of Termination, (B) the time Executive is no longer eligible for such COBRA coverage, or (C) the date Executive becomes eligible for group health care insurance coverage from another employer; provided, that Executive shall promptly notify the Company of any such circumstances. For the avoidance of doubt, nothing in this Agreement (including Section 4(b)) shall prohibit the Company or any of its affiliates from amending or terminating any group health plan. Notwithstanding anything in this Agreement (including Section 4(b)) to the contrary, in the event that the payment of amounts payable under this clause (iv) or in Section 4(b)(iv), as applicable, shall result in adverse tax consequences under Chapter 100 of the Code, Code Section 4980D or otherwise to the Company or its affiliates, the parties shall undertake commercially reasonable efforts to restructure such benefit in an economically equivalent manner to avoid the imposition of such taxes on the Company or the affiliate, provided, however, that should the Company’s auditors determine in good faith that no such alternative arrangement is achievable, Executive shall not be entitled to his or her rights to payment under this clause (iv) or Section 4(b)(iv), as applicable. Further, neither the Company nor any of its employees, directors, managers, board members, affiliates, parents, stakeholders, equityholders, agents, successors, predecessors or related parties guarantees the tax treatment of any benefit under this clause (iv) or Section 4(b)(iv), as applicable, and no such party shall have liability to Executive or his or her beneficiaries with respect to the taxation of such benefits or amounts payable in respect thereof; and
(v) To the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any Other Benefits (as defined in Section 5) in accordance with the terms of the underlying plans or agreements.
Other than as set forth in this Section 4(a), in the event of a termination of Executive’s employment by the Company without Cause (other than due to death or Disability) or by Executive for Good Reason, the Company shall have no further obligation to Executive under this Agreement.
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(b) By Executive for Good Reason or By the Company Other than for Cause, Death, or Disability During the Change in Control Period. If, during the Employment Period, the Company terminates Executive’s employment other than for Cause, death or disability, including by providing notice to Executive pursuant to Section 3(a) that the Employment Period will not be extended and Executive’s employment is terminated, or Executive terminates employment for Good Reason, in each case, within a period of two years after a Change in Control (the “Change in Control Period”), the Company will pay and provide to Executive the amounts and benefits specified in Section 4(b)(i)-(vi) herein in lieu of the amounts and benefits provided in Section 4(a).
(i) The Company shall pay to Executive, in a lump sum in cash within 30 days after the Date of Termination (or earlier, if required by applicable law), the aggregate of the Accrued Obligations (as defined in Section 4(a)(i)).
(ii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) three by (B) the sum of (1) Executive’s Annual Base Salary (without regard to any reduction thereto) and (2) Executive’s Target Bonus (without regard to any reduction thereto);
(iii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) Executive’s Target Bonus for the fiscal year in which the Date of Termination occurs, by (B) a fraction, the numerator of which is the total number of days that have elapsed during such fiscal year through the Date of Termination and the denominator of which is the total number of days in the applicable fiscal year;
(iv) If Executive timely and properly elects health continuation coverage under COBRA, the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by Executive for Executive and Executive’s dependents and the monthly premium amount paid by Executive for such coverage immediately prior to the Date of Termination. Such reimbursement shall be paid to Executive on the first of the month immediately following the month in which Executive timely remits the premium payment. Executive shall be eligible to receive such reimbursement until the earliest of (A) 36 months following the Date of Termination, (B) the time Executive is no longer eligible for such COBRA coverage, or (C) the date Executive becomes eligible for group health care insurance coverage from another employer; provided, that Executive shall promptly notify the Company of any such circumstances; and
(v) Any outstanding equity-based awards granted to Executive under Parent’s 2024 Equity and Incentive Compensation Plan (or any successor plan) (the “Equity Plan”) shall vest in full (with performance-based awards vesting at the greater of target performance and actual performance measured as of the Date of Termination) and shall be paid in accordance with the terms of the Equity Plan and the applicable equity award agreements; and
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(vi) To the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any Other Benefits (as defined in Section 5) in accordance with the terms of the underlying plans or agreements.
(c) Death or Disability. If Executive’s employment is terminated by reason of Executive’s death or Disability during the Employment Period, the Company shall provide Executive or, in the event of death, Executive’s estate or beneficiaries, with the Accrued Obligations and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. The Accrued Obligations shall be paid to Executive or, in the event of death, Executive’s estate or beneficiaries, in a lump sum in cash within 30 days of the applicable Date of Termination.
(d) Cause; Other than for Good Reason. If Executive’s employment is terminated for Cause during the Employment Period, the Company shall provide Executive with Executive’s Annual Base Salary through the Date of Termination, and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. If Executive voluntarily terminates employment other than for Good Reason during the Employment Period, the Company shall provide to Executive the Accrued Obligations and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. In such case, all the Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination.
(e) Release. Notwithstanding anything herein to the contrary, the Company shall not be obligated to make any payment under Sections 4(a)(ii)-(iv) or Sections 4(b)(ii)-(v) of this Agreement, as applicable, unless (i) prior to the 60th day following the Date of Termination, Executive executes a release of claims against the Company and its affiliates in a form provided by the Company (the “Release”), and (ii) any applicable revocation period has expired during such 60-day period without Executive revoking such Release.
(f) Change in Control. For purposes of this Agreement, “Change in Control” means the occurrence (after the date of the consummation of the initial public offering Parent’s common stock (the “IPO Date”)) of any of the following events; provided, that, for the avoidance of doubt, the initial public offering of Parent’s common stock shall not constitute a Change in Control for purposes of this Agreement:
(i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of Parent where such acquisition causes such Person to own 50% or more of the combined voting power of the then outstanding voting securities of Parent entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not be deemed to result in a Change in Control: (A) any acquisition
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directly from Parent that is approved by the Incumbent Board (as defined in subsection (ii) below), (B) any acquisition by Parent, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Parent or any corporation controlled by Parent or (D) any acquisition by any corporation pursuant to a transaction that complies with clauses (A), (B) and (C) of subsection (iii) below; provided, further, that if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 50% as a result of a transaction described in clause (A) or (B) above, and such Person subsequently acquires beneficial ownership of additional voting securities of Parent, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 50% or more of the Outstanding Company Voting Securities; and provided, further, that if at least a majority of the members of the Incumbent Board determines in good faith that a Person has acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the Outstanding Company Voting Securities inadvertently, and such Person divests as promptly as practicable a sufficient number of shares so that such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) less than 50% of the Outstanding Company Voting Securities, then no Change in Control shall have occurred as a result of such Person’s acquisition;
(ii) individuals who, as of the IPO Date, constitute the Board (the “Incumbent Board” as modified by this subsection (ii)) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the IPO Date whose election, or nomination for election by Parent’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by specific vote or by approval of the proxy statement of Parent in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
(iii) the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of Parent or the acquisition of assets of another corporation or other transaction (“Business Combination”) excluding, however, such a Business Combination pursuant to which (A) the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns Parent or all or substantially all of Parent’s assets either directly or through one or more subsidiaries), (B) no Person (excluding any employee benefit plan (or related trust) of Parent, Parent or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 50% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the entity
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resulting from such Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(iv) approval by Parent’s stockholders of a complete liquidation or dissolution of Parent except pursuant to a Business Combination that complies with clauses (A), (B) and (C) of subsection (iii) above.
5. Non-Exclusivity of Rights. Amounts that Executive is otherwise entitled to receive under any plan, policy, practice or program of or any other contract or agreement with the Company or its affiliates at or subsequent to the Date of Termination (“Other Benefits”) shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. Notwithstanding the foregoing, Executive shall not be eligible to participate in any other severance plan, program or policy of the Company or its affiliates.
6. Set-off; No Mitigation. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be subject to set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company or its affiliates may have against Executive to the extent such set-off or other action does not violate Section 409A of the Code. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement.
7. Limitations on Payments Under Certain Circumstances. Notwithstanding any provision of any other plan, program, arrangement or agreement to the contrary, in the event that it shall be determined that any payment or benefit to be provided by the Company to Executive pursuant to the terms of this Agreement or any other payments or benefits received or to be received by Executive (a “Payment”) in connection with or as a result of any event which is deemed by the U.S. Internal Revenue Service or any other taxing authority to constitute a change in the ownership or effective control of Parent or the Company, or in the ownership of a substantial portion of the assets of Parent or the Company and subject to the tax (the “Excise Tax”) imposed by Section 4999 (or any successor section) of the Code, the Payments, whether under this Agreement or otherwise, shall be reduced so that the Payment, in the aggregate, is reduced to the greatest amount that could be paid to Executive without giving rise to any Excise Tax; provided that in the event that Executive would be placed in a better after-tax position after receiving all Payments and not having any reduction of Payments as provided hereunder, Executive shall, notwithstanding the provisions of any other plan, program, arrangement or agreement to the contrary, receive all Payments and pay any applicable Excise Tax. All determinations under this Section 7 shall be made by a nationally recognized accounting firm selected by Parent or the Company (the “Accounting Firm”). Without limiting the generality of the foregoing, any determination by the Accounting Firm under this Section 7 shall take into account the value of any reasonable compensation for services to be rendered by Executive (or for holding oneself out as available to perform services and refraining from performing services (such as under a covenant not to compete)). If the Payments are to be reduced pursuant to this Section 7, the Payments shall be reduced in the following order: (a) Payments which do not
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constitute “nonqualified deferred compensation” subject to Section 409A of the Code shall be reduced first; and (b) all other Payments shall then be reduced, in each case as follows: (i) cash payments shall be reduced before non-cash payments and (ii) payments to be made on a later payment date shall be reduced before payments to be made on an earlier payment date.
8. Restrictive Covenants.
(a) Acknowledgements and Agreements. Executive hereby acknowledges and agrees that in the performance of Executive’s duties to the Company during Executive’s employment, Executive shall be brought into frequent contact with existing and potential customers of the Company throughout the continental Unites States. Executive also agrees that Executive will obtain knowledge and skill relevant to the Company’s industry, methods of doing business, and marketing strategies by virtue of Executive’s employment. Executive further agrees that trade secrets and confidential information of the Company, more fully described in Section 8(i), have been developed by the Company through substantial expenditures of time, effort and money and constitute valuable and unique property of the Company with great competitive importance and commercial value to the Company. Executive further understands and agrees that the foregoing makes it necessary for the protection of the Company’s legitimate business interests that Executive comply with the restrictive covenants, as further provided in the following sections. Executive acknowledges and agrees that the terms and conditions of this Section 8 are fair, reasonable, and not unduly restrictive on Executive and are reasonably necessary to protect the legitimate business interests of the Company and to prevent irreparable harm to the Company.
(b) Competitive Activity During Employment. Executive will not compete with the Company anywhere within the United States during Executive’s employment with the Company, including, without limitation:
(i) entering into or engaging in any business which competes with the Company’s Business;
(ii) soliciting customers, business, patronage or orders for, or selling, any products or services in competition with, or for any business that competes with, the Company’s Business;
(iii) diverting, enticing or otherwise taking away any customers, business, patronage, or orders of the Company or attempting to do so;
(iv) soliciting any employee, sales representative, agent or consultant of the Company to terminate their employment, relationship or other association with the Company or attempting to do so; or
(v) promoting or assisting, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Company’s Business.
(c) Following Termination. For a period of two years following Executive’s termination of employment with the Company, for any reason, Executive shall not, on Executive’s own account or as a partner, joint venturer, employee, agent, contractor, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity:
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(i) Provide services the same or substantially similar to those duties performed by Executive as President and Chief Executive Officer for the Company for any person or entity that competes with the Company’s Business (as hereinafter defined) within the Restricted Territory (as hereinafter defined);
(ii) Directly or indirectly, solicit or attempt to solicit business, patronage or orders for products or services in competition with those provided by the Company, on Executive’s own behalf or for any person or entity, wherever located, from any Company customers or actively sought prospective customers with whom Executive had Material Contact (as hereinafter defined). This Section 8(c)(ii) does not prohibit Executive from accepting as a customer any Company customer or actively sought prospective customer who: (A) responds to a general advertisement or solicitation, including but not limited to advertisements or solicitations through newspapers, trade publications, periodicals or internet databases, not specifically directed at customers or prospective customers of the Company; or (B) unilaterally contacts Executive in the absence of any violation of this Section 8(c)(ii) by Executive;
(iii) Directly or indirectly, within the Restricted Territory, solicit or recruit, or attempt to solicit or recruit, for purposes of terminating employment, relationship or other association with the Company, any employee, sales representative, agent or consultant of the Company with whom Executive worked or about whom Executive came to know confidential information as a result of Executive’s employment with the Company, and who has not prior thereto ceased to be employed or retained by the Company, to terminate their employment, relationship or other association with the Company. This Section 8(c)(iii) shall not prohibit Executive from soliciting or hiring any person who: (A) responds to a general advertisement or solicitation, including but not limited to advertisements or solicitations through newspapers, trade publications, periodicals, internet databases or recruiting or employment agencies, not specifically directed at employees, sales representatives, agents or consultants of the Company; or (B) unilaterally contacts Executive in the absence of any violation of this Section 8(c)(iii) by Executive.
(d) The “Company.” For the purposes of this Section 8, the “Company” shall include any and all direct and indirect subsidiaries, parents, and affiliated or related companies thereof or the Company for which Executive worked or had responsibility at the time of termination of Executive’s employment and at any time during the two year period prior to such termination.
(e) The Company’s “Business.” For the purposes of this Section 8, the Company’s Business is defined to mean owning, operating or providing business consulting services to pharmacies that offer pharmaceutical products and services to long-term care facilities, including skilled nursing facilities, assisted living facilities and behavioral health facilities, as such activities are conducted by the Company, or the provision of any other products or services conducted, authorized, offered or provided by the Company within the two year period prior to Executive’s termination.
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(f) “Material Contact.” For purposes of this Section 8, Material Contact is defined to be contact between Executive and each customer and prospective customer: (i) with whom or which the Executive dealt on behalf of the Company; (ii) whose dealings with the Company were coordinated or supervised by Executive; (iii) about whom Executive obtained Confidential Information in the ordinary course of business as a result of Executive’s association with the Company; or (iv) who received products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Executive within the two years prior to the Executive’s termination from the Company.
(g) “Restricted Territory.” For the purposes of Section 8, the Restricted Territory shall be defined as and limited to:
(i) (A) the geographic area(s) within a 100 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; or (B) in the event that the foregoing definition of Restricted Territory in this Section 8(g)(i)(A) is deemed to be overbroad or otherwise enforceable even after judicial modification, then this Section 8(g)(i)(A) shall mean the geographic area(s) within a 50 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; and
(ii) (A) the geographic areas(a) within a 100 mile radius of any and all of the specific customer accounts, whether within or outside of the geographic area described in (i) above, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; (B) in the event that the foregoing definition of Restricted Territory in this Section 8(g)(ii)(B) is deemed to be overbroad or otherwise enforceable even after judicial modification, then this Section 8(g)(i) shall mean the geographic area(s) within a 50 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.
(h) Non-Disclosure/Return of Company Property and Information.
(i) Confidential Information Defined. Executive acknowledges that, in the course of Executive’s employment with the Company, Executive has had and will have access to, and will be making use of, acquiring, and adding to the Company’s confidential and proprietary information, including, without limitation, any of the following: trade secrets; patent applications and invention disclosures; confidential business records;
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computer software programs or any portions or logic comprising said programs; technical or non-technical data, formulae or compilations; vendor and product information; customer and prospective customer lists; information about customers, prospective customers and consultants requirements; terms of contracts with customers and consultants; research, production, programming, development, engineering, and distribution processes or techniques; the Company’s unique selling, manufacturing and servicing methods and business techniques; training, service and business manuals; promotional materials; training courses and other training and instructional materials; methods of doing business; costs and pricing information; advertising, promotions, marketing information, or sales techniques; planning and financial information of the Company; business opportunities; business plans; target markets; pricing formulas; financial models; working methods; profit formulas; studies; servicing plans; portfolio management strategies; and any other proprietary and/or confidential business information of the Company (hereinafter referred to as the “Confidential Information”). Executive further understands that the term Confidential Information does not include any information that is in the public domain or becomes generally known or available from a source other than the Company without a breach of any agreement with the Company and without any restriction on disclosure.
(ii) Duty of Non-Disclosure and Non-Use. In consideration of employment by the Company, Executive agrees that Executive shall not, for any purpose whatsoever other than to the extent necessary to render services to the Company, directly or indirectly, divulge or disclose to any individual or entity, or use in any manner or allow others to use in any manner through Executive, any of the Confidential Information, but shall hold all of the same confidential for so long as such Confidential Information: (A) constitutes trade secrets; and/or (B) is not publicly and widely known or made generally available through no wrongful act of Executive in violation of this Agreement or others who were under confidentiality obligations as to the relevant Confidential Information.
(iii) Return of Information. Any Confidential Information furnished to Executive by the Company, used by Executive on the Company’s behalf, or generated or obtained by Executive during the course of Executive’s employment with the Company, is and shall at all times remain the property of the Company. Executive acknowledges that this property is confidential and is not readily accessible to the Company’s competitors. Upon termination of the employment relationship between Executive and the Company, or prior thereto at the Company’s request, Executive shall immediately deliver to the Company all such property, including all copies, remaining in Executive’s possession or control.
(iv) Notwithstanding the foregoing, nothing in this Agreement prohibits Executive from reporting possible violations of law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal or state law or regulation. Likewise, nothing in this Agreement is intended to or shall prevent, impede or interfere with Executive from providing truthful testimony and information in the course of, or otherwise participating in, an investigation or proceeding conducted by a governmental agency or entity in connection with the lawful exercise of such agency’s or entity’s functions.
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(v) The U.S. Defend Trade Secrets Act of 2016 (“DTSA”) provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, the DTSA provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order.
(i) Discoveries and Inventions. Executive agrees that any discoveries, inventions, know-how, and improvements (collectively “Inventions”), whether patentable or not, made, conceived or suggested, either solely or jointly with others, by Executive while in the Company’s employ, whether in the course of Executive’s employment with the use of the Company’s time, material or facilities or that is in any way within or related to the existing or contemplated scope of the Company’s business, shall be solely the property of the Company. Any Inventions relating to any subject matter with which the Company was concerned during Executive’s employment and made, conceived or suggested by Executive, either solely or jointly with others, within one year following termination of Executive’s employment under this Agreement or any successor agreements shall be irrebuttably presumed to have been so made, conceived or suggested in the course of such employment with the use of the Company’s time, materials or facilities, and to be solely the property of the Company. Executive agrees, both during and after employment with the Company, to disclose promptly and in writing to the Company all Inventions that Executive, whether solely or jointly with others, makes, discovers, develops, conceives, and/or reduces to practice. Executive hereby assigns and agrees to assign to the Company or its designee, without further consideration, Executive’s entire right and interest in and to all such Inventions. Upon request by the Company with respect to any such Inventions, Executive will execute and deliver to the Company, at any time during or after Executive’s employment, all appropriate documents for use in applying for, obtaining and maintaining such domestic and foreign patents as the Company may desire, and all proper assignments therefor, when so requested, at the expense of the Company, but without further or additional consideration.
(j) Work Made For Hire. Executive acknowledges that, to the extent permitted by law, all work papers, reports, documentation, drawings, specifications, photographs, negatives, tapes and masters therefore, prototypes and other materials (hereinafter, “items”), including without limitation, any and all such items generated and maintained on any form of electronic media, authored or generated by Executive during Executive’s employment with the Company shall be considered a “work made for hire” and that ownership of any and all copyrights in any and all such items shall belong solely to the Company.
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(k) Remedies. The parties acknowledge and agree that any breach by Executive of the terms of this Agreement may cause the Company irreparable harm and injury for which money damages would be inadequate. Accordingly, the Company, in addition to any other remedies available at law or equity, shall be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction. The parties agree that such injunctive relief may be granted without the necessity of proving actual damages. Nothing in this Agreement shall limit the Company’s remedies under state for federal law or elsewhere.
(l) Reasonableness. Executive acknowledges and agrees that Executive’s obligations under this Section 8 are reasonable in the context of the nature of the Company’s Business and the competitive injuries likely to be sustained by the Company if Executive were to violate such obligations. Executive further acknowledges and agrees that this Agreement is made in consideration of, and is adequately supported by, the agreement of the Company to perform its obligations under this Agreement and by other consideration, which Executive acknowledges constitutes good, valuable and sufficient consideration. Executive further acknowledges and agrees that Executive’s obligations under this Section 8 will not prohibit Executive from engaging in other businesses or employment for the purpose of earning a livelihood following the termination of his employment with the Company.
(m) Modification/Reformation. If any restriction set forth in this Section 8 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time, or over too great a range of activities, or in too broad a geographic territory, it shall be interpreted to extend only over the maximum period of time, range of activities, or geographic territory as to which it would otherwise be enforceable. If any provision or covenant, or any part thereof, of this Section 8 should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability will not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Section 8 or this Agreement, all of which will remain in full force and effect.
(n) Additional Acknowledgements. Executive acknowledges and agrees that, in the event that Executive becomes subject to any other contractual arrangements with the Company regarding competition with the Company, the restrictive covenants set forth in this Agreement were executed first and shall be deemed supplemented, and in no event diminished or replaced, by such other contractual arrangements.
9. Successors.
(a) This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of, and be enforceable by, Executive’s legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
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10. Indemnification. The Company or an affiliate thereof shall indemnify Executive to the maximum extent permitted under applicable law for acts taken within the scope of Executive’s employment and Executive’s service as an officer or director of the Company or any of its subsidiaries or affiliates. To the extent that the Company or an affiliate thereof obtains coverage under a director and officer indemnification policy, Executive will be entitled to such coverage on a basis that is no less favorable than the coverage provided to any other officer or director of the Company or Parent.
11. Section 409A of the Code.
(a) The intent of the parties is that payments and benefits under this Agreement comply with, or be exempt from, Section 409A of the Code and the regulations and guidance promulgated thereunder (collectively “Section 409A”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(b) Notwithstanding any provision of this Agreement to the contrary, in the event that Executive is a “specified employee” within the meaning of Section 409A (as determined in accordance with the methodology established by the Company as in effect on the Date of Termination) (a “Specified Employee”), any payments or benefits that are considered non-qualified deferred compensation under Section 409A payable under this Agreement on account of a “separation from service” during the six-month period immediately following the Date of Termination shall, to the extent necessary to comply with Section 409A, instead be paid, or provided, as the case may be, on the first business day after the date that is six months following Executive’s “separation from service” within the meaning of Section 409A. For purposes of Section 409A, Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that is considered nonqualified deferred compensation, subject to Section 409A.
(c) With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits that are deferred compensation subject to Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.
12. Compensation Recoupment Policy. Notwithstanding anything in this Agreement to the contrary, Executive acknowledges and agrees that the terms and conditions set forth in Parent’s compensation recoupment policy as in effect from time to time, including specifically to implement Section 10D of the Exchange Act, and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national securities exchange on which the shares of Parent’s common stock may be traded) (the “Compensation Recovery Policy”) are incorporated into this Agreement by reference. To the extent the Compensation Recovery Policy is applicable to Executive, it creates additional rights
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for the Company and Parent with respect to certain compensation, including, without limitation, incentive-based compensation. Notwithstanding any provisions to the contrary, certain compensation will be subject to potential mandatory cancellation, forfeiture and/or repayment by Executive to the Company or Parent to the extent Executive is, or in the future becomes, subject to (a) any Parent clawback or recoupment policy, including the Compensation Recovery Policy, and any other policies that are adopted to comply with the requirements of any applicable laws, rules, regulations, stock exchange listing standards or otherwise, or (b) any applicable laws that impose mandatory clawback or recoupment requirements under the circumstances set forth in such laws, including as required by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or other applicable laws, rules, regulations or stock exchange listing standards, as may be in effect from time to time, and which may operate to create additional rights for the Company or Parent with respect to awards and the recovery of amounts relating thereto. Executive consents to be bound by the terms of the Compensation Recovery Policy, if applicable, and agrees and acknowledges that Executive is obligated to cooperate with, and provide any and all assistance necessary to, the Company and Parent in their efforts to recover or recoup an award, any gains or earnings related to an award, or any other applicable compensation or amounts, including, without limitation, annual cash incentive compensation, that is subject to clawback or recoupment pursuant to such laws, rules, regulations, stock exchange listing standards or Company or Parent policy. Such cooperation and assistance shall include, but is not limited to, executing, completing and submitting any documentation necessary to facilitate the recovery or recoupment by the Company or Parent from Executive of any such amounts, including from Executive’s accounts or from any other compensation, to the extent permissible under Section 409A.
13. Complete Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein, and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein, including any previous Employment Agreement between Guardian Pharmacy, LLC and Executive. Notwithstanding the foregoing, Executive acknowledges and agrees that he remains bound by the terms of that certain Restrictive Covenant Agreement entered into between Guardian Pharmacy, LLC and Executive (the “RCA”), and that the terms of the RCA are not superseded by this Agreement but are in addition to the terms of this Agreement.
14. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to principles of conflict of laws. Executive agrees that the state and federal courts located in the State of Georgia shall have jurisdiction in any action, suit or proceeding against Executive based on or arising out of this Agreement and Executive hereby: (a) submits to the personal jurisdiction of such courts; (b) consents to service of process in connection with any action, suit or proceeding against Executive; and (c) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, venue or service of process. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
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(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, or nationally-recognized overnight courier service, postage prepaid, addressed as follows:
| If to Executive: | At the most recent address on file at the Company. | |||
| If to the Company: | 300 Galleria Parkway SE | |||
| Suite 800 | ||||
| Atlanta, GA 30339 | ||||
or to such other address as either party shall have furnished to the other in writing in accordance herewith (including via electronic mail). Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company, its subsidiaries and affiliates may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes or social security charges as shall be required to be withheld pursuant to any applicable law or regulation. None of the Company, its subsidiaries or affiliates guarantees any tax result with respect to payments or benefits provided hereunder. Executive is responsible for all taxes owed with respect to all such payments and benefits.
(e) Subject to any limits on applicability contained therein, Section 8 of this Agreement shall survive and continue in full force in accordance with its terms notwithstanding any termination or expiration of the Employment Period.
(f) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
(g) Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(h) With respect to any controversy or claim arising out of or relating to or concerning injunctive relief for Executive’s breach or purported breach of Section 8 of this Agreement, the Company shall have the right, in addition to any other remedies it may have, to seek specific performance and injunctive relief with a court of competent jurisdiction, without the need to post a bond or other security.
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15. Other Acknowledgements. Nothing in this Agreement prevents Executive from providing, without prior notice to the Company, information to governmental authorities regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by any governmental authorities regarding possible legal violations.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Executive and the Company have executed this Agreement on the date first above written.
| EXECUTIVE | ||
|
| ||
| FRED P. BURKE | ||
| GUARDIAN PHARMACY SERVICES MANAGEMENT, LLC | ||
| By |
| |
| Name: | David K. Morris | |
| Title: |
Executive Vice President and Chief Executive Officer | |
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT by and between Guardian Pharmacy Services Management, LLC, a Georgia limited liability company with its principal place of business located at 300 Galleria Parkway SE, Suite 800, Atlanta, GA 30339 (the “Company”) and a wholly owned subsidiary of Guardian Pharmacy Services, Inc. (“Parent”), and David K. Morris (“Executive”), is dated as of the ____ day of September, 2024 (the “Agreement”).
The Company wishes to employ Executive on the terms and conditions, and for the consideration, hereinafter set forth, and Executive desires to be employed by the Company on such terms and conditions and for such consideration.
In consideration of the promises provided for in this Agreement, the Company and Executive agree as follows:
1. Employment Period. This Agreement shall become effective as of September ____, 2024 (the “Effective Date”). The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, on an at-will basis on the terms and conditions set-forth herein for the period commencing on the Effective Date and ending as provided in Section 3 hereof (the “Employment Period”).
2. Terms of Employment.
(a) Position and Duties. (i) During the Employment Period, Executive shall (A) serve as Executive President and Chief Financial Officer of the Parent with such duties and responsibilities as are customarily commensurate with or incident to such position for an entity similar in size to, and in a business similar to that of, Parent, (B) report to the Chief Executive Officer of Parent, and (C) perform Executive’s services at 300 Galleria Parkway SE, Suite 800, Atlanta, GA 30339 (subject to reasonable travel requirements commensurate with Executive’s position).
(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote Executive’s full business time and attention to the business and affairs of the Company, Parent and their affiliates. During the Employment Period, it will not be a violation of this Agreement for Executive to (A) serve on civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities described in clauses (A), (B) and (C) do not significantly interfere with the performance of Executive’s responsibilities as an employee of the Company in accordance with this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, Executive shall receive an annual base salary (“Annual Base Salary”) of $400,000 paid in accordance with the normal payroll practices of the Company as may be in effect from time to time, which Annual Base Salary shall be reviewed for increase at least annually.
(ii) Annual Cash Bonus. Executive shall be eligible, for each fiscal year of Parent (beginning with fiscal year 2025) ending during the Employment Period, for an annual incentive bonus in cash (the “Annual Bonus”), with a target Annual Bonus opportunity equal to no less than 60% of Annual Base Salary (“Target Bonus”) and a maximum Annual Bonus opportunity of no less than 150% of the Target Bonus. For each such fiscal year, Parent’s Board of Directors (the “Board”) (or an applicable committee of the Board) will establish the performance metrics and their relative weighting to be used in, and any specific performance goals applicable to, the determination of the Annual Bonus for Executive for such period. There is no guaranteed Annual Bonus under this Agreement, and for each applicable fiscal year, Executive’s Annual Bonus could be as low as zero or as high as the maximum percentage set forth in this paragraph. Notwithstanding anything in this Agreement to the contrary, each Annual Bonus shall be on the terms and subject to such conditions as are specified for the particular Company or Parent plans or programs pursuant to which the Annual Bonus is granted. Any Annual Bonus earned with respect to a particular fiscal year will be paid no later than March 15 following the end of the fiscal year to which the Annual Bonus relates.
(iii) Equity Compensation Program. During the Employment Period, subject to approval by the Board (or an applicable committee of the Board), Executive shall be eligible to participate in Parent’s long-term incentive compensation program as may be in effect from time to time for senior executives of Parent and the Company generally, with such participation occurring in accordance with the approval of the Board (or an applicable committee of the Board), Parent and the Company’s policies, and the applicable award agreement and incentive compensation plan under which such awards will be granted, as in effect from time to time.
(iv) Employee Benefits. During the Employment Period, Executive shall be eligible to participate in the employee benefit plans, programs, and policies, as may be in effect from time to time, for senior executives of Parent and the Company generally.
(v) Vacation. During the Employment Period, Executive shall be entitled to paid vacation during each calendar year, consistent with the Company’s policies then applicable to executive officers.
(vi) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the performance of Executive’s duties under this Agreement and in accordance with the Company’s business expense reimbursement policy.
3. Termination of Employment.
(a) Generally. Except as hereinafter provided, the Employment Period shall continue until, and shall end upon, the second anniversary of the Effective Date (the “Initial Employment Period”). At the end of the Initial Employment Period and on each anniversary thereafter, unless the Company shall have given Executive sixty (60) days written notice that the Employment Period will not be extended, the Employment Period shall be extended for an additional year. The term “Employment Period” as used in this Agreement shall refer to the Initial Employment Period or the Employment Period as so extended. If the Company gives Executive sixty (60) days written notice that the Employment Period will not be extended, then, unless otherwise agreed by the Company and Executive, Executive’s employment with the Company shall terminate immediately following the last day of the Employment Period. Notwithstanding the foregoing, the Employment Period (to the extent then in effect) will cease on the Date of Termination (as defined in Section 3(g)).
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(b) Death or Disability. Executive’s employment shall terminate automatically if Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of Executive has occurred during the Employment Period (pursuant to the definition of “Disability” set forth below), it may give to Executive written notice in accordance with Section 14(b) of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. “Disability” means the absence of Executive from Executive’s duties with the Company on a full-time basis for 90 consecutive business days, or 90 business days during any period of 120 consecutive business days, as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to Executive or Executive’s legal representative (such agreement as to acceptability not to be unreasonably withheld).
(c) By the Company. The Company may terminate Executive’s employment during the Employment Period for any, or no reason, with or without Cause. For purposes of this Agreement, “Cause” will be deemed to exist upon:
(i) any use or misappropriation by Executive of the funds, assets or property of Parent, the Company, or their subsidiaries or affiliates for any personal or other improper purpose;
(ii) any act of moral turpitude, dishonesty, fraud by or felony conviction of Executive whether or not such acts were committed in connection with the business of the Company, an affiliate or a subsidiary, if such act or conviction, in the reasonable good faith judgment of the Board, could reasonably be expected to be materially injurious to the financial condition or business reputation of Parent, the Company, or their subsidiaries or affiliates;
(iii) any failure by Executive substantially to perform the lawful instructions of the person(s) to whom Executive reports (other than as a result of total or partial incapacity due to physical or mental illness) following written notice by the Company to Executive of such failure and 15 days within which to cure such failure;
(iv) any willful or gross misconduct by Executive in connection with Executive’s duties to the Company which, in the reasonable good faith judgment of the Board, could reasonably be expected to be materially injurious to the financial condition or business reputation of Parent, the Company or their subsidiaries or affiliates;
(v) any failure by Executive to follow a material Company or Parent policy; or
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(vi) any material breach by Executive of this Agreement.
The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (excluding Executive, if Executive is a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel for Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive has engaged in the conduct described in Section 3(c), and specifying the particulars thereof in detail.
(d) By Executive. Executive’s employment may be terminated during the Employment Period by Executive for Good Reason or by Executive without Good Reason. For purposes of this Agreement, “Good Reason” shall mean, in the absence of the prior written consent of Executive:
(i) a material diminution in Executive’s duties, authorities or responsibilities;
(ii) a material reduction of Executive’s Annual Base Salary or Target Bonus;
(iii) relocation of Executive’s primary workplace, as assigned to Executive by the Company in accordance with Section 2(a)(i), beyond a 50 mile radius from such workplace; or
(iv) any other material breach by the Company of this Agreement;
provided, however, that Executive’s termination of employment shall not be deemed to be for Good Reason unless (A) Executive has notified the Company in writing describing the occurrence of one or more Good Reason events within 90 days of such occurrence, (B) the Company fails to cure such Good Reason event within 30 days after its receipt of such written notice and (C) the termination of employment occurs within 180 days after the occurrence of the applicable Good Reason event.
(e) Notice of Termination; Expiration of Employment Period. Any termination of employment by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(b) of this Agreement. “Notice of Termination” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s respective rights hereunder.
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(f) Resignation. Upon any termination of Executive’s employment with the Company, Executive shall be deemed to resign from any position as an officer, director, or fiduciary of the Company, Parent and any related entity.
(g) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or such later date specified in the Notice of Termination, as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies Executive of such termination, (iii) if Executive resigns without Good Reason, the date on which Executive notifies the Company of such termination, and (iv) if Executive’s employment is terminated by reason of death or Disability, the date of Executive’s death or the Disability Effective Date, as the case may be. Notwithstanding the foregoing, in no event shall the Date of Termination occur until Executive experiences a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the date on which such separation from service takes place shall be the “Date of Termination.” Upon the expiration of the Employment Period and in the event Executive continues employment with the Company, Executive’s employment will be at-will and the terms of this Agreement (other than Section 8) will have no further effect.
4. Obligations of the Company upon Termination.
(a) By Executive for Good Reason or by the Company other than for Cause, Death or Disability Not During the Change in Control Period. If, during the Employment Period, the Company terminates Executive’s employment other than for Cause, death or Disability, including by providing notice to Executive pursuant to Section 3(a) that the Employment Period will not be extended and Executive’s employment is terminated, or Executive terminates employment for Good Reason, and, in each case, Executive is not entitled to any amounts or benefits pursuant to Section 4(b):
(i) The Company shall pay to Executive, in a lump sum in cash within 30 days after the Date of Termination (or earlier, if required by applicable law), the aggregate of the following amounts: the sum of (A) Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (B) Executive’s business expenses that are reimbursable pursuant to Section 2(b)(vi) of this Agreement but have not been reimbursed by the Company as of the Date of Termination; (C) Executive’s Annual Bonus for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs, if such Annual Bonus has been earned but not paid as of the Date of Termination; and (D) any accrued vacation pay to the extent not theretofore paid (the sum of the amounts described in subclauses (A), (B), (C) and (D), the “Accrued Obligations”);
(ii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) two by (B) the sum of (1) Executive’s Annual Base Salary (without regard to any reduction thereto) and (2) Executive’s Target Bonus (without regard to any reduction thereto);
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(iii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) Executive’s Target Bonus for the fiscal year in which the Date of Termination occurs, by (B) a fraction, the numerator of which is the total number of days that have elapsed during such fiscal year through the Date of Termination and the denominator of which is the total number of days in the applicable fiscal year;
(iv) If Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by Executive for Executive and Executive’s dependents and the monthly premium amount paid by Executive for such coverage immediately prior to the Date of Termination. Such reimbursement shall be paid to Executive on the first of the month immediately following the month in which Executive timely remits the premium payment. Executive shall be eligible to receive such reimbursement until the earliest of (A) 24 months following the Date of Termination, (B) the time Executive is no longer eligible for such COBRA coverage, or (C) the date Executive becomes eligible for group health care insurance coverage from another employer; provided, that Executive shall promptly notify the Company of any such circumstances. For the avoidance of doubt, nothing in this Agreement (including Section 4(b)) shall prohibit the Company or any of its affiliates from amending or terminating any group health plan. Notwithstanding anything in this Agreement (including Section 4(b)) to the contrary, in the event that the payment of amounts payable under this clause (iv) or in Section 4(b)(iv), as applicable, shall result in adverse tax consequences under Chapter 100 of the Code, Code Section 4980D or otherwise to the Company or its affiliates, the parties shall undertake commercially reasonable efforts to restructure such benefit in an economically equivalent manner to avoid the imposition of such taxes on the Company or the affiliate, provided, however, that should the Company’s auditors determine in good faith that no such alternative arrangement is achievable, Executive shall not be entitled to his or her rights to payment under this clause (iv) or Section 4(b)(iv), as applicable. Further, neither the Company nor any of its employees, directors, managers, board members, affiliates, parents, stakeholders, equityholders, agents, successors, predecessors or related parties guarantees the tax treatment of any benefit under this clause (iv) or Section 4(b)(iv), as applicable, and no such party shall have liability to Executive or his or her beneficiaries with respect to the taxation of such benefits or amounts payable in respect thereof; and
(v) To the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any Other Benefits (as defined in Section 5) in accordance with the terms of the underlying plans or agreements.
Other than as set forth in this Section 4(a), in the event of a termination of Executive’s employment by the Company without Cause (other than due to death or Disability) or by Executive for Good Reason, the Company shall have no further obligation to Executive under this Agreement.
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(b) By Executive for Good Reason or By the Company Other than for Cause, Death, or Disability During the Change in Control Period. If, during the Employment Period, the Company terminates Executive’s employment other than for Cause, death or disability, including by providing notice to Executive pursuant to Section 3(a) that the Employment Period will not be extended and Executive’s employment is terminated, or Executive terminates employment for Good Reason, in each case, within a period of two years after a Change in Control (the “Change in Control Period”), the Company will pay and provide to Executive the amounts and benefits specified in Section 4(b)(i)-(vi) herein in lieu of the amounts and benefits provided in Section 4(a).
(i) The Company shall pay to Executive, in a lump sum in cash within 30 days after the Date of Termination (or earlier, if required by applicable law), the aggregate of the Accrued Obligations (as defined in Section 4(a)(i)).
(ii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) three by (B) the sum of (1) Executive’s Annual Base Salary (without regard to any reduction thereto) and (2) Executive’s Target Bonus (without regard to any reduction thereto);
(iii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) Executive’s Target Bonus for the fiscal year in which the Date of Termination occurs, by (B) a fraction, the numerator of which is the total number of days that have elapsed during such fiscal year through the Date of Termination and the denominator of which is the total number of days in the applicable fiscal year;
(iv) If Executive timely and properly elects health continuation coverage under COBRA, the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by Executive for Executive and Executive’s dependents and the monthly premium amount paid by Executive for such coverage immediately prior to the Date of Termination. Such reimbursement shall be paid to Executive on the first of the month immediately following the month in which Executive timely remits the premium payment. Executive shall be eligible to receive such reimbursement until the earliest of (A) 36 months following the Date of Termination, (B) the time Executive is no longer eligible for such COBRA coverage, or (C) the date Executive becomes eligible for group health care insurance coverage from another employer; provided, that Executive shall promptly notify the Company of any such circumstances; and
(v) Any outstanding equity-based awards granted to Executive under Parent’s 2024 Equity and Incentive Compensation Plan (or any successor plan) (the “Equity Plan”) shall vest in full (with performance-based awards vesting at the greater of target performance and actual performance measured as of the Date of Termination) and shall be paid in accordance with the terms of the Equity Plan and the applicable equity award agreements; and
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(vi) To the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any Other Benefits (as defined in Section 5) in accordance with the terms of the underlying plans or agreements.
(c) Death or Disability. If Executive’s employment is terminated by reason of Executive’s death or Disability during the Employment Period, the Company shall provide Executive or, in the event of death, Executive’s estate or beneficiaries, with the Accrued Obligations and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. The Accrued Obligations shall be paid to Executive or, in the event of death, Executive’s estate or beneficiaries, in a lump sum in cash within 30 days of the applicable Date of Termination.
(d) Cause; Other than for Good Reason. If Executive’s employment is terminated for Cause during the Employment Period, the Company shall provide Executive with Executive’s Annual Base Salary through the Date of Termination, and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. If Executive voluntarily terminates employment other than for Good Reason during the Employment Period, the Company shall provide to Executive the Accrued Obligations and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. In such case, all the Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination.
(e) Release. Notwithstanding anything herein to the contrary, the Company shall not be obligated to make any payment under Sections 4(a)(ii)-(iv) or Sections 4(b)(ii)-(v) of this Agreement, as applicable, unless (i) prior to the 60th day following the Date of Termination, Executive executes a release of claims against the Company and its affiliates in a form provided by the Company (the “Release”), and (ii) any applicable revocation period has expired during such 60-day period without Executive revoking such Release.
(f) Change in Control. For purposes of this Agreement, “Change in Control” means the occurrence (after the date of the consummation of the initial public offering Parent’s common stock (the “IPO Date”)) of any of the following events; provided, that, for the avoidance of doubt, the initial public offering of Parent’s common stock shall not constitute a Change in Control for purposes of this Agreement:
(i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of Parent where such acquisition causes such Person to own 50% or more of the combined voting power of the then outstanding voting securities of Parent entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not be deemed to result in a Change in Control: (A) any acquisition
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directly from Parent that is approved by the Incumbent Board (as defined in subsection (ii) below), (B) any acquisition by Parent, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Parent or any corporation controlled by Parent or (D) any acquisition by any corporation pursuant to a transaction that complies with clauses (A), (B) and (C) of subsection (iii) below; provided, further, that if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 50% as a result of a transaction described in clause (A) or (B) above, and such Person subsequently acquires beneficial ownership of additional voting securities of Parent, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 50% or more of the Outstanding Company Voting Securities; and provided, further, that if at least a majority of the members of the Incumbent Board determines in good faith that a Person has acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the Outstanding Company Voting Securities inadvertently, and such Person divests as promptly as practicable a sufficient number of shares so that such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) less than 50% of the Outstanding Company Voting Securities, then no Change in Control shall have occurred as a result of such Person’s acquisition;
(ii) individuals who, as of the IPO Date, constitute the Board (the “Incumbent Board” as modified by this subsection (ii)) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the IPO Date whose election, or nomination for election by Parent’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by specific vote or by approval of the proxy statement of Parent in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
(iii) the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of Parent or the acquisition of assets of another corporation or other transaction (“Business Combination”) excluding, however, such a Business Combination pursuant to which (A) the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns Parent or all or substantially all of Parent’s assets either directly or through one or more subsidiaries), (B) no Person (excluding any employee benefit plan (or related trust) of Parent, Parent or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 50% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the entity
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resulting from such Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(iv) approval by Parent’s stockholders of a complete liquidation or dissolution of Parent except pursuant to a Business Combination that complies with clauses (A), (B) and (C) of subsection (iii) above.
5. Non-Exclusivity of Rights. Amounts that Executive is otherwise entitled to receive under any plan, policy, practice or program of or any other contract or agreement with the Company or its affiliates at or subsequent to the Date of Termination (“Other Benefits”) shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. Notwithstanding the foregoing, Executive shall not be eligible to participate in any other severance plan, program or policy of the Company or its affiliates.
6. Set-off; No Mitigation. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be subject to set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company or its affiliates may have against Executive to the extent such set-off or other action does not violate Section 409A of the Code. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement.
7. Limitations on Payments Under Certain Circumstances. Notwithstanding any provision of any other plan, program, arrangement or agreement to the contrary, in the event that it shall be determined that any payment or benefit to be provided by the Company to Executive pursuant to the terms of this Agreement or any other payments or benefits received or to be received by Executive (a “Payment”) in connection with or as a result of any event which is deemed by the U.S. Internal Revenue Service or any other taxing authority to constitute a change in the ownership or effective control of Parent or the Company, or in the ownership of a substantial portion of the assets of Parent or the Company and subject to the tax (the “Excise Tax”) imposed by Section 4999 (or any successor section) of the Code, the Payments, whether under this Agreement or otherwise, shall be reduced so that the Payment, in the aggregate, is reduced to the greatest amount that could be paid to Executive without giving rise to any Excise Tax; provided that in the event that Executive would be placed in a better after-tax position after receiving all Payments and not having any reduction of Payments as provided hereunder, Executive shall, notwithstanding the provisions of any other plan, program, arrangement or agreement to the contrary, receive all Payments and pay any applicable Excise Tax. All determinations under this Section 7 shall be made by a nationally recognized accounting firm selected by Parent or the Company (the “Accounting Firm”). Without limiting the generality of the foregoing, any determination by the Accounting Firm under this Section 7 shall take into account the value of any reasonable compensation for services to be rendered by Executive (or for holding oneself out as available to perform services and refraining from performing services (such as under a covenant not to compete)). If the Payments are to be reduced pursuant to this Section 7, the Payments shall be reduced in the following order: (a) Payments which do not
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constitute “nonqualified deferred compensation” subject to Section 409A of the Code shall be reduced first; and (b) all other Payments shall then be reduced, in each case as follows: (i) cash payments shall be reduced before non-cash payments and (ii) payments to be made on a later payment date shall be reduced before payments to be made on an earlier payment date.
8. Restrictive Covenants.
(a) Acknowledgements and Agreements. Executive hereby acknowledges and agrees that in the performance of Executive’s duties to the Company during Executive’s employment, Executive shall be brought into frequent contact with existing and potential customers of the Company throughout the continental Unites States. Executive also agrees that Executive will obtain knowledge and skill relevant to the Company’s industry, methods of doing business, and marketing strategies by virtue of Executive’s employment. Executive further agrees that trade secrets and confidential information of the Company, more fully described in Section 8(i), have been developed by the Company through substantial expenditures of time, effort and money and constitute valuable and unique property of the Company with great competitive importance and commercial value to the Company. Executive further understands and agrees that the foregoing makes it necessary for the protection of the Company’s legitimate business interests that Executive comply with the restrictive covenants, as further provided in the following sections. Executive acknowledges and agrees that the terms and conditions of this Section 8 are fair, reasonable, and not unduly restrictive on Executive and are reasonably necessary to protect the legitimate business interests of the Company and to prevent irreparable harm to the Company.
(b) Competitive Activity During Employment. Executive will not compete with the Company anywhere within the United States during Executive’s employment with the Company, including, without limitation:
(i) entering into or engaging in any business which competes with the Company’s Business;
(ii) soliciting customers, business, patronage or orders for, or selling, any products or services in competition with, or for any business that competes with, the Company’s Business;
(iii) diverting, enticing or otherwise taking away any customers, business, patronage, or orders of the Company or attempting to do so;
(iv) soliciting any employee, sales representative, agent or consultant of the Company to terminate their employment, relationship or other association with the Company or attempting to do so; or
(v) promoting or assisting, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Company’s Business.
(c) Following Termination. For a period of two years following Executive’s termination of employment with the Company, for any reason, Executive shall not, on Executive’s own account or as a partner, joint venturer, employee, agent, contractor, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity:
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(i) Provide services the same or substantially similar to those duties performed by Executive as Executive Vice President and Chief Financial Officer for the Company for any person or entity that competes with the Company’s Business (as hereinafter defined) within the Restricted Territory (as hereinafter defined);
(ii) Directly or indirectly, solicit or attempt to solicit business, patronage or orders for products or services in competition with those provided by the Company, on Executive’s own behalf or for any person or entity, wherever located, from any Company customers or actively sought prospective customers with whom Executive had Material Contact (as hereinafter defined). This Section 8(c)(ii) does not prohibit Executive from accepting as a customer any Company customer or actively sought prospective customer who: (A) responds to a general advertisement or solicitation, including but not limited to advertisements or solicitations through newspapers, trade publications, periodicals or internet databases, not specifically directed at customers or prospective customers of the Company; or (B) unilaterally contacts Executive in the absence of any violation of this Section 8(c)(ii) by Executive;
(iii) Directly or indirectly, within the Restricted Territory, solicit or recruit, or attempt to solicit or recruit, for purposes of terminating employment, relationship or other association with the Company, any employee, sales representative, agent or consultant of the Company with whom Executive worked or about whom Executive came to know confidential information as a result of Executive’s employment with the Company, and who has not prior thereto ceased to be employed or retained by the Company, to terminate their employment, relationship or other association with the Company. This Section 8(c)(iii) shall not prohibit Executive from soliciting or hiring any person who: (A) responds to a general advertisement or solicitation, including but not limited to advertisements or solicitations through newspapers, trade publications, periodicals, internet databases or recruiting or employment agencies, not specifically directed at employees, sales representatives, agents or consultants of the Company; or (B) unilaterally contacts Executive in the absence of any violation of this Section 8(c)(iii) by Executive.
(d) The “Company.” For the purposes of this Section 8, the “Company” shall include any and all direct and indirect subsidiaries, parents, and affiliated or related companies thereof or the Company for which Executive worked or had responsibility at the time of termination of Executive’s employment and at any time during the two year period prior to such termination.
(e) The Company’s “Business.” For the purposes of this Section 8, the Company’s Business is defined to mean owning, operating or providing business consulting services to pharmacies that offer pharmaceutical products and services to long-term care facilities, including skilled nursing facilities, assisted living facilities and behavioral health facilities, as such activities are conducted by the Company, or the provision of any other products or services conducted, authorized, offered or provided by the Company within the two year period prior to Executive’s termination.
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(f) “Material Contact.” For purposes of this Section 8, Material Contact is defined to be contact between Executive and each customer and prospective customer: (i) with whom or which the Executive dealt on behalf of the Company; (ii) whose dealings with the Company were coordinated or supervised by Executive; (iii) about whom Executive obtained Confidential Information in the ordinary course of business as a result of Executive’s association with the Company; or (iv) who received products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Executive within the two years prior to the Executive’s termination from the Company.
(g) “Restricted Territory.” For the purposes of Section 8, the Restricted Territory shall be defined as and limited to:
(i) (A) the geographic area(s) within a 100 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; or (B) in the event that the foregoing definition of Restricted Territory in this Section 8(g)(i)(A) is deemed to be overbroad or otherwise enforceable even after judicial modification, then this Section 8(g)(i)(A) shall mean the geographic area(s) within a 50 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; and
(ii) (A) the geographic areas(a) within a 100 mile radius of any and all of the specific customer accounts, whether within or outside of the geographic area described in (i) above, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; (B) in the event that the foregoing definition of Restricted Territory in this Section 8(g)(ii)(B) is deemed to be overbroad or otherwise enforceable even after judicial modification, then this Section 8(g)(i) shall mean the geographic area(s) within a 50 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.
(h) Non-Disclosure/Return of Company Property and Information.
(i) Confidential Information Defined. Executive acknowledges that, in the course of Executive’s employment with the Company, Executive has had and will have access to, and will be making use of, acquiring, and adding to the Company’s confidential and proprietary information, including, without limitation, any of the following: trade secrets; patent applications and invention disclosures; confidential business records;
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computer software programs or any portions or logic comprising said programs; technical or non-technical data, formulae or compilations; vendor and product information; customer and prospective customer lists; information about customers, prospective customers and consultants requirements; terms of contracts with customers and consultants; research, production, programming, development, engineering, and distribution processes or techniques; the Company’s unique selling, manufacturing and servicing methods and business techniques; training, service and business manuals; promotional materials; training courses and other training and instructional materials; methods of doing business; costs and pricing information; advertising, promotions, marketing information, or sales techniques; planning and financial information of the Company; business opportunities; business plans; target markets; pricing formulas; financial models; working methods; profit formulas; studies; servicing plans; portfolio management strategies; and any other proprietary and/or confidential business information of the Company (hereinafter referred to as the “Confidential Information”). Executive further understands that the term Confidential Information does not include any information that is in the public domain or becomes generally known or available from a source other than the Company without a breach of any agreement with the Company and without any restriction on disclosure.
(ii) Duty of Non-Disclosure and Non-Use. In consideration of employment by the Company, Executive agrees that Executive shall not, for any purpose whatsoever other than to the extent necessary to render services to the Company, directly or indirectly, divulge or disclose to any individual or entity, or use in any manner or allow others to use in any manner through Executive, any of the Confidential Information, but shall hold all of the same confidential for so long as such Confidential Information: (A) constitutes trade secrets; and/or (B) is not publicly and widely known or made generally available through no wrongful act of Executive in violation of this Agreement or others who were under confidentiality obligations as to the relevant Confidential Information.
(iii) Return of Information. Any Confidential Information furnished to Executive by the Company, used by Executive on the Company’s behalf, or generated or obtained by Executive during the course of Executive’s employment with the Company, is and shall at all times remain the property of the Company. Executive acknowledges that this property is confidential and is not readily accessible to the Company’s competitors. Upon termination of the employment relationship between Executive and the Company, or prior thereto at the Company’s request, Executive shall immediately deliver to the Company all such property, including all copies, remaining in Executive’s possession or control.
(iv) Notwithstanding the foregoing, nothing in this Agreement prohibits Executive from reporting possible violations of law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal or state law or regulation. Likewise, nothing in this Agreement is intended to or shall prevent, impede or interfere with Executive from providing truthful testimony and information in the course of, or otherwise participating in, an investigation or proceeding conducted by a governmental agency or entity in connection with the lawful exercise of such agency’s or entity’s functions.
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(v) The U.S. Defend Trade Secrets Act of 2016 (“DTSA”) provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, the DTSA provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order.
(i) Discoveries and Inventions. Executive agrees that any discoveries, inventions, know-how, and improvements (collectively “Inventions”), whether patentable or not, made, conceived or suggested, either solely or jointly with others, by Executive while in the Company’s employ, whether in the course of Executive’s employment with the use of the Company’s time, material or facilities or that is in any way within or related to the existing or contemplated scope of the Company’s business, shall be solely the property of the Company. Any Inventions relating to any subject matter with which the Company was concerned during Executive’s employment and made, conceived or suggested by Executive, either solely or jointly with others, within one year following termination of Executive’s employment under this Agreement or any successor agreements shall be irrebuttably presumed to have been so made, conceived or suggested in the course of such employment with the use of the Company’s time, materials or facilities, and to be solely the property of the Company. Executive agrees, both during and after employment with the Company, to disclose promptly and in writing to the Company all Inventions that Executive, whether solely or jointly with others, makes, discovers, develops, conceives, and/or reduces to practice. Executive hereby assigns and agrees to assign to the Company or its designee, without further consideration, Executive’s entire right and interest in and to all such Inventions. Upon request by the Company with respect to any such Inventions, Executive will execute and deliver to the Company, at any time during or after Executive’s employment, all appropriate documents for use in applying for, obtaining and maintaining such domestic and foreign patents as the Company may desire, and all proper assignments therefor, when so requested, at the expense of the Company, but without further or additional consideration.
(j) Work Made For Hire. Executive acknowledges that, to the extent permitted by law, all work papers, reports, documentation, drawings, specifications, photographs, negatives, tapes and masters therefore, prototypes and other materials (hereinafter, “items”), including without limitation, any and all such items generated and maintained on any form of electronic media, authored or generated by Executive during Executive’s employment with the Company shall be considered a “work made for hire” and that ownership of any and all copyrights in any and all such items shall belong solely to the Company.
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(k) Remedies. The parties acknowledge and agree that any breach by Executive of the terms of this Agreement may cause the Company irreparable harm and injury for which money damages would be inadequate. Accordingly, the Company, in addition to any other remedies available at law or equity, shall be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction. The parties agree that such injunctive relief may be granted without the necessity of proving actual damages. Nothing in this Agreement shall limit the Company’s remedies under state for federal law or elsewhere.
(l) Reasonableness. Executive acknowledges and agrees that Executive’s obligations under this Section 8 are reasonable in the context of the nature of the Company’s Business and the competitive injuries likely to be sustained by the Company if Executive were to violate such obligations. Executive further acknowledges and agrees that this Agreement is made in consideration of, and is adequately supported by, the agreement of the Company to perform its obligations under this Agreement and by other consideration, which Executive acknowledges constitutes good, valuable and sufficient consideration. Executive further acknowledges and agrees that Executive’s obligations under this Section 8 will not prohibit Executive from engaging in other businesses or employment for the purpose of earning a livelihood following the termination of his employment with the Company.
(m) Modification/Reformation. If any restriction set forth in this Section 8 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time, or over too great a range of activities, or in too broad a geographic territory, it shall be interpreted to extend only over the maximum period of time, range of activities, or geographic territory as to which it would otherwise be enforceable. If any provision or covenant, or any part thereof, of this Section 8 should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability will not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Section 8 or this Agreement, all of which will remain in full force and effect.
(n) Additional Acknowledgements. Executive acknowledges and agrees that, in the event that Executive becomes subject to any other contractual arrangements with the Company regarding competition with the Company, the restrictive covenants set forth in this Agreement were executed first and shall be deemed supplemented, and in no event diminished or replaced, by such other contractual arrangements.
9. Successors.
(a) This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of, and be enforceable by, Executive’s legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
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10. Indemnification. The Company or an affiliate thereof shall indemnify Executive to the maximum extent permitted under applicable law for acts taken within the scope of Executive’s employment and Executive’s service as an officer or director of the Company or any of its subsidiaries or affiliates. To the extent that the Company or an affiliate thereof obtains coverage under a director and officer indemnification policy, Executive will be entitled to such coverage on a basis that is no less favorable than the coverage provided to any other officer or director of the Company or Parent.
11. Section 409A of the Code.
(a) The intent of the parties is that payments and benefits under this Agreement comply with, or be exempt from, Section 409A of the Code and the regulations and guidance promulgated thereunder (collectively “Section 409A”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(b) Notwithstanding any provision of this Agreement to the contrary, in the event that Executive is a “specified employee” within the meaning of Section 409A (as determined in accordance with the methodology established by the Company as in effect on the Date of Termination) (a “Specified Employee”), any payments or benefits that are considered non-qualified deferred compensation under Section 409A payable under this Agreement on account of a “separation from service” during the six-month period immediately following the Date of Termination shall, to the extent necessary to comply with Section 409A, instead be paid, or provided, as the case may be, on the first business day after the date that is six months following Executive’s “separation from service” within the meaning of Section 409A. For purposes of Section 409A, Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that is considered nonqualified deferred compensation, subject to Section 409A.
(c) With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits that are deferred compensation subject to Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.
12. Compensation Recoupment Policy. Notwithstanding anything in this Agreement to the contrary, Executive acknowledges and agrees that the terms and conditions set forth in Parent’s compensation recoupment policy as in effect from time to time, including specifically to implement Section 10D of the Exchange Act, and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national securities exchange on which the shares of Parent’s common stock may be traded) (the “Compensation Recovery Policy”) are incorporated into this Agreement by reference. To the extent the Compensation Recovery Policy is applicable to Executive, it creates additional rights
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for the Company and Parent with respect to certain compensation, including, without limitation, incentive-based compensation. Notwithstanding any provisions to the contrary, certain compensation will be subject to potential mandatory cancellation, forfeiture and/or repayment by Executive to the Company or Parent to the extent Executive is, or in the future becomes, subject to (a) any Parent clawback or recoupment policy, including the Compensation Recovery Policy, and any other policies that are adopted to comply with the requirements of any applicable laws, rules, regulations, stock exchange listing standards or otherwise, or (b) any applicable laws that impose mandatory clawback or recoupment requirements under the circumstances set forth in such laws, including as required by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or other applicable laws, rules, regulations or stock exchange listing standards, as may be in effect from time to time, and which may operate to create additional rights for the Company or Parent with respect to awards and the recovery of amounts relating thereto. Executive consents to be bound by the terms of the Compensation Recovery Policy, if applicable, and agrees and acknowledges that Executive is obligated to cooperate with, and provide any and all assistance necessary to, the Company and Parent in their efforts to recover or recoup an award, any gains or earnings related to an award, or any other applicable compensation or amounts, including, without limitation, annual cash incentive compensation, that is subject to clawback or recoupment pursuant to such laws, rules, regulations, stock exchange listing standards or Company or Parent policy. Such cooperation and assistance shall include, but is not limited to, executing, completing and submitting any documentation necessary to facilitate the recovery or recoupment by the Company or Parent from Executive of any such amounts, including from Executive’s accounts or from any other compensation, to the extent permissible under Section 409A.
13. Complete Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein, and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein, including any previous Employment Agreement between Guardian Pharmacy, LLC and Executive. Notwithstanding the foregoing, Executive acknowledges and agrees that he remains bound by the terms of that certain Restrictive Covenant Agreement entered into between Guardian Pharmacy, LLC and Executive (the “RCA”), and that the terms of the RCA are not superseded by this Agreement but are in addition to the terms of this Agreement.
14. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to principles of conflict of laws. Executive agrees that the state and federal courts located in the State of Georgia shall have jurisdiction in any action, suit or proceeding against Executive based on or arising out of this Agreement and Executive hereby: (a) submits to the personal jurisdiction of such courts; (b) consents to service of process in connection with any action, suit or proceeding against Executive; and (c) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, venue or service of process. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
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(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, or nationally-recognized overnight courier service, postage prepaid, addressed as follows:
| If to Executive: | At the most recent address on file at the Company. | |
| If to the Company: | 300 Galleria Parkway SE Suite 800 Atlanta, GA 30339 | |
or to such other address as either party shall have furnished to the other in writing in accordance herewith (including via electronic mail). Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company, its subsidiaries and affiliates may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes or social security charges as shall be required to be withheld pursuant to any applicable law or regulation. None of the Company, its subsidiaries or affiliates guarantees any tax result with respect to payments or benefits provided hereunder. Executive is responsible for all taxes owed with respect to all such payments and benefits.
(e) Subject to any limits on applicability contained therein, Section 8 of this Agreement shall survive and continue in full force in accordance with its terms notwithstanding any termination or expiration of the Employment Period.
(f) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
(g) Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(h) With respect to any controversy or claim arising out of or relating to or concerning injunctive relief for Executive’s breach or purported breach of Section 8 of this Agreement, the Company shall have the right, in addition to any other remedies it may have, to seek specific performance and injunctive relief with a court of competent jurisdiction, without the need to post a bond or other security.
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15. Other Acknowledgements. Nothing in this Agreement prevents Executive from providing, without prior notice to the Company, information to governmental authorities regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by any governmental authorities regarding possible legal violations.
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IN WITNESS WHEREOF, Executive and the Company have executed this Agreement on the date first above written.
| EXECUTIVE | ||
|
| ||
| DAVID K. MORRIS | ||
| GUARDIAN PHARMACY SERVICES MANAGEMENT, LLC | ||
| By |
| |
| Name: Fred P. Burke Title: President and Chief Executive Officer | ||
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT by and between Guardian Pharmacy Services Management, LLC, a Georgia limited liability company with its principal place of business located at 300 Galleria Parkway SE, Suite 800, Atlanta, GA 30339 (the “Company”) and a wholly owned subsidiary of Guardian Pharmacy Services, Inc. (“Parent”), and G. Kendall Forbes (“Executive”), is dated as of the ____ day of September, 2024 (the “Agreement”).
The Company wishes to employ Executive on the terms and conditions, and for the consideration, hereinafter set forth, and Executive desires to be employed by the Company on such terms and conditions and for such consideration.
In consideration of the promises provided for in this Agreement, the Company and Executive agree as follows:
1. Employment Period. This Agreement shall become effective as of September ___, 2024 (the “Effective Date”). The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, on an at-will basis on the terms and conditions set-forth herein for the period commencing on the Effective Date and ending as provided in Section 3 hereof (the “Employment Period”).
2. Terms of Employment.
(a) Position and Duties. (i) During the Employment Period, Executive shall (A) serve as Executive Vice President, Sales & Operations of the Parent with such duties and responsibilities as are customarily commensurate with or incident to such position for an entity similar in size to, and in a business similar to that of, Parent, (B) report to the Chief Executive Officer of Parent, and (C) perform Executive’s services at 300 Galleria Parkway SE, Suite 800, Atlanta, GA 30339 or at such location as reasonably agreed to by the Chief Executive Officer of Parent (subject to reasonable travel requirements commensurate with Executive’s position).
(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote Executive’s full business time and attention to the business and affairs of the Company, Parent and their affiliates. During the Employment Period, it will not be a violation of this Agreement for Executive to (A) serve on civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities described in clauses (A), (B) and (C) do not significantly interfere with the performance of Executive’s responsibilities as an employee of the Company in accordance with this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, Executive shall receive an annual base salary (“Annual Base Salary”) of $400,000 paid in accordance with the normal payroll practices of the Company as may be in effect from time to time, which Annual Base Salary shall be reviewed for increase at least annually.
(ii) Annual Cash Bonus. Executive shall be eligible, for each fiscal year of Parent (beginning with fiscal year 2025) ending during the Employment Period, for an annual incentive bonus in cash (the “Annual Bonus”), with a target Annual Bonus opportunity equal to no less than 60% of Annual Base Salary (“Target Bonus”) and a maximum Annual Bonus opportunity of no less than 150% of the Target Bonus. For each such fiscal year, Parent’s Board of Directors (the “Board”) (or an applicable committee of the Board) will establish the performance metrics and their relative weighting to be used in, and any specific performance goals applicable to, the determination of the Annual Bonus for Executive for such period. There is no guaranteed Annual Bonus under this Agreement, and for each applicable fiscal year, Executive’s Annual Bonus could be as low as zero or as high as the maximum percentage set forth in this paragraph. Notwithstanding anything in this Agreement to the contrary, each Annual Bonus shall be on the terms and subject to such conditions as are specified for the particular Company or Parent plans or programs pursuant to which the Annual Bonus is granted. Any Annual Bonus earned with respect to a particular fiscal year will be paid no later than March 15 following the end of the fiscal year to which the Annual Bonus relates.
(iii) Equity Compensation Program. During the Employment Period, subject to approval by the Board (or an applicable committee of the Board), Executive shall be eligible to participate in Parent’s long-term incentive compensation program as may be in effect from time to time for senior executives of Parent and the Company generally, with such participation occurring in accordance with the approval of the Board (or an applicable committee of the Board), Parent and the Company’s policies, and the applicable award agreement and incentive compensation plan under which such awards will be granted, as in effect from time to time.
(iv) Employee Benefits. During the Employment Period, Executive shall be eligible to participate in the employee benefit plans, programs, and policies, as may be in effect from time to time, for senior executives of Parent and the Company generally.
(v) Vacation. During the Employment Period, Executive shall be entitled to paid vacation during each calendar year, consistent with the Company’s policies then applicable to executive officers.
(vi) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the performance of Executive’s duties under this Agreement and in accordance with the Company’s business expense reimbursement policy.
3. Termination of Employment.
(a) Generally. Except as hereinafter provided, the Employment Period shall continue until, and shall end upon, the second anniversary of the Effective Date (the “Initial Employment Period”). At the end of the Initial Employment Period and on each anniversary thereafter, unless the Company shall have given Executive sixty (60) days written notice that the Employment Period will not be extended, the Employment Period shall be extended for an additional year. The term “Employment Period” as used in this Agreement shall refer to the Initial Employment Period or the Employment Period as so extended. If the Company gives Executive sixty (60) days written notice that the Employment Period will not be extended, then,
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unless otherwise agreed by the Company and Executive, Executive’s employment with the Company shall terminate immediately following the last day of the Employment Period. Notwithstanding the foregoing, the Employment Period (to the extent then in effect) will cease on the Date of Termination (as defined in Section 3(g)).
(b) Death or Disability. Executive’s employment shall terminate automatically if Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of Executive has occurred during the Employment Period (pursuant to the definition of “Disability” set forth below), it may give to Executive written notice in accordance with Section 14(b) of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. “Disability” means the absence of Executive from Executive’s duties with the Company on a full-time basis for 90 consecutive business days, or 90 business days during any period of 120 consecutive business days, as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to Executive or Executive’s legal representative (such agreement as to acceptability not to be unreasonably withheld).
(c) By the Company. The Company may terminate Executive’s employment during the Employment Period for any, or no reason, with or without Cause. For purposes of this Agreement, “Cause” will be deemed to exist upon:
(i) any use or misappropriation by Executive of the funds, assets or property of Parent, the Company, or their subsidiaries or affiliates for any personal or other improper purpose;
(ii) any act of moral turpitude, dishonesty, fraud by or felony conviction of Executive whether or not such acts were committed in connection with the business of the Company, an affiliate or a subsidiary, if such act or conviction, in the reasonable good faith judgment of the Board, could reasonably be expected to be materially injurious to the financial condition or business reputation of Parent, the Company, or their subsidiaries or affiliates;
(iii) any failure by Executive substantially to perform the lawful instructions of the person(s) to whom Executive reports (other than as a result of total or partial incapacity due to physical or mental illness) following written notice by the Company to Executive of such failure and 15 days within which to cure such failure;
(iv) any willful or gross misconduct by Executive in connection with Executive’s duties to the Company which, in the reasonable good faith judgment of the Board, could reasonably be expected to be materially injurious to the financial condition or business reputation of Parent, the Company or their subsidiaries or affiliates;
(v) any failure by Executive to follow a material Company or Parent policy; or
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(vi) any material breach by Executive of this Agreement.
The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (excluding Executive, if Executive is a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel for Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive has engaged in the conduct described in Section 3(c), and specifying the particulars thereof in detail.
(d) By Executive. Executive’s employment may be terminated during the Employment Period by Executive for Good Reason or by Executive without Good Reason. For purposes of this Agreement, “Good Reason” shall mean, in the absence of the prior written consent of Executive:
(i) a material diminution in Executive’s duties, authorities or responsibilities;
(ii) a material reduction of Executive’s Annual Base Salary or Target Bonus;
(iii) relocation of Executive’s primary workplace, as assigned to Executive by the Company in accordance with Section 2(a)(i), beyond a 50 mile radius from such workplace; or
(iv) any other material breach by the Company of this Agreement;
provided, however, that Executive’s termination of employment shall not be deemed to be for Good Reason unless (A) Executive has notified the Company in writing describing the occurrence of one or more Good Reason events within 90 days of such occurrence, (B) the Company fails to cure such Good Reason event within 30 days after its receipt of such written notice and (C) the termination of employment occurs within 180 days after the occurrence of the applicable Good Reason event.
(e) Notice of Termination; Expiration of Employment Period. Any termination of employment by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(b) of this Agreement. “Notice of Termination” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s respective rights hereunder.
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(f) Resignation. Upon any termination of Executive’s employment with the Company, Executive shall be deemed to resign from any position as an officer, director, or fiduciary of the Company, Parent and any related entity.
(g) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or such later date specified in the Notice of Termination, as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies Executive of such termination, (iii) if Executive resigns without Good Reason, the date on which Executive notifies the Company of such termination, and (iv) if Executive’s employment is terminated by reason of death or Disability, the date of Executive’s death or the Disability Effective Date, as the case may be. Notwithstanding the foregoing, in no event shall the Date of Termination occur until Executive experiences a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the date on which such separation from service takes place shall be the “Date of Termination.” Upon the expiration of the Employment Period and in the event Executive continues employment with the Company, Executive’s employment will be at-will and the terms of this Agreement (other than Section 8) will have no further effect.
4. Obligations of the Company upon Termination.
(a) By Executive for Good Reason or by the Company other than for Cause, Death or Disability Not During the Change in Control Period. If, during the Employment Period, the Company terminates Executive’s employment other than for Cause, death or Disability, including by providing notice to Executive pursuant to Section 3(a) that the Employment Period will not be extended and Executive’s employment is terminated, or Executive terminates employment for Good Reason, and, in each case, Executive is not entitled to any amounts or benefits pursuant to Section 4(b):
(i) The Company shall pay to Executive, in a lump sum in cash within 30 days after the Date of Termination (or earlier, if required by applicable law), the aggregate of the following amounts: the sum of (A) Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (B) Executive’s business expenses that are reimbursable pursuant to Section 2(b)(vi) of this Agreement but have not been reimbursed by the Company as of the Date of Termination; (C) Executive’s Annual Bonus for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs, if such Annual Bonus has been earned but not paid as of the Date of Termination; and (D) any accrued vacation pay to the extent not theretofore paid (the sum of the amounts described in subclauses (A), (B), (C) and (D), the “Accrued Obligations”);
(ii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) two by (B) the sum of (1) Executive’s Annual Base Salary (without regard to any reduction thereto) and (2) Executive’s Target Bonus (without regard to any reduction thereto);
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(iii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) Executive’s Target Bonus for the fiscal year in which the Date of Termination occurs, by (B) a fraction, the numerator of which is the total number of days that have elapsed during such fiscal year through the Date of Termination and the denominator of which is the total number of days in the applicable fiscal year;
(iv) If Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by Executive for Executive and Executive’s dependents and the monthly premium amount paid by Executive for such coverage immediately prior to the Date of Termination. Such reimbursement shall be paid to Executive on the first of the month immediately following the month in which Executive timely remits the premium payment. Executive shall be eligible to receive such reimbursement until the earliest of (A) 24 months following the Date of Termination, (B) the time Executive is no longer eligible for such COBRA coverage, or (C) the date Executive becomes eligible for group health care insurance coverage from another employer; provided, that Executive shall promptly notify the Company of any such circumstances. For the avoidance of doubt, nothing in this Agreement (including Section 4(b)) shall prohibit the Company or any of its affiliates from amending or terminating any group health plan. Notwithstanding anything in this Agreement (including Section 4(b)) to the contrary, in the event that the payment of amounts payable under this clause (iv) or in Section 4(b)(iv), as applicable, shall result in adverse tax consequences under Chapter 100 of the Code, Code Section 4980D or otherwise to the Company or its affiliates, the parties shall undertake commercially reasonable efforts to restructure such benefit in an economically equivalent manner to avoid the imposition of such taxes on the Company or the affiliate, provided, however, that should the Company’s auditors determine in good faith that no such alternative arrangement is achievable, Executive shall not be entitled to his or her rights to payment under this clause (iv) or Section 4(b)(iv), as applicable. Further, neither the Company nor any of its employees, directors, managers, board members, affiliates, parents, stakeholders, equityholders, agents, successors, predecessors or related parties guarantees the tax treatment of any benefit under this clause (iv) or Section 4(b)(iv), as applicable, and no such party shall have liability to Executive or his or her beneficiaries with respect to the taxation of such benefits or amounts payable in respect thereof; and
(v) To the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any Other Benefits (as defined in Section 5) in accordance with the terms of the underlying plans or agreements.
Other than as set forth in this Section 4(a), in the event of a termination of Executive’s employment by the Company without Cause (other than due to death or Disability) or by Executive for Good Reason, the Company shall have no further obligation to Executive under this Agreement.
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(b) By Executive for Good Reason or By the Company Other than for Cause, Death, or Disability During the Change in Control Period. If, during the Employment Period, the Company terminates Executive’s employment other than for Cause, death or disability, including by providing notice to Executive pursuant to Section 3(a) that the Employment Period will not be extended and Executive’s employment is terminated, or Executive terminates employment for Good Reason, in each case, within a period of two years after a Change in Control (the “Change in Control Period”), the Company will pay and provide to Executive the amounts and benefits specified in Section 4(b)(i)-(vi) herein in lieu of the amounts and benefits provided in Section 4(a).
(i) The Company shall pay to Executive, in a lump sum in cash within 30 days after the Date of Termination (or earlier, if required by applicable law), the aggregate of the Accrued Obligations (as defined in Section 4(a)(i)).
(ii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) three by (B) the sum of (1) Executive’s Annual Base Salary (without regard to any reduction thereto) and (2) Executive’s Target Bonus (without regard to any reduction thereto);
(iii) Subject to Section 11(b), on the 61st day after the Date of Termination, the Company shall, subject to Section 4(e), pay to Executive a lump sum cash amount equal to the product obtained by multiplying (A) Executive’s Target Bonus for the fiscal year in which the Date of Termination occurs, by (B) a fraction, the numerator of which is the total number of days that have elapsed during such fiscal year through the Date of Termination and the denominator of which is the total number of days in the applicable fiscal year;
(iv) If Executive timely and properly elects health continuation coverage under COBRA, the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by Executive for Executive and Executive’s dependents and the monthly premium amount paid by Executive for such coverage immediately prior to the Date of Termination. Such reimbursement shall be paid to Executive on the first of the month immediately following the month in which Executive timely remits the premium payment. Executive shall be eligible to receive such reimbursement until the earliest of (A) 36 months following the Date of Termination, (B) the time Executive is no longer eligible for such COBRA coverage, or (C) the date Executive becomes eligible for group health care insurance coverage from another employer; provided, that Executive shall promptly notify the Company of any such circumstances; and
(v) Any outstanding equity-based awards granted to Executive under Parent’s 2024 Equity and Incentive Compensation Plan (or any successor plan) (the “Equity Plan”) shall vest in full (with performance-based awards vesting at the greater of target performance and actual performance measured as of the Date of Termination) and shall be paid in accordance with the terms of the Equity Plan and the applicable equity award agreements; and
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(vi) To the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any Other Benefits (as defined in Section 5) in accordance with the terms of the underlying plans or agreements.
(c) Death or Disability. If Executive’s employment is terminated by reason of Executive’s death or Disability during the Employment Period, the Company shall provide Executive or, in the event of death, Executive’s estate or beneficiaries, with the Accrued Obligations and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. The Accrued Obligations shall be paid to Executive or, in the event of death, Executive’s estate or beneficiaries, in a lump sum in cash within 30 days of the applicable Date of Termination.
(d) Cause; Other than for Good Reason. If Executive’s employment is terminated for Cause during the Employment Period, the Company shall provide Executive with Executive’s Annual Base Salary through the Date of Termination, and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. If Executive voluntarily terminates employment other than for Good Reason during the Employment Period, the Company shall provide to Executive the Accrued Obligations and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no further obligations under this Agreement. In such case, all the Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination.
(e) Release. Notwithstanding anything herein to the contrary, the Company shall not be obligated to make any payment under Sections 4(a)(ii)-(iv) or Sections 4(b)(ii)-(v) of this Agreement, as applicable, unless (i) prior to the 60th day following the Date of Termination, Executive executes a release of claims against the Company and its affiliates in a form provided by the Company (the “Release”), and (ii) any applicable revocation period has expired during such 60-day period without Executive revoking such Release.
(f) Change in Control. For purposes of this Agreement, “Change in Control” means the occurrence (after the date of the consummation of the initial public offering Parent’s common stock (the “IPO Date”)) of any of the following events; provided, that, for the avoidance of doubt, the initial public offering of Parent’s common stock shall not constitute a Change in Control for purposes of this Agreement:
(i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of Parent where such acquisition causes such Person to own 50% or more of the combined voting power of the then outstanding voting securities of Parent entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not be deemed to result in a Change in Control: (A) any acquisition
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directly from Parent that is approved by the Incumbent Board (as defined in subsection (ii) below), (B) any acquisition by Parent, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Parent or any corporation controlled by Parent or (D) any acquisition by any corporation pursuant to a transaction that complies with clauses (A), (B) and (C) of subsection (iii) below; provided, further, that if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 50% as a result of a transaction described in clause (A) or (B) above, and such Person subsequently acquires beneficial ownership of additional voting securities of Parent, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 50% or more of the Outstanding Company Voting Securities; and provided, further, that if at least a majority of the members of the Incumbent Board determines in good faith that a Person has acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the Outstanding Company Voting Securities inadvertently, and such Person divests as promptly as practicable a sufficient number of shares so that such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) less than 50% of the Outstanding Company Voting Securities, then no Change in Control shall have occurred as a result of such Person’s acquisition;
(ii) individuals who, as of the IPO Date, constitute the Board (the “Incumbent Board” as modified by this subsection (ii)) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the IPO Date whose election, or nomination for election by Parent’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by specific vote or by approval of the proxy statement of Parent in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
(iii) the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of Parent or the acquisition of assets of another corporation or other transaction (“Business Combination”) excluding, however, such a Business Combination pursuant to which (A) the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns Parent or all or substantially all of Parent’s assets either directly or through one or more subsidiaries), (B) no Person (excluding any employee benefit plan (or related trust) of Parent, Parent or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 50% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the entity
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resulting from such Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(iv) approval by Parent’s stockholders of a complete liquidation or dissolution of Parent except pursuant to a Business Combination that complies with clauses (A), (B) and (C) of subsection (iii) above.
5. Non-Exclusivity of Rights. Amounts that Executive is otherwise entitled to receive under any plan, policy, practice or program of or any other contract or agreement with the Company or its affiliates at or subsequent to the Date of Termination (“Other Benefits”) shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. Notwithstanding the foregoing, Executive shall not be eligible to participate in any other severance plan, program or policy of the Company or its affiliates.
6. Set-off; No Mitigation. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be subject to set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company or its affiliates may have against Executive to the extent such set-off or other action does not violate Section 409A of the Code. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement.
7. Limitations on Payments Under Certain Circumstances. Notwithstanding any provision of any other plan, program, arrangement or agreement to the contrary, in the event that it shall be determined that any payment or benefit to be provided by the Company to Executive pursuant to the terms of this Agreement or any other payments or benefits received or to be received by Executive (a “Payment”) in connection with or as a result of any event which is deemed by the U.S. Internal Revenue Service or any other taxing authority to constitute a change in the ownership or effective control of Parent or the Company, or in the ownership of a substantial portion of the assets of Parent or the Company and subject to the tax (the “Excise Tax”) imposed by Section 4999 (or any successor section) of the Code, the Payments, whether under this Agreement or otherwise, shall be reduced so that the Payment, in the aggregate, is reduced to the greatest amount that could be paid to Executive without giving rise to any Excise Tax; provided that in the event that Executive would be placed in a better after-tax position after receiving all Payments and not having any reduction of Payments as provided hereunder, Executive shall, notwithstanding the provisions of any other plan, program, arrangement or agreement to the contrary, receive all Payments and pay any applicable Excise Tax. All determinations under this Section 7 shall be made by a nationally recognized accounting firm selected by Parent or the Company (the “Accounting Firm”). Without limiting the generality of the foregoing, any determination by the Accounting Firm under this Section 7 shall take into account the value of any reasonable compensation for services to be rendered by Executive (or for holding oneself out as available to perform services and refraining from performing services (such as under a covenant not to compete)). If the Payments are to be reduced pursuant to this Section 7, the Payments shall be reduced in the following order: (a) Payments which do not
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constitute “nonqualified deferred compensation” subject to Section 409A of the Code shall be reduced first; and (b) all other Payments shall then be reduced, in each case as follows: (i) cash payments shall be reduced before non-cash payments and (ii) payments to be made on a later payment date shall be reduced before payments to be made on an earlier payment date.
8. Restrictive Covenants.
(a) Acknowledgements and Agreements. Executive hereby acknowledges and agrees that in the performance of Executive’s duties to the Company during Executive’s employment, Executive shall be brought into frequent contact with existing and potential customers of the Company throughout the continental Unites States. Executive also agrees that Executive will obtain knowledge and skill relevant to the Company’s industry, methods of doing business, and marketing strategies by virtue of Executive’s employment. Executive further agrees that trade secrets and confidential information of the Company, more fully described in Section 8(i), have been developed by the Company through substantial expenditures of time, effort and money and constitute valuable and unique property of the Company with great competitive importance and commercial value to the Company. Executive further understands and agrees that the foregoing makes it necessary for the protection of the Company’s legitimate business interests that Executive comply with the restrictive covenants, as further provided in the following sections. Executive acknowledges and agrees that the terms and conditions of this Section 8 are fair, reasonable, and not unduly restrictive on Executive and are reasonably necessary to protect the legitimate business interests of the Company and to prevent irreparable harm to the Company. Executive further acknowledges and agrees that: he is executing this Agreement in Atlanta, Georgia; he reports into and routinely works in the Company’s headquarters in Atlanta, Georgia; and he has responsibility for overseeing the Company’s key pharmacy management personnel and operations across the Company’s entire operations in the Restricted Territory.
(b) Competitive Activity During Employment. Executive will not compete with the Company anywhere within the United States during Executive’s employment with the Company, including, without limitation:
(i) entering into or engaging in any business which competes with the Company’s Business;
(ii) soliciting customers, business, patronage or orders for, or selling, any products or services in competition with, or for any business that competes with, the Company’s Business;
(iii) diverting, enticing or otherwise taking away any customers, business, patronage, or orders of the Company or attempting to do so;
(iv) soliciting any employee, sales representative, agent or consultant of the Company to terminate their employment, relationship or other association with the Company or attempting to do so; or
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(v) promoting or assisting, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Company’s Business.
(c) Following Termination. For a period of two years following Executive’s termination of employment with the Company, for any reason, Executive shall not, on Executive’s own account or as a partner, joint venturer, employee, agent, contractor, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity:
(i) Provide services the same or substantially similar to those duties performed by Executive as Executive Vice President, Sales & Operations for the Company for any person or entity that competes with the Company’s Business (as hereinafter defined) within the Restricted Territory (as hereinafter defined);
(ii) Directly or indirectly, solicit or attempt to solicit business, patronage or orders for products or services in competition with those provided by the Company, on Executive’s own behalf or for any person or entity, wherever located, from any Company customers or actively sought prospective customers with whom Executive had Material Contact (as hereinafter defined). This Section 8(c)(ii) does not prohibit Executive from accepting as a customer any Company customer or actively sought prospective customer who: (A) responds to a general advertisement or solicitation, including but not limited to advertisements or solicitations through newspapers, trade publications, periodicals or internet databases, not specifically directed at customers or prospective customers of the Company; or (B) unilaterally contacts Executive in the absence of any violation of this Section 8(c)(ii) by Executive;
(iii) Directly or indirectly, within the Restricted Territory, solicit or recruit, or attempt to solicit or recruit, for purposes of terminating employment, relationship or other association with the Company, any employee, sales representative, agent or consultant of the Company with whom Executive worked or about whom Executive came to know confidential information as a result of Executive’s employment with the Company, and who has not prior thereto ceased to be employed or retained by the Company, to terminate their employment, relationship or other association with the Company. This Section 8(c)(iii) shall not prohibit Executive from soliciting or hiring any person who: (A) responds to a general advertisement or solicitation, including but not limited to advertisements or solicitations through newspapers, trade publications, periodicals, internet databases or recruiting or employment agencies, not specifically directed at employees, sales representatives, agents or consultants of the Company; or (B) unilaterally contacts Executive in the absence of any violation of this Section 8(c)(iii) by Executive.
(d) The “Company.” For the purposes of this Section 8, the “Company” shall include any and all direct and indirect subsidiaries, parents, and affiliated or related companies thereof or the Company for which Executive worked or had responsibility at the time of termination of Executive’s employment and at any time during the two year period prior to such termination.
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(e) The Company’s “Business.” For the purposes of this Section 8, the Company’s Business is defined to mean owning, operating or providing business consulting services to pharmacies that offer pharmaceutical products and services to long-term care facilities, including skilled nursing facilities, assisted living facilities and behavioral health facilities, as such activities are conducted by the Company, or the provision of any other products or services conducted, authorized, offered or provided by the Company within the two year period prior to Executive’s termination.
(f) “Material Contact.” For purposes of this Section 8, Material Contact is defined to be contact between Executive and each customer and prospective customer: (i) with whom or which the Executive dealt on behalf of the Company; (ii) whose dealings with the Company were coordinated or supervised by Executive; (iii) about whom Executive obtained Confidential Information in the ordinary course of business as a result of Executive’s association with the Company; or (iv) who received products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Executive within the two years prior to the Executive’s termination from the Company.
(g) “Restricted Territory.” For the purposes of Section 8, the Restricted Territory shall be defined as and limited to:
(i) (A) the geographic area(s) within a 100 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; or (B) in the event that the foregoing definition of Restricted Territory in this Section 8(g)(i)(A) is deemed to be overbroad or otherwise enforceable even after judicial modification, then this Section 8(g)(i)(A) shall mean the geographic area(s) within a 50 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; and
(ii) (A) the geographic areas(a) within a 100 mile radius of any and all of the specific customer accounts, whether within or outside of the geographic area described in (i) above, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination; (B) in the event that the foregoing definition of Restricted Territory in this Section 8(g)(ii)(B) is deemed to be overbroad or otherwise enforceable even after judicial modification, then this Section 8(g)(i) shall mean the geographic area(s) within a 50 mile radius of any and all of the Company’s location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.
(h) Non-Disclosure/Return of Company Property and Information.
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(i) Confidential Information Defined. Executive acknowledges that, in the course of Executive’s employment with the Company, Executive has had and will have access to, and will be making use of, acquiring, and adding to the Company’s confidential and proprietary information, including, without limitation, any of the following: trade secrets; patent applications and invention disclosures; confidential business records; computer software programs or any portions or logic comprising said programs; technical or non-technical data, formulae or compilations; vendor and product information; customer and prospective customer lists; information about customers, prospective customers and consultants requirements; terms of contracts with customers and consultants; research, production, programming, development, engineering, and distribution processes or techniques; the Company’s unique selling, manufacturing and servicing methods and business techniques; training, service and business manuals; promotional materials; training courses and other training and instructional materials; methods of doing business; costs and pricing information; advertising, promotions, marketing information, or sales techniques; planning and financial information of the Company; business opportunities; business plans; target markets; pricing formulas; financial models; working methods; profit formulas; studies; servicing plans; portfolio management strategies; and any other proprietary and/or confidential business information of the Company (hereinafter referred to as the “Confidential Information”). Executive further understands that the term Confidential Information does not include any information that is in the public domain or becomes generally known or available from a source other than the Company without a breach of any agreement with the Company and without any restriction on disclosure.
(ii) Duty of Non-Disclosure and Non-Use. In consideration of employment by the Company, Executive agrees that Executive shall not, for any purpose whatsoever other than to the extent necessary to render services to the Company, directly or indirectly, divulge or disclose to any individual or entity, or use in any manner or allow others to use in any manner through Executive, any of the Confidential Information, but shall hold all of the same confidential for so long as such Confidential Information: (A) constitutes trade secrets; and/or (B) is not publicly and widely known or made generally available through no wrongful act of Executive in violation of this Agreement or others who were under confidentiality obligations as to the relevant Confidential Information.
(iii) Return of Information. Any Confidential Information furnished to Executive by the Company, used by Executive on the Company’s behalf, or generated or obtained by Executive during the course of Executive’s employment with the Company, is and shall at all times remain the property of the Company. Executive acknowledges that this property is confidential and is not readily accessible to the Company’s competitors. Upon termination of the employment relationship between Executive and the Company, or prior thereto at the Company’s request, Executive shall immediately deliver to the Company all such property, including all copies, remaining in Executive’s possession or control.
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(iv) Notwithstanding the foregoing, nothing in this Agreement prohibits Executive from reporting possible violations of law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal or state law or regulation. Likewise, nothing in this Agreement is intended to or shall prevent, impede or interfere with Executive from providing truthful testimony and information in the course of, or otherwise participating in, an investigation or proceeding conducted by a governmental agency or entity in connection with the lawful exercise of such agency’s or entity’s functions.
(v) The U.S. Defend Trade Secrets Act of 2016 (“DTSA”) provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, the DTSA provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order.
(i) Discoveries and Inventions. Executive agrees that any discoveries, inventions, know-how, and improvements (collectively “Inventions”), whether patentable or not, made, conceived or suggested, either solely or jointly with others, by Executive while in the Company’s employ, whether in the course of Executive’s employment with the use of the Company’s time, material or facilities or that is in any way within or related to the existing or contemplated scope of the Company’s business, shall be solely the property of the Company. Any Inventions relating to any subject matter with which the Company was concerned during Executive’s employment and made, conceived or suggested by Executive, either solely or jointly with others, within one year following termination of Executive’s employment under this Agreement or any successor agreements shall be irrebuttably presumed to have been so made, conceived or suggested in the course of such employment with the use of the Company’s time, materials or facilities, and to be solely the property of the Company. Executive agrees, both during and after employment with the Company, to disclose promptly and in writing to the Company all Inventions that Executive, whether solely or jointly with others, makes, discovers, develops, conceives, and/or reduces to practice. Executive hereby assigns and agrees to assign to the Company or its designee, without further consideration, Executive’s entire right and interest in and to all such Inventions. Upon request by the Company with respect to any such Inventions, Executive will execute and deliver to the Company, at any time during or after Executive’s employment, all appropriate documents for use in applying for, obtaining and maintaining such domestic and foreign patents as the Company may desire, and all proper assignments therefor, when so requested, at the expense of the Company, but without further or additional consideration.
(j) Work Made For Hire. Executive acknowledges that, to the extent permitted by law, all work papers, reports, documentation, drawings, specifications, photographs, negatives, tapes and masters therefore, prototypes and other materials (hereinafter, “items”), including without limitation, any and all such items generated and maintained on any form of electronic media, authored or generated by Executive during Executive’s employment with the Company shall be considered a “work made for hire” and that ownership of any and all copyrights in any and all such items shall belong solely to the Company.
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(k) Remedies. The parties acknowledge and agree that any breach by Executive of the terms of this Agreement may cause the Company irreparable harm and injury for which money damages would be inadequate. Accordingly, the Company, in addition to any other remedies available at law or equity, shall be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction. The parties agree that such injunctive relief may be granted without the necessity of proving actual damages. Nothing in this Agreement shall limit the Company’s remedies under state for federal law or elsewhere.
(l) Reasonableness. Executive acknowledges and agrees that Executive’s obligations under this Section 8 are reasonable in the context of the nature of the Company’s Business and the competitive injuries likely to be sustained by the Company if Executive were to violate such obligations. Executive further acknowledges and agrees that this Agreement is made in consideration of, and is adequately supported by, the agreement of the Company to perform its obligations under this Agreement and by other consideration, which Executive acknowledges constitutes good, valuable and sufficient consideration. Executive further acknowledges and agrees that Executive’s obligations under this Section 8 will not prohibit Executive from engaging in other businesses or employment for the purpose of earning a livelihood following the termination of his employment with the Company.
(m) Modification/Reformation. If any restriction set forth in this Section 8 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time, or over too great a range of activities, or in too broad a geographic territory, it shall be interpreted to extend only over the maximum period of time, range of activities, or geographic territory as to which it would otherwise be enforceable. If any provision or covenant, or any part thereof, of this Section 8 should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability will not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Section 8 or this Agreement, all of which will remain in full force and effect.
(n) Additional Acknowledgements. Executive acknowledges and agrees that, in the event that Executive becomes subject to any other contractual arrangements with the Company regarding competition with the Company, the restrictive covenants set forth in this Agreement were executed first and shall be deemed supplemented, and in no event diminished or replaced, by such other contractual arrangements.
9. Successors.
(a) This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of, and be enforceable by, Executive’s legal representatives.
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(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
10. Indemnification. The Company or an affiliate thereof shall indemnify Executive to the maximum extent permitted under applicable law for acts taken within the scope of Executive’s employment and Executive’s service as an officer or director of the Company or any of its subsidiaries or affiliates. To the extent that the Company or an affiliate thereof obtains coverage under a director and officer indemnification policy, Executive will be entitled to such coverage on a basis that is no less favorable than the coverage provided to any other officer or director of the Company or Parent.
11. Section 409A of the Code.
(a) The intent of the parties is that payments and benefits under this Agreement comply with, or be exempt from, Section 409A of the Code and the regulations and guidance promulgated thereunder (collectively “Section 409A”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(b) Notwithstanding any provision of this Agreement to the contrary, in the event that Executive is a “specified employee” within the meaning of Section 409A (as determined in accordance with the methodology established by the Company as in effect on the Date of Termination) (a “Specified Employee”), any payments or benefits that are considered non-qualified deferred compensation under Section 409A payable under this Agreement on account of a “separation from service” during the six-month period immediately following the Date of Termination shall, to the extent necessary to comply with Section 409A, instead be paid, or provided, as the case may be, on the first business day after the date that is six months following Executive’s “separation from service” within the meaning of Section 409A. For purposes of Section 409A, Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that is considered nonqualified deferred compensation, subject to Section 409A.
(c) With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits that are deferred compensation subject to Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.
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12. Compensation Recoupment Policy. Notwithstanding anything in this Agreement to the contrary, Executive acknowledges and agrees that the terms and conditions set forth in Parent’s compensation recoupment policy as in effect from time to time, including specifically to implement Section 10D of the Exchange Act, and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national securities exchange on which the shares of Parent’s common stock may be traded) (the “Compensation Recovery Policy”) are incorporated into this Agreement by reference. To the extent the Compensation Recovery Policy is applicable to Executive, it creates additional rights for the Company and Parent with respect to certain compensation, including, without limitation, incentive-based compensation. Notwithstanding any provisions to the contrary, certain compensation will be subject to potential mandatory cancellation, forfeiture and/or repayment by Executive to the Company or Parent to the extent Executive is, or in the future becomes, subject to (a) any Parent clawback or recoupment policy, including the Compensation Recovery Policy, and any other policies that are adopted to comply with the requirements of any applicable laws, rules, regulations, stock exchange listing standards or otherwise, or (b) any applicable laws that impose mandatory clawback or recoupment requirements under the circumstances set forth in such laws, including as required by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or other applicable laws, rules, regulations or stock exchange listing standards, as may be in effect from time to time, and which may operate to create additional rights for the Company or Parent with respect to awards and the recovery of amounts relating thereto. Executive consents to be bound by the terms of the Compensation Recovery Policy, if applicable, and agrees and acknowledges that Executive is obligated to cooperate with, and provide any and all assistance necessary to, the Company and Parent in their efforts to recover or recoup an award, any gains or earnings related to an award, or any other applicable compensation or amounts, including, without limitation, annual cash incentive compensation, that is subject to clawback or recoupment pursuant to such laws, rules, regulations, stock exchange listing standards or Company or Parent policy. Such cooperation and assistance shall include, but is not limited to, executing, completing and submitting any documentation necessary to facilitate the recovery or recoupment by the Company or Parent from Executive of any such amounts, including from Executive’s accounts or from any other compensation, to the extent permissible under Section 409A.
13. Complete Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein, and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein, including any previous Employment Agreement between Guardian Pharmacy, LLC and Executive. Notwithstanding the foregoing, Executive acknowledges and agrees that he remains bound by the terms of that certain Restrictive Covenant Agreement entered into between Guardian Pharmacy, LLC and Executive (the “RCA”), and that the terms of the RCA are not superseded by this Agreement but are in addition to the terms of this Agreement.
14. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to principles of conflict of laws. Executive agrees that the state and federal courts located in the State of Georgia shall have jurisdiction in any action, suit or proceeding against Executive based on or arising out of this Agreement and Executive hereby: (a) submits to the personal jurisdiction of such courts; (b) consents to service
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of process in connection with any action, suit or proceeding against Executive; and (c) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, venue or service of process. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, or nationally-recognized overnight courier service, postage prepaid, addressed as follows:
| If to Executive: | At the most recent address | |||
| on file at the Company. | ||||
| If to the Company: | 300 Galleria Parkway SE | |||
| Suite 800 | ||||
| Atlanta, GA 30339 | ||||
or to such other address as either party shall have furnished to the other in writing in accordance herewith (including via electronic mail). Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company, its subsidiaries and affiliates may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes or social security charges as shall be required to be withheld pursuant to any applicable law or regulation. None of the Company, its subsidiaries or affiliates guarantees any tax result with respect to payments or benefits provided hereunder. Executive is responsible for all taxes owed with respect to all such payments and benefits.
(e) Subject to any limits on applicability contained therein, Section 8 of this Agreement shall survive and continue in full force in accordance with its terms notwithstanding any termination or expiration of the Employment Period.
(f) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
(g) Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
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(h) With respect to any controversy or claim arising out of or relating to or concerning injunctive relief for Executive’s breach or purported breach of Section 8 of this Agreement, the Company shall have the right, in addition to any other remedies it may have, to seek specific performance and injunctive relief with a court of competent jurisdiction, without the need to post a bond or other security.
15. Other Acknowledgements. Nothing in this Agreement prevents Executive from providing, without prior notice to the Company, information to governmental authorities regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by any governmental authorities regarding possible legal violations.
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IN WITNESS WHEREOF, Executive and the Company have executed this Agreement on the date first above written.
| EXECUTIVE | ||
|
| ||
| G. KENDALL FORBES | ||
| GUARDIAN PHARMACY SERVICES MANAGEMENT, LLC | ||
| By | ||
| Name: |
Fred P. Burke | |
| Title: |
President and Chief Executive Officer | |
Exhibit 10.5
GUARDIAN PHARMACY SERVICES, INC.
2024 EQUITY AND INCENTIVE COMPENSATION PLAN
1. Purpose. The purpose of this Plan is to permit the grant of awards to non-employee Directors, officers and other employees of the Company and its Subsidiaries, and certain consultants to the Company and its Subsidiaries, and to provide to such persons incentives and rewards for service and/or performance.
2. Definitions. Except as otherwise provided herein, the following are the definitions used in this Plan:
(a) “Appreciation Right” means a right granted pursuant to Section 5 of this Plan.
(b) “Base Price” means the price to be used as the basis for determining the Spread upon the exercise of an Appreciation Right.
(c) “Board” means the Board of Directors of the Company.
(d) “Cash Incentive Award” means a cash award granted pursuant to Section 8 of this Plan.
(e) “Change in Control” has the meaning set forth in Section 12 of this Plan.
(f) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations thereunder, as such law and regulations may be amended from time to time.
(g) “Committee” means the Compensation Committee of the Board (or its successor(s)), or any other committee of the Board designated by the Board to administer this Plan pursuant to Section 10 of this Plan.
(h) “Common Stock” means the Class A common stock, par value $0.001 per share, of the Company or any security into which such Class A common stock may be changed by reason of any transaction or event of the type referred to in Section 11 of this Plan.
(i) “Company” means Guardian Pharmacy Services, Inc., a Delaware corporation, and its successors.
(j) “Date of Grant” means the date provided for by the Committee on which a grant of Option Rights, Appreciation Rights, Performance Shares, Performance Units, Cash Incentive Awards, or other awards contemplated by Section 9 of this Plan, or a grant or sale of Restricted Stock, Restricted Stock Units, or other awards contemplated by Section 9 of this Plan, will become effective (which date will not be earlier than the date on which the Committee takes action with respect thereto).
(k) “Director” means a member of the Board.
(l) “Effective Date” means the date of the consummation of the initial public offering of the Common Stock.
(m) “Evidence of Award” means an agreement, certificate, resolution or other type or form of writing or other evidence approved by the Committee that sets forth the terms and conditions of the awards granted under this Plan. An Evidence of Award may be in an electronic medium, may be limited to notation on the books and records of the Company and, unless otherwise determined by the Committee, need not be signed by a representative of the Company or a Participant.
(n) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.
(o) “Incentive Stock Option” means an Option Right that is intended to qualify as an “incentive stock option” under Section 422 of the Code or any successor provision.
(p) “Management Objectives” means performance objective or objectives established pursuant to this Plan for Participants who have received grants of Performance Shares, Performance Units or Cash Incentive Awards or, when so determined by the Committee, Option Rights, Appreciation Rights, Restricted Stock, Restricted Stock Units, dividend equivalents or other awards pursuant to this Plan. The Management Objectives applicable to an award under this Plan (if any) shall be determined by the Committee, and may be based on one or more, or a combination, of metrics under the following categories or such other metrics as may be determined by the Committee (including relative or growth achievement regarding such metrics):
| (i) | Profits (e.g., gross profit, gross profit growth, operating income, earnings before or after deduction for all or any portion of interest, taxes, depreciation or amortization, net income (before or after taxes), EBIT margin, consolidated net income, net earnings, net sales, cost of sales, basic or diluted earnings per share (before or after taxes), residual or economic earnings, net operating profit (before or after taxes), or economic profit); |
| (ii) | Cash Flow (e.g., actual or adjusted earnings before or after interest, taxes, depreciation and/or amortization (including EBIT and EBITDA), free cash flow, free cash flow with or without specific capital expenditure target or range, including or excluding divestments and/or acquisitions, operating cash flow, total cash flow, cash flow in excess of cost of capital or residual cash flow, or cash flow return on investment); |
| (iii) | Returns (e.g., profits or cash flow returns on: assets, investment, capital, invested capital, net capital employed, equity, or sales); |
| (iv) | Working Capital (e.g., working capital targets, working capital divided by sales, days’ sales outstanding, days’ sales inventory, or days’ sales in payables); |
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| (v) | Profit Margins (e.g., profits divided by revenues or gross margins and material margins divided by revenues); |
| (vi) | Liquidity Measures (e.g., debt-to-capital, debt-to-EBITDA, or total debt ratio); |
| (vii) | Sales Growth, Gross Margin Growth, Cost Initiative and Stock Price Metrics (e.g., revenue, net revenue, revenue growth, net revenue growth, revenue growth outside the United States, gross margin and gross margin growth, material margin and material margin growth, stock price appreciation, total return to stockholders, sales and administrative costs divided by sales, or sales and administrative costs divided by profits); and |
| (viii) | Strategic Initiative Key Deliverable Metrics consisting of one or more of the following: product development, strategic partnering, research and development, vitality index, market penetration, market share, geographic business expansion goals, expense targets or cost reduction goals, general and administrative expense savings, selling, general and administrative expenses, objective measures of client/customer satisfaction, employee satisfaction, employee retention, management of employment practices and employee benefits, supervision of litigation and information technology, productivity ratios, economic value added (or another measure of profitability that considers the cost of capital employed), product quality, sales of new products, or goals relating to acquisitions or divestitures of subsidiaries, affiliates and joint ventures. |
If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Management Objectives unsuitable, the Committee may in its discretion modify such Management Objectives or the goals or actual levels of achievement regarding the Management Objectives, in whole or in part, as the Committee deems appropriate and equitable.
(q) “Market Value per Share” means, as of any particular date, the closing price of a share of Common Stock as reported for that date on the New York Stock Exchange or, if the Common Stock is not then listed on the New York Stock Exchange, on any other national securities exchange on which the Common Stock is listed, or if there are no sales on such date, on the next preceding trading day during which a sale occurred. If there is no regular public trading market for the Common Stock, then the Market Value per Share shall be the fair market value as determined in good faith by the Committee. The Committee is authorized to adopt another fair market value pricing method provided such method is stated in the applicable Evidence of Award and is in compliance with the fair market value pricing rules set forth in Section 409A of the Code.
(r) “Optionee” means the optionee named in an Evidence of Award evidencing an outstanding Option Right.
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(s) “Option Price” means the purchase price payable on exercise of an Option Right.
(t) “Option Right” means the right to purchase Common Stock upon exercise of an award granted pursuant to Section 4 of this Plan.
(u) “Participant” means a person who is selected by the Committee to receive benefits under this Plan and who is at the time (i) a non-employee Director, (ii) an officer or other employee of the Company or any Subsidiary, including a person who has agreed to commence serving in such capacity within 90 days of the Date of Grant, or (iii) a person, including a consultant, who provides services to the Company or any Subsidiary that are equivalent to those typically provided by an employee (provided such person satisfies the Form S-8 definition of “employee”).
(v) “Performance Period” means, in respect of a Cash Incentive Award, Performance Share or Performance Unit, a period of time established pursuant to Section 8 of this Plan within which the Management Objectives relating to such Cash Incentive Award, Performance Share or Performance Unit are to be achieved.
(w) “Performance Share” means a bookkeeping entry that records the equivalent of one share of Common Stock awarded pursuant to Section 8 of this Plan, and may be payable in cash, Common Stock or a combination thereof.
(x) “Performance Unit” means a bookkeeping entry award granted pursuant to Section 8 of this Plan that records a unit equivalent to $1.00 or such other value as is determined by the Committee, and may be payable in cash, Common Stock or a combination thereof.
(y) “Plan” means this Guardian Pharmacy Services, Inc. 2024 Equity and Incentive Compensation Plan, as may be amended or amended and restated from time to time.
(z) “Restricted Stock” means Common Stock granted or sold pursuant to Section 6 of this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfer has expired.
(aa) “Restricted Stock Units” means an award made pursuant to Section 7 of this Plan of the right to receive Common Stock, cash or a combination thereof at the end of a specified period.
(bb) “Restriction Period” means the period of time during which Restricted Stock Units are subject to restrictions, as provided in Section 7 of this Plan.
(cc) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.
(dd) “Spread” means the excess of the Market Value per Share on the date when an Appreciation Right is exercised over the Base Price provided for with respect to the Appreciation Right.
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(ee) “Stockholder” means an individual or entity that owns one or more shares of Common Stock.
(ff) “Subsidiary” means a corporation, company or other entity (i) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture, limited liability company, unincorporated association or other similar entity), but more than 50% of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company; provided, however, that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, “Subsidiary” means any corporation in which the Company at the time owns or controls, directly or indirectly, more than 50% of the total combined Voting Power represented by all classes of stock issued by such corporation.
(gg) “Voting Power” means, at any time, the combined voting power of the then-outstanding securities entitled to vote generally in the election of Directors in the case of the Company or members of the board of directors or similar body in the case of another entity.
3. Shares Available Under this Plan.
| (a) | Maximum Shares Available Under this Plan. |
| (i) | Subject to adjustment as provided in Section 11 of this Plan and the share counting rules set forth in Section 3(b) of this Plan, the number of shares of Common Stock available under this Plan for awards of (A) Option Rights or Appreciation Rights, (B) Restricted Stock, (C) Restricted Stock Units, (D) Performance Shares or Performance Units, (E) awards contemplated by Section 9 of this Plan, or (F) dividend equivalents paid with respect to awards made under this Plan will not exceed, in the aggregate, 2,000,000 shares of Common Stock (the “Overall Share Limit”). The Overall Share Limit shall be automatically increased on the first day of each fiscal year, beginning in 2025 and ending in 2034, by an amount equal to the lesser of (x) 1% of the aggregate number of shares of the Company’s common stock (including both Class A and Class B common stock) outstanding on the last day of the immediately preceding fiscal year and (y) such smaller number of shares as determined by the Board. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing. |
| (ii) | Subject to the share counting rules set forth in Section 3(b) of this Plan, the aggregate number of shares of Common Stock available under Section 3(a)(i) of this Plan will be reduced by one share of Common Stock for every one share of Common Stock subject to an award granted under this Plan. |
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| (b) | Share Counting Rules. |
| (i) | Except as provided in Section 22 of this Plan or herein, if any award granted under this Plan (in whole or in part) is cancelled or forfeited, expires, is settled for cash, or is unearned, the Common Stock subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available under Section 3(a)(i) above. |
| (ii) | Notwithstanding anything to the contrary contained in this Plan: (A) shares of Common Stock withheld by the Company, tendered or otherwise used in payment of the Option Price of an Option Right will be added (or added back, as applicable) to the aggregate number of shares of Common Stock available under Section 3(a)(i) of this Plan; (B) shares of Common Stock withheld by the Company, tendered or otherwise used to satisfy a tax withholding obligation with respect to awards will be added (or added back, as applicable) to the aggregate number of shares of Common Stock available under Section 3(a)(i) of this Plan; provided, however, that with respect to Restricted Stock this Section 3(a)(iii)(B) shall only be in effect until the day immediately prior to the tenth anniversary of the Effective Date; and (C) shares of Common Stock subject to a share-settled Appreciation Right that are not actually issued in connection with the settlement of such Appreciation Right on the exercise thereof will be added back to the aggregate number of shares of Common Stock available under Section 3(a)(i) of this Plan; and (E) shares of Common Stock reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Option Rights will not be added (or added back, as applicable) to the aggregate number of shares of Common Stock available under Section 3(a)(i) of this Plan. |
| (iii) | If, under this Plan, a Participant has elected to give up the right to receive cash compensation in exchange for Common Stock based on fair market value, such Common Stock will not count against the aggregate limit under Section 3(a)(i) of this Plan. |
(c) Limit on Incentive Stock Options. Notwithstanding anything to the contrary contained in this Plan, and subject to adjustment as provided in Section 11 of this Plan, the aggregate number of shares of Common Stock actually issued or transferred by the Company upon the exercise of Incentive Stock Options will not exceed 2,000,000 shares of Common Stock (the “ISO Limit”).
(d) Non-Employee Director Compensation Limit. Notwithstanding anything to the contrary contained in this Plan, in no event will any non-employee Director in any one calendar year be granted compensation for such service (including awards granted under this Plan and any other cash or non-cash compensation) having an aggregate maximum value (measured at the Date of Grant as applicable, and calculating the value of any awards based on the grant date fair value for financial reporting purposes) in excess of $500,000.
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4. Option Rights. The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Participants of Option Rights. Each such grant may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each grant will specify the number of shares of Common Stock to which it pertains subject to the limitations set forth in Section 3 of this Plan.
(b) Each grant will specify an Option Price per share of Common Stock, which Option Price (except with respect to awards under Section 22 of this Plan) may not be less than the Market Value per Share on the Date of Grant.
(c) Each grant will specify whether the Option Price will be payable (i) in cash, by check acceptable to the Company or by wire transfer of immediately available funds, (ii) by the actual or constructive transfer to the Company of Common Stock owned by the Optionee having a value at the time of exercise equal to the total Option Price, (iii) subject to any conditions or limitations established by the Committee, by the withholding of Common Stock otherwise issuable upon exercise of an Option Right pursuant to a “net exercise” arrangement (it being understood that, solely for purposes of determining the number of treasury shares held by the Company, the shares of Common Stock so withheld will not be treated as issued and acquired by the Company upon such exercise), (iv) by a combination of such methods of payment, or (v) by such other methods as may be approved by the Committee.
(d) To the extent permitted by law, any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker on a date satisfactory to the Company of some or all of the Common Stock to which such exercise relates.
(e) Each grant will specify the period or periods of continuous service by the Optionee with the Company or any Subsidiary, if any, that is necessary before any Option Rights or installments thereof will vest. Option Rights may provide for continued vesting or the earlier vesting of such Option Rights, including in the event of the retirement, death, disability or termination of employment or service of a Participant or in the event of a Change in Control.
(f) Any grant of Option Rights may specify Management Objectives regarding the vesting of such rights.
(g) Option Rights granted under this Plan may be (i) options, including Incentive Stock Options, that are intended to qualify under particular provisions of the Code, (ii) options that are not intended to so qualify, or (iii) combinations of the foregoing. Incentive Stock Options may only be granted to Participants who meet the definition of “employees” under Section 3401(c) of the Code.
(h) No Option Right will be exercisable more than 10 years from the Date of Grant. The Committee may provide in any Evidence of Award for the automatic exercise of an Option Right upon such terms and conditions as established by the Committee.
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(i) Option Rights granted under this Plan may not provide for any dividends or dividend equivalents thereon.
(j) Each grant of Option Rights will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve.
5. Appreciation Rights.
(a) The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting to any Participant of Appreciation Rights. An Appreciation Right will be the right of the Participant to receive from the Company an amount determined by the Committee, which will be expressed as a percentage of the Spread (not exceeding 100%) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
| (i) | Each grant may specify that the amount payable on exercise of an Appreciation Right will be paid by the Company in cash, Common Stock or any combination thereof. |
| (ii) | Each grant will specify the period or periods of continuous service by the Participant with the Company or any Subsidiary, if any, that is necessary before the Appreciation Rights or installments thereof will vest. Appreciation Rights may provide for continued vesting or the earlier vesting of such Appreciation Rights, including in the event of the retirement, death, disability or termination of employment or service of a Participant or in the event of a Change in Control. |
| (iii) | Any grant of Appreciation Rights may specify Management Objectives regarding the vesting of such Appreciation Rights. |
| (iv) | Appreciation Rights granted under this Plan may not provide for any dividends or dividend equivalents thereon. |
| (v) | Each grant of Appreciation Rights will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve. |
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(c) Also, regarding Appreciation Rights:
| (i) | Each grant will specify in respect of each Appreciation Right a Base Price, which (except with respect to awards under Section 22 of this Plan) may not be less than the Market Value per Share on the Date of Grant; and |
| (ii) | No Appreciation Right granted under this Plan may be exercised more than 10 years from the Date of Grant. The Committee may provide in any Evidence of Award for the automatic exercise of an Appreciation Right upon such terms and conditions as established by the Committee. |
6. Restricted Stock. The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the grant or sale of Restricted Stock to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each such grant or sale will constitute an immediate transfer of the ownership of shares of Common Stock to the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and other ownership rights (subject in particular to Section 6(g) of this Plan), but subject to the substantial risk of forfeiture and restrictions on transfer hereinafter described.
(b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share on the Date of Grant.
(c) Each such grant or sale will provide that the Restricted Stock covered by such grant or sale will be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be determined by the Committee on the Date of Grant or until achievement of Management Objectives referred to in Section 6(e) of this Plan.
(d) Each such grant or sale will provide that during or after the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Stock will be prohibited or restricted in the manner and to the extent prescribed by the Committee on the Date of Grant (which restrictions may include rights of repurchase or first refusal of the Company or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture while held by any transferee).
(e) Any grant of Restricted Stock may specify Management Objectives regarding the vesting of such Restricted Stock.
(f) Notwithstanding anything to the contrary contained in this Plan, Restricted Stock may provide for continued vesting or the earlier vesting of such Restricted Stock, including in the event of the retirement, death, disability or termination of employment or service of a Participant or in the event of a Change in Control.
(g) Any such grant or sale of Restricted Stock may require that any and all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and/or reinvested in additional Restricted Stock, which may be subject to the same restrictions as the underlying award; provided, however, that dividends or other distributions on Restricted Stock with restrictions that lapse as a result of the achievement of Management Objectives will be deferred until and paid contingent upon the achievement of the applicable Management Objectives.
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(h) Each grant or sale of Restricted Stock will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve. Unless otherwise directed by the Committee, (i) all certificates representing Restricted Stock will be held in custody by the Company until all restrictions thereon will have lapsed, together with a stock power or powers executed by the Participant in whose name such certificates are registered, endorsed in blank and covering such shares or (ii) all Restricted Stock will be held at the Company’s transfer agent in book entry form with appropriate restrictions relating to the transfer of such Restricted Stock.
7. Restricted Stock Units. The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting or sale of Restricted Stock Units to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each such grant or sale will constitute the agreement by the Company to deliver Common Stock or cash, or a combination thereof, to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include achievement regarding Management Objectives) during the Restriction Period as the Committee may specify.
(b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share on the Date of Grant.
(c) Notwithstanding anything to the contrary contained in this Plan, Restricted Stock Units may provide for continued vesting or the earlier lapse or other modification of the Restriction Period, including in the event of the retirement, death, disability or termination of employment or service of a Participant or in the event of a Change in Control.
(d) During the Restriction Period, the Participant will have no right to transfer any rights under his or her award and will have no rights of ownership in the Common Stock deliverable upon payment of the Restricted Stock Units and will have no right to vote them, but the Committee may, at or after the Date of Grant, authorize the payment of dividend equivalents on such Restricted Stock Units on either a current or deferred or contingent basis, either in cash or in additional shares of Common Stock; provided, however, that dividend equivalents or other distributions on Common Stock underlying Restricted Stock Units with restrictions that lapse as a result of the achievement of Management Objectives shall be deferred until and paid contingent upon achievement of the applicable Management Objectives.
(e) Each grant or sale of Restricted Stock Units will specify the time and manner of payment of the Restricted Stock Units that have been earned. Each grant or sale will specify that the amount payable with respect thereto will be paid by the Company in Common Stock or cash, or a combination thereof.
(f) Each grant or sale of Restricted Stock Units will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve.
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8. Cash Incentive Awards, Performance Shares and Performance Units. The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting of Cash Incentive Awards, Performance Shares and Performance Units. Each such grant may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each grant will specify the number or amount of Performance Shares or Performance Units, or cash amount payable with respect to a Cash Incentive Award, to which it pertains, which number or amount may be subject to adjustment to reflect changes in compensation or other factors.
(b) The Performance Period with respect to each Cash Incentive Award or grant of Performance Shares or Performance Units will be such period of time as will be determined by the Committee, which may be subject to continued vesting or earlier lapse or other modification, including in the event of the retirement, death, disability or termination of employment or service of a Participant or in the event of a Change in Control.
(c) Each grant of a Cash Incentive Award, Performance Shares or Performance Units will specify Management Objectives regarding the earning of the award.
(d) Each grant will specify the time and manner of payment of a Cash Incentive Award, Performance Shares or Performance Units that have been earned.
(e) The Committee may, on the Date of Grant of Performance Shares or Performance Units, provide for the payment of dividend equivalents to the holder thereof either in cash or in additional shares of Common Stock, which dividend equivalents shall be subject to deferral and payment on a contingent basis based on the Participant’s earning and vesting of the Performance Shares or Performance Units, as applicable, with respect to which such dividend equivalents are paid.
(f) Each grant of a Cash Incentive Award, Performance Shares or Performance Units will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such other terms and provisions, consistent with this Plan, as the Committee may approve.
9. Other Awards.
(a) Subject to applicable law and the applicable limits set forth in Section 3 of this Plan, the Committee may authorize the grant to any Participant of Common Stock or such other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock or factors that may influence the value of such shares, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of Common Stock, purchase rights for shares of Common Stock, awards with value and payment contingent upon performance of the Company or specified Subsidiaries, affiliates or other business units thereof or any other factors designated by the Committee, and awards valued by reference to the book value of the shares of Common Stock or the value of securities of, or the performance of specified Subsidiaries or affiliates or other business units of the Company. The Committee will determine the terms and conditions of such
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awards. Common Stock delivered pursuant to an award in the nature of a purchase right granted under this Section 9 will be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, Common Stock, other awards, cash, notes or other property, as the Committee determines.
(b) Cash awards, as an element of or supplement to any other award granted under this Plan, may also be granted pursuant to this Section 9.
(c) The Committee may authorize the grant of shares of Common Stock as a bonus, or may authorize the grant of other awards in lieu of obligations of the Company or a Subsidiary to pay cash or deliver other property under this Plan or under other plans or compensatory arrangements, subject to such terms as will be determined by the Committee in a manner that complies with Section 409A of the Code.
(d) The Committee may, at or after the Date of Grant, authorize the payment of dividends or dividend equivalents on awards granted under this Section 9 on either a current or deferred or contingent basis, either in cash or in additional shares of Common Stock; provided, however, that dividend equivalents or other distributions on Common Stock underlying awards granted under this Section 9 with restrictions that lapse as a result of the achievement of Management Objectives shall be deferred until and paid contingent upon achievement of the applicable Management Objectives.
(e) Each grant of an award under this Section 9 will be evidenced by an Evidence of Award. Each such Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve, and will specify the time and terms of delivery of the applicable award.
(f) Notwithstanding anything to the contrary contained in this Plan, awards under this Section 9 may provide for the earning or vesting of, or earlier elimination of restrictions applicable to, such award, including in the event of the retirement, death, disability or termination of employment or service of a Participant or in the event of a Change in Control.
10. Administration of this Plan.
(a) This Plan will be administered by the Committee; provided, however, that, at the discretion of the Board, the Plan may be administered by the Board, including with respect to the administration of any responsibilities and duties held by the Committee hereunder. The Committee may from time to time delegate all or any part of its authority under this Plan to a subcommittee thereof. To the extent of any such delegation, references in this Plan to the Committee will be deemed to be references to such subcommittee.
(b) The interpretation and construction by the Committee of any provision of this Plan or of any Evidence of Award (or related documents) and any determination by the Committee pursuant to any provision of this Plan or of any such agreement, notification or document will be final and conclusive. No member of the Committee shall be liable for any such action or determination made in good faith. In addition, the Committee is authorized to take any action it determines in its sole discretion to be appropriate subject only to the express limitations contained in this Plan, and no authorization in any Plan section or other provision of this Plan is intended or may be deemed to constitute a limitation on the authority of the Committee.
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(c) To the extent permitted by law, the Committee may delegate to one or more of its members, to one or more officers of the Company, or to one or more agents or advisors, such administrative duties or powers as it may deem advisable, and the Committee, the subcommittee, or any person to whom duties or powers have been delegated as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Committee, the subcommittee or such person may have under this Plan. To the extent permitted by law, and in compliance with any applicable legal requirements, the Committee may, by resolution, authorize one or more officers of the Company to authorize the granting or sale of awards under this Plan on the same basis as the Committee; provided, however, that (i) the Committee will not delegate such authority to any such officer(s) for awards granted to such officer(s) or any employee who is an officer (for purposes of Section 16 of the Exchange Act), Director, or more than 10% “beneficial owner” (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined in accordance with Section 16 of the Exchange Act; and (ii) the officer(s) will report periodically to the Committee regarding the nature and scope of the awards granted pursuant to the authority delegated.
11. Adjustments. The Committee shall make or provide for such adjustments in the number of and kind of shares of Common Stock covered by outstanding Option Rights, Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units granted hereunder and, if applicable, in the number of and kind of shares of Common Stock covered by other awards granted pursuant to Section 9 of this Plan, in the Option Price and Base Price provided in outstanding Option Rights and Appreciation Rights, respectively, in Cash Incentive Awards, and in other award terms, as the Committee, in its sole discretion, exercised in good faith, determines is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from (a) any extraordinary cash dividend, stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event or in the event of a Change in Control, the Committee may provide in substitution for any or all outstanding awards under this Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and shall require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each Option Right or Appreciation Right with an Option Price or Base Price, respectively, greater than the consideration offered in connection with any such transaction or event or Change in Control, the Committee may in its discretion elect to cancel such Option Right or Appreciation Right without any payment to the person holding such Option Right or Appreciation Right. The Committee shall also make or provide for such adjustments in the numbers of shares of Common Stock specified in Section 3 of this Plan as the Committee in its sole discretion, exercised in good faith, determines is appropriate to reflect any transaction or event described in this Section 11; provided, however, that any such adjustment to the number specified in Section 3(c) of this Plan will be made only if and to the extent that such adjustment would not cause any Option Right intended to qualify as an Incentive Stock Option to fail to so qualify.
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12. Change in Control. For purposes of this Plan, except as may be otherwise prescribed by the Committee in an Evidence of Award made under this Plan or as otherwise provided in another plan or agreement applicable to the Participant, a “Change in Control” will be deemed to have occurred upon the occurrence (after the Effective Date) of any of the following events; provided, that, for the avoidance of doubt, the initial public offering of the Common Stock shall not constitute a Change in Control for purposes of this Plan:
(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of the Company where such acquisition causes such Person to own 50% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of Directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not be deemed to result in a Change in Control: (i) any acquisition directly from the Company that is approved by the Incumbent Board (as defined in subsection (b) below), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsection (c) below; provided, further, that if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 50% as a result of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additional voting securities of the Company, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 50% or more of the Outstanding Company Voting Securities; and provided, further, that if at least a majority of the members of the Incumbent Board determines in good faith that a Person has acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the Outstanding Company Voting Securities inadvertently, and such Person divests as promptly as practicable a sufficient number of shares so that such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) less than 50% of the Outstanding Company Voting Securities, then no Change in Control shall have occurred as a result of such Person’s acquisition;
(b) individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board” as modified by this subsection (b)) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to the Effective Date whose election, or nomination for election by the Stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board (either by specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
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(c) the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation or other transaction (“Business Combination”) excluding, however, such a Business Combination pursuant to which (i) the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (ii) no Person (excluding any employee benefit plan (or related trust) of the Company, the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 50% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the entity resulting from such Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(d) approval by the Stockholders of a complete liquidation or dissolution of the Company except pursuant to a Business Combination that complies with clauses (i), (ii) and (iii) of subsection (c) above.
Notwithstanding the foregoing, with respect to any award under the Plan that is characterized as “non-qualified deferred compensation” within the meaning of Section 409A of the Code, an event shall not be considered to be a Change in Control under the Plan for purposes of the timing of payment in respect of such award unless such event would also constitute a “change in ownership,” a “change in effective control” or a “change in the ownership of a substantial portion of the assets of” the Company under Section 409A of the Code.
13. Detrimental Activity and Recapture Provisions. Any Evidence of Award (or any part thereof) may provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any gain or earnings related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Committee in accordance with (a) any Company clawback or recoupment policy, including the Guardian Pharmacy Services, Inc. Compensation Recoupment Policy and any other policy that is adopted to comply with the requirements of any applicable laws, rules, regulations, stock exchange listing standards or otherwise (in each case, the “Clawback Policy”), or (b) any applicable laws that impose mandatory clawback or recoupment requirements under the circumstances set forth in such laws, including as required by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or other applicable laws, rules, regulations, or stock exchange listing standards, as may be in effect from time to time, and which may operate to create additional rights for the Company with respect to awards and the recovery of amounts relating thereto. By accepting awards under the Plan, the Participants consent to be bound by the terms of the Clawback Policy, if applicable, and agree and acknowledge that they are obligated to cooperate with, and provide any and all assistance necessary to, the Company in its efforts to recover or recoup any award, any gains or earnings related to any award, or any other amount paid under the
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Plan or otherwise subject to clawback or recoupment pursuant to such laws, rules, regulations, stock exchange listing standards or Company policy. Such cooperation and assistance shall include, but is not limited to, executing, completing and submitting any documentation necessary to facilitate the recovery or recoupment by the Company from the Participant of any such amounts, including from the Participant’s accounts or from any other compensation, to the extent permissible under Section 409A of the Code.
14. Non-U.S. Participants. In order to facilitate the making of any grant or combination of grants under this Plan, the Committee may provide for such special terms for awards to Participants who are foreign nationals or who are employed by the Company or any Subsidiary outside of the United States of America or who provide services to the Company or any Subsidiary under an agreement with a foreign nation or agency, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to or amendments, restatements or alternative versions of this Plan (including sub-plans) (to be considered a part of this Plan) as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, will include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further Stockholder approval.
15. Transferability.
(a) Except as otherwise determined by the Committee, and subject to compliance with Section 17(b) of this Plan and Section 409A of the Code, no Option Right, Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Cash Incentive Award, award contemplated by Section 9 of this Plan or dividend equivalents paid with respect to awards made under this Plan will be transferable by the Participant except by will or the laws of descent and distribution. In no event will any such award granted under this Plan be transferred for value. Where transfer is permitted, references to “Participant” shall be construed, as the Committee deems appropriate, to include any permitted transferee to whom such award is transferred. Except as otherwise determined by the Committee, Option Rights and Appreciation Rights will be exercisable during the Participant’s lifetime only by him or her or, in the event of the Participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the Participant in a fiduciary capacity under state law or court supervision.
(b) The Committee may specify on the Date of Grant that part or all of the shares of Common Stock that are (i) to be issued or transferred by the Company upon the exercise of Option Rights or Appreciation Rights, upon the termination of the Restriction Period applicable to Restricted Stock Units or upon payment under any grant of Performance Shares or Performance Units or other awards under this Plan or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in Section 6 of this Plan, will be subject to further restrictions on transfer, including minimum holding periods.
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16. Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld, which arrangements (in the discretion of the Committee) may include relinquishment of a portion of such benefit. If a Participant’s benefit is to be received in the form of Common Stock, and such Participant fails to make arrangements for the payment of taxes or other amounts, then, unless otherwise determined by the Committee, the Company will withhold shares of Common Stock having a value equal to the amount required to be withheld. Notwithstanding the foregoing, when a Participant is required to pay the Company an amount required to be withheld under applicable income, employment, tax or other laws, the Committee may require the Participant to satisfy the obligation, in whole or in part, by having withheld, from the Common Stock delivered or required to be delivered to the Participant, shares of Common Stock having a value equal to the amount required to be withheld or by delivering to the Company other Common Stock held by such Participant. The Common Stock used for tax or other withholding will be valued at an amount equal to the fair market value of such Common Stock on the date the benefit is to be included in Participant’s income. In no event will the fair market value of the Common Stock to be withheld and delivered pursuant to this Section 16 exceed the minimum amount required to be withheld, unless (i) an additional amount can be withheld and not result in adverse accounting consequences and (ii) such additional withholding amount is authorized by the Committee. Participants will also make such arrangements as the Company may require for the payment of any withholding tax or other obligation that may arise in connection with the disposition of Common Stock acquired upon the exercise of Option Rights.
17. Compliance with Section 409A of the Code.
(a) To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Participants. This Plan and any grants made hereunder will be administered in a manner consistent with this intent. Any reference in this Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such section by the U.S. Department of the Treasury or the Internal Revenue Service.
(b) Neither a Participant nor any of a Participant’s creditors or beneficiaries will have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under this Plan and grants hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to a Participant or for a Participant’s benefit under this Plan and grants hereunder may not be reduced by, or offset against, any amount owed by a Participant to the Company or any of its Subsidiaries.
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(c) If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (i) the Participant will be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company makes a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company will not pay such amount on the otherwise scheduled payment date but will instead pay it, without interest, on the tenth business day of the seventh month after such separation from service.
(d) Solely with respect to any award that constitutes nonqualified deferred compensation subject to Section 409A of the Code and that is payable on account of a Change in Control (including any installments or stream of payments that are accelerated on account of a Change in Control), a Change in Control shall occur only if such event also constitutes a “change in the ownership,” “change in effective control,” and/or a “change in the ownership of a substantial portion of assets” of the Company as those terms are defined under Treasury Regulation §1.409A-3(i)(5), but only to the extent necessary to establish a time and form of payment that complies with Section 409A of the Code, without altering the definition of Change in Control for any purpose in respect of such award.
(e) Notwithstanding any provision of this Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and grants hereunder as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant will be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with this Plan and grants hereunder (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its affiliates will have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.
18. Amendments.
(a) The Board may at any time and from time to time amend this Plan in whole or in part; provided, however, that if an amendment to this Plan, for purposes of applicable stock exchange rules and except as permitted under Section 11 of this Plan, (i) would materially increase the benefits accruing to Participants under this Plan, (ii) would materially increase the number of securities which may be issued under this Plan, (iii) would materially modify the requirements for participation in this Plan, or (iv) must otherwise be approved by the Stockholders in order to comply with applicable law or the rules of the New York Stock Exchange or, if the Common Stock is not traded on the New York Stock Exchange, the principal national securities exchange upon which the Common Stock is traded or quoted, all as determined by the Board, then, such amendment will be subject to Stockholder approval and will not be effective unless and until such approval has been obtained.
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(b) Except in connection with a corporate transaction or event described in Section 11 of this Plan or in connection with a Change in Control, the terms of outstanding awards may not be amended to reduce the Option Price of outstanding Option Rights or the Base Price of outstanding Appreciation Rights, or cancel outstanding “underwater” Option Rights or Appreciation Rights (including following a Participant’s voluntary surrender of “underwater” Option Rights or Appreciation Rights) in exchange for cash, other awards or Option Rights or Appreciation Rights with an Option Price or Base Price, as applicable, that is less than the Option Price of the original Option Rights or Base Price of the original Appreciation Rights, as applicable, without Stockholder approval. This Section 18(b) is intended to prohibit the repricing of “underwater” Option Rights and Appreciation Rights and will not be construed to prohibit the adjustments provided for in Section 11 of this Plan. Notwithstanding any provision of this Plan to the contrary, this Section 18(b) may not be amended without Stockholder approval.
(c) If permitted by Section 409A of the Code, but subject to Section 18(d), including in the case of termination of employment or service, or in the case of unforeseeable emergency or other circumstances or in the event of a Change in Control, to the extent a Participant holds an Option Right or Appreciation Right not immediately exercisable in full, or any Restricted Stock as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Restricted Stock Units as to which the Restriction Period has not been completed, or any Cash Incentive Awards, Performance Shares or Performance Units which have not been fully earned, or any dividend equivalents or other awards made pursuant to Section 9 of this Plan subject to any vesting schedule or transfer restriction, or holds Common Stock subject to any transfer restriction imposed pursuant to Section 15(b) of this Plan, the Committee may, in its sole discretion, provide for continued vesting or accelerate the time at which such Option Right, Appreciation Right or other award may vest or be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Restriction Period will end or the time at which such Cash Incentive Awards, Performance Shares or Performance Units will be deemed to have been earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such award.
(d) Subject to Section 18(b) of this Plan, the Committee may amend the terms of any award theretofore granted under this Plan prospectively or retroactively. Except for adjustments made pursuant to Section 11 of this Plan, no such amendment will materially impair the rights of any Participant without his or her consent. The Board may, in its discretion, terminate this Plan at any time. Termination of this Plan will not affect the rights of Participants or their successors under any awards outstanding hereunder and not exercised in full on the date of termination.
19. Governing Law. This Plan and all grants and awards and actions taken hereunder will be governed by and construed in accordance with the internal substantive laws of the State of Delaware.
20. Effective Date/Termination. This Plan will be effective as of the Effective Date. No grant will be made under this Plan on or after the tenth anniversary of the Effective Date, but all grants made prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan.
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21. Miscellaneous Provisions.
(a) The Company will not be required to issue any fractional shares of Common Stock pursuant to this Plan. The Committee may provide for the elimination of fractions or for the settlement of fractions in cash.
(b) This Plan will not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time.
(c) Except with respect to Section 21(e) of this Plan, to the extent that any provision of this Plan would prevent any Option Right that was intended to qualify as an Incentive Stock Option from qualifying as such, that provision will be null and void with respect to such Option Right. Such provision, however, will remain in effect for other Option Rights and there will be no further effect on any provision of this Plan.
(d) No award under this Plan may be exercised by the holder thereof if such exercise, and the receipt of cash or shares thereunder, would be, in the opinion of counsel selected by the Company, contrary to law or the regulations of any duly constituted authority having jurisdiction over this Plan.
(e) Absence on leave approved by a duly constituted officer of the Company or any of its Subsidiaries will not be considered interruption or termination of service of any employee for any purposes of this Plan or awards granted hereunder.
(f) No Participant will have any rights as a Stockholder with respect to any Common Stock subject to awards granted to him or her under this Plan prior to the date as of which he or she is actually recorded as the holder of such Common Stock upon the share records of the Company.
(g) The Committee may condition the grant of any award or combination of awards authorized under this Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Company or a Subsidiary to the Participant.
(h) Except with respect to Option Rights and Appreciation Rights, the Committee may permit Participants to elect to defer the issuance of Common Stock under this Plan pursuant to such rules, procedures or programs as it may establish for purposes of this Plan and which are intended to comply with the requirements of Section 409A of the Code. The Committee also may provide that deferred issuances and settlements include the crediting of dividend equivalents or interest on the deferral amounts.
(i) If any provision of this Plan is or becomes invalid, illegal or unenforceable in any jurisdiction, or would disqualify this Plan or any award under any law deemed applicable by the Committee, such provision will be construed or deemed amended or limited in scope to conform to applicable laws or, in the discretion of the Committee, it will be stricken and the remainder of this Plan will remain in full force and effect. Notwithstanding anything in this Plan or an Evidence of Award to the contrary, nothing in this Plan or in an Evidence of Award prevents a Participant from providing, without prior notice to the Company, information to governmental
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authorities regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by any governmental authorities regarding possible legal violations, and for purpose of clarity a Participant is not prohibited from providing information voluntarily to the Securities and Exchange Commission pursuant to Section 21F of the Exchange Act.
22. Share-Based Awards in Substitution for Awards Granted by Another Company. Notwithstanding anything in this Plan to the contrary:
(a) Awards may be granted under this Plan in substitution for or in conversion of, or in connection with an assumption of, stock options, stock appreciation rights, restricted stock, restricted stock units or other share or share-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with the Company or any Subsidiary. Any conversion, substitution or assumption will be effective as of the close of the merger or acquisition, and, to the extent applicable, will be conducted in a manner that complies with Section 409A of the Code. The awards so granted may reflect the original terms of the awards being assumed or substituted or converted for and need not comply with other specific terms of this Plan, and may account for Common Stock substituted for the securities covered by the original awards and the number of shares subject to the original awards, as well as any exercise or purchase prices applicable to the original awards, adjusted to account for differences in stock prices in connection with the transaction.
(b) In the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary merges has shares available under a pre-existing plan previously approved by shareholders and not adopted in contemplation of such acquisition or merger, the shares available for grant pursuant to the terms of such plan (as adjusted, to the extent appropriate, to reflect such acquisition or merger) may be used for awards made after such acquisition or merger under this Plan; provided, however, that awards using such available shares may not be made after the date awards or grants could have been made under the terms of the pre-existing plan absent the acquisition or merger, and may only be made to individuals who were not employees or directors of the Company or any Subsidiary prior to such acquisition or merger.
(c) Any Common Stock that is issued or transferred by, or that is subject to any awards that are granted by, or become obligations of, the Company under Sections 22(a) or 22(b) of this Plan will not reduce the shares of Common Stock available for issuance or transfer under this Plan or otherwise count against the limits contained in Section 3 of this Plan, except as otherwise provided in this Plan. In addition, no shares of Common Stock subject to an award that is granted by, or becomes an obligation of, the Company under Sections 22(a) or 22(b) of this Plan, will be added to the aggregate limit contained in Section 3(a)(i) of this Plan.
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption “Experts” and to the use of our report dated March 21, 2024 as it pertains to the financial statements of Guardian Pharmacy Services, Inc., in Amendment No. 2 to the Registration Statement (Form S-1 No. 333-274847) of Guardian Pharmacy Services, Inc. dated September 16, 2024.
/s/ Ernst & Young LLP
Atlanta, Georgia
September 16, 2024
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption “Experts” and to the use of our report dated March 21, 2024 as it pertains to the consolidated financial statements of Guardian Pharmacy, LLC and subsidiaries, in Amendment No. 2 to the Registration Statement (Form S-1 No. 333-274847) of Guardian Pharmacy Services, Inc. dated September 16, 2024.
/s/ Ernst & Young LLP
Atlanta, Georgia
September 16, 2024