Guardian Pharmacy Services, Inc S-1/A, filed Aug 22, 2024
Guardian Pharmacy Services, Inc. (GRDN)
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As filed with the Securities and Exchange Commission on August 22, 2024.
Registration No. 333-274847
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
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 August 22, 2024
P R O S P E C T U S
Shares
Class A Common Stock
This is Guardian Pharmacy Services, Inc.’s initial public offering. We are selling shares of our Class A common stock.
We expect the public offering price to be between $ and $ per share. Currently, no public market exists for the shares. We have applied 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—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 24 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 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 equity holders. 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 a comprehensive 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. |
Anticipated Equity Awards Following this Offering
In connection with this offering, we expect to adopt the Guardian Pharmacy Services, Inc. 2024 Equity and Incentive Compensation Plan and, following the completion of this offering, to make initial grants of stock options to certain of our executive officers and other employees having an aggregate award value of $11.0 million. Beginning in 2026, we also expect to grant restricted stock units to certain of our executive officers and other employees having an aggregate award value of $10.0 million. For additional information, see “Executive Compensation—Anticipated Special Option Awards” and “Executive Compensation—Anticipated 2025 Long-Term Incentive Program Awards.”
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; |
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| • | 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; |
| • | 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; |
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| • | 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; |
| • | 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 |
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| 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 $ in cash, without interest (collectively, the “Merger Consideration”). The aggregate cash portion of the Merger Consideration will be $ million. We will use a portion of the net proceeds from this offering to pay such amount. 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 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 % 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 % of our outstanding shares of common stock in aggregate.
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.
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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.
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 |
shares. |
| Underwriters’ option to purchase additional shares of Class A common stock |
The underwriters have a 30-day option to purchase up to 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 |
shares (or 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 |
shares (or shares, if the underwriters exercise in full their option to purchase additional shares of Class A common stock). |
| 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 % of the combined voting power of our common stock (or % 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 % of the combined voting power of our common stock (or % 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 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—Controlled Company Exemption.” |
| Use of proceeds |
We estimate that the net proceeds to us from this offering will be approximately $ million (or approximately $ million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), assuming a public offering price of $ 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 $ million of the net proceeds we receive from this offering to fund the aggregate cash portion of the Merger Consideration and $ 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.” |
| 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 |
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| 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 applied 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: |
$ | 27,933 | $ | 17,089 | ||||
| Pro forma net income per share: |
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| Basic |
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| Diluted |
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| Pro forma weighted-average shares used to compute net income per share: |
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| Basic |
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| Diluted |
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| (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. |
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; |
| • | 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.
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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 shares of our Class B common stock, representing approximately % of the combined voting power of our common stock. 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 shares of our Class A common stock, assuming a public offering price of $ 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 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 to our employees, directors or officers pursuant to our directed share program would be subject to a 180-day lock-up as described in “Underwriting—Directed Share Program.”
The 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 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 (except as 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 $ 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 $ 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 , 2024 after giving effect to this offering would be $ 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 $ in cash, without interest (collectively, the “Merger Consideration”). We intend to use $ 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 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. 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.
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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 $ million, assuming a public offering price of $ 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 $ million.
A $1.00 increase (decrease) in the assumed public offering price of $ per share would increase (decrease) the amount of proceeds available to us from this offering by approximately $ , 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 $ million, assuming that the price per share for this offering remains at $ (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 $ in cash (without interest), which we collectively refer to as the Merger Consideration. See “Corporate Reorganization.” We intend to use $ million of the net proceeds from this offering to fund the aggregate cash portion of the Merger Consideration and $ 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 shares of our Class A common stock in this offering at the initial public offering price of $ 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 $ million of the net proceeds from this offering to fund the aggregate cash portion of the Merger Consideration and $ 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) |
||||||||||
| Cash and cash equivalents |
$ | 1,538 | ||||||||||
|
|
|
|
|
|
|
|||||||
| Long-term debt |
$ | 51,964 | (1) | (1) | (2) | |||||||
|
|
|
|
|
|
|
|||||||
| Members’ equity: |
||||||||||||
| Members’ equity |
$ | 17,877 | ||||||||||
| Members’ preferred return |
$ | — | ||||||||||
|
|
|
|
|
|
|
|||||||
| Total Guardian Pharmacy, LLC equity |
$ | 17,877 | ||||||||||
| Stockholders’ equity |
||||||||||||
| Class A common stock, $0.001 par value per share: no shares authorized, issued and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma; and shares authorized, shares issues and outstanding, pro forma and as-adjusted |
||||||||||||
| Class B common stock, $0.001 par value per share: no shares authorized, issued and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma; and shares authorized, shares issues and outstanding, pro forma and as-adjusted |
||||||||||||
| Additional paid-in capital(3) |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Non-controlling interest(4) |
39,336 | |||||||||||
|
|
|
|
|
|
|
|||||||
| Total members’/stockholders’ equity(3) |
57,213 | |||||||||||
|
|
|
|
|
|
|
|||||||
| Total capitalization |
$ | 109,177 | ||||||||||
|
|
|
|
|
|
|
|||||||
| (1) | 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. |
| (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. Gives effect to the application of $ million in net proceeds from this offering that will be applied at closing to repay $ 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. |
| (3) | 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 $ 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 $ million. |
| (4) | 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. |
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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 , 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 , 2024 was $ million, or $ 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 $ 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 , 2024 would have been $ million, or $ per share. This represents an immediate dilution to new investors in this offering of $ per share. The following table illustrates this per share dilution:
| Assumed public offering price per share |
$ | |||||||
| Pro forma net tangible book value per share as of , 2024 |
$ | |||||||
| Increase in net tangible book value per share attributable to new investors |
$ | |||||||
|
|
|
|||||||
| Pro forma and as-adjusted net tangible book value per share after this offering |
$ | |||||||
|
|
|
|||||||
| Dilution per share to new investors |
$ | |||||||
|
|
|
|||||||
A $1.00 increase (decrease) in the assumed public offering price of $ per share would increase (decrease) our pro forma and as-adjusted net tangible book value by $ million, the pro forma and as-adjusted net tangible book value per share after this offering by $ and the dilution per share to new investors by $ , 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 $ million, increase the pro forma and as-adjusted net tangible book value per share after this offering by $ and decrease the dilution per share to new investors by $ , 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 $ million, decrease the pro forma and as-adjusted net tangible book value per share after this offering by $ and increase the dilution per share to new investors by $ , 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 $ per share, and there would be an immediate dilution of approximately $ 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 $ 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) | ||||||||||||||||||||
| Class B stockholders on a pro forma basis |
% | % | $ | |||||||||||||||||
| New investors |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
100 | % | $ | 100 | % | $ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
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 Acquisitions were determined to be individually immaterial, but material in the aggregate. As such, 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
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as a liability in accordance with GAAP. These units remain in place until they are (a) forfeited (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.
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For the three and six months ended June 30, 2024, we generated net income of $15.8 million and $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, |
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| (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 | ||||||||||||
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| Gross profit |
50,322 | 61,288 | 101,540 | 116,389 | ||||||||||||
| Selling, general, and administrative(1) |
25,027 | 44,283 | 69,788 | 91,451 | ||||||||||||
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| Operating income |
25,295 | 17,005 | 31,752 | 24,938 | ||||||||||||
| Other expenses: |
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| Interest expense |
702 | 1,066 | 1,404 | 1,831 | ||||||||||||
| Other expense, net |
151 | 91 | 192 | 164 | ||||||||||||
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| Total other expense |
853 | 1,157 | 1,596 | 1,995 | ||||||||||||
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| 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 | ) | ||||||||
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| Net income attributable to Guardian Pharmacy, LLC |
$ | 21,470 | $ | 10,624 | $ | 23,174 | $ | 13,410 | ||||||||
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| Adjusted EBITDA(3) |
$ | 18,129 | $ | 21,676 | $ | 37,155 | $ | 41,931 | ||||||||
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| (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—Share-based compensation expense (income)” 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. The increase was primarily due to the organic growth of our business, coupled with revenues from the Acquisitions. 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. The increase was primarily due to the organic growth of our business, coupled with revenues from the Acquisitions. 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. The increase was primarily due to the organic growth of our business, coupled with cost of sales associated with the Acquisitions. 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. The increase was primarily due to the organic growth of our business, coupled with cost of sales associated with the Acquisitions. 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, selling, general, and administrative expenses increased $7.6 million, driven by an increase in average employee headcount resulting from organic growth and 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, selling, general, and administrative expenses increased $11.9 million, driven by an increase in average employee headcount resulting from organic growth and 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 | ||||||
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| Gross profit |
185,866 | 208,310 | ||||||
| Selling, general, and administrative(1) |
133,876 | 167,364 | ||||||
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| Operating income |
51,990 | 40,946 | ||||||
| Other expense: |
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| Interest expense |
1,926 | 2,859 | ||||||
| Other expense, net |
403 | 367 | ||||||
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| Total other expense |
2,329 | 3,226 | ||||||
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| Net income |
49,661 | 37,720 | ||||||
| Less net income attributable to non-controlling interest(2) |
(14,240 | ) | (13,818 | ) | ||||
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| Net income attributable to Guardian Pharmacy, LLC |
$ | 35,421 | $ | 23,902 | ||||
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| Adjusted EBITDA(3) |
$ | 65,714 | $ | 76,175 | ||||
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| (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—Share-based compensation expense (income)” 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 equity holders (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 equity holders 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 equity holders 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 a comprehensive 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 comprehensive 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 65% 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 August 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 |
74 | 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 | ||||||
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 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.
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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 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
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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.
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
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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.”
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. |
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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. Pursuant to the Stockholders’ Agreement, the Guardian Founders will agree to vote all of their shares of common stock 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. Because more than 50% of the voting power in the election of our directors will be held by an individual, group, or another company, 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.
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; |
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| • | 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 |
| • | 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 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 |
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| 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, 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
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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.
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
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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.
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; |
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| • | 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 2023. We refer to these individuals as our named executive officers (“NEOs”). Our NEOs for 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.
| 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 | |||||||||||||
| David Morris |
2023 | $ | 348,625 | $ | — | $ | 184,313 | $ | 54,386 | $ | 587,324 | |||||||||||||
| Kendall Forbes |
2023 | $ | 348,625 | $ | — | $ | 184,313 | $ | 50,687 | $ | 583,805 | |||||||||||||
| (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 2023 annual cash incentive award payouts. See “—2023 Annual Cash Incentive Awards” below for more information. |
| (3) | The amounts reported 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 earnings before interest, taxes, depreciation and amortization (“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 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, $76.4 million in EBITDA, and 163,000 in residents served. As a result of the fact that the revenue and 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 Special Option Awards
In connection with the offering, we expect to make initial grants of stock options under the 2024 Plan to our NEOs and certain other employees (the “Special Option Awards”). Such Special Option Awards would have an exercise price equal to the fair market value of a share of Class A common stock on the date of grant, would generally vest on the third anniversary of the date of grant, and would have an exercise period of up to seven years. The table below sets forth the
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expected Special Option Awards for each of the NEOs, and all other employees as a group, expressed based on target grant date dollar value:
| Name |
Estimated Special Option Award Value(1) |
|||
| Fred Burke |
$ | — | ||
| David Morris |
$ | 240,000 | ||
| Kendall Forbes |
$ | 240,000 | ||
| All other employees, excluding NEOs |
$ | 9,520,000 | ||
| (1) | We anticipate that the number of stock options granted to each grantee will be determined based on the grantee’s estimated Special Option Award value and a Black-Scholes calculation as of the date of grant. |
Anticipated 2026 Long-Term Incentive Program Awards
Beginning with 2026, 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 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 2026 grants.
| RSU Award Value(1) |
||||
| Fred Burke |
$ | — | ||
| David Morris |
$ | 240,000 | ||
| Kendall Forbes |
$ | 240,000 | ||
| All other employees, excluding NEOs |
$ | 8,520,000 | ||
| (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; |
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| • | For each of our fiscal years (beginning with 2023) 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.
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
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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.
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 prior to the completion of this offering. However, 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, shares (the “Overall Share Limit”). The Overall Share Limit will be automatically increased on the first day of each fiscal year, beginning in 2024 and ending in 2034, by an amount equal to the lesser of (a) % of the shares of our Class A 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 , 2034; and (4) shares subject to a share-settled appreciation right granted under the 2024 Plan that are not actually issued in connection
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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.
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 shares of 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
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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.
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
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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 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,
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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.
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
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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. |
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 $ in cash (without interest), which we collectively refer to as the Merger Consideration. As holders of Common Units immediately prior to the Corporate Reorganization, certain of our executive officers and directors, and securityholders beneficially owning more than five percent of our voting securities will be entitled to their applicable portions of Merger Consideration, including the following the respective cash portions of the Merger Consideration: Mr. Burke, $ ; Mr. Morris, $ ; Mr. Forbes, $ ; Mr. Ackerman, $ ; Mr. Bindley, $ ; Mr. Salentine, $ ; Bindley Capital Partners I, LLC, $ ; Cardinal Equity Fund LP, $ ; and Pharmacy Investors, LLC, $ . 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 , 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 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 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.
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) |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pharmacy Investors, LLC(d)(e) |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NEOs and Directors |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fred Burke |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| David Morris |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Kendall Forbes |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| John Ackerman(d) |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| William Bindley(b) |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Steve Cosler |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Randall Lewis |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mary Sue Patchett |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Thomas Salentine, Jr.(b) |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All executive officers and directors as a group (9 persons) |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| * | 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 shares of Class B common stock and 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 shares of Class A common stock, par value $0.001 per share, shares of Class B common stock, par value $0.001 per share and 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 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:
| • | shares of our Class A common stock; |
| • | 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 applied 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 shares of Class A common stock (or shares of Class A common stock if the underwriters’ option to purchase additional shares of Class A common stock is exercised in full) and 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 to our employees, directors or officers 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 2023 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. |
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| Truist Securities, Inc. |
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| Stephens Inc. |
||||
|
|
|
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| Total |
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|
|
|
|||
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 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 $ (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 applied 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 who are our employees 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.” Any shares sold in the directed share program to our directors or executive officers shall be subject to the lock-up restrictions described above. 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 |
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| Audited Balance Sheets as of December 31, 2022 and 2023 |
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| 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 |
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| 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 |
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| Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) |
F-7 | |||
| Consolidated Financial Statements: |
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| 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 |
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| 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
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Guardian Pharmacy Services, Inc.
| December 31, | ||||||||
| 2022 | 2023 | |||||||
| Assets |
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| Receivable from parent |
$ | 1 | $ | 1 | ||||
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| Total assets |
$ | 1 | $ | 1 | ||||
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| Commitments and contingencies (see Note 3) |
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| Stockholders’ equity: |
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| Common stock, par value $0.01 per share, 1,000 shares authorized, 100 shares issued and outstanding |
$ | 1 | $ | 1 | ||||
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$ | 1 | $ | 1 | ||||
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See accompanying notes to Balance Sheets.
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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.
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Guardian Pharmacy Services, Inc.
| December 31, 2023 |
June 30, 2024 |
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| (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”). The Acquisitions were determined to be individually immaterial, but material in the aggregate.
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.
| 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.
F-38
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(In Thousands)
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.
| 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. |
F-39
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(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 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 |
||||||||||||
| Liabilities: |
||||||||||||
| Contingent consideration payable |
$ | — | $ | — | $ | 1,950 | ||||||
|
|
|
|
|
|
|
|||||||
| Fair value of financial instruments |
$ | — | $ | — | $ | 1,950 | ||||||
|
|
|
|
|
|
|
|||||||
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 six-month period ended June 30, 2024:
| Balance at December 31, 2023 |
$ | — | ||
| Current year acquisitions |
1,950 | |||
| Fair value adjustments |
— | |||
| Payments |
— | |||
|
|
|
|||
| Balance at June 30, 2024 |
$ | 1,950 | ||
|
|
|
| 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.
F-40
Table of Contents
Guardian Pharmacy, LLC and Subsidiaries
Notes to the Unaudited Interim Consolidated Financial Statements
(In Thousands)
| 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.
F-41
Table of Contents
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 the costs and expenses, other than the underwriting discount, payable by us 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 to be Paid |
||||
| SEC registration fee |
$ | 13,579.20 | ||
| FINRA filing fee |
15,500.00 | |||
| Initial NYSE listing fee |
* | |||
| Printing expenses |
* | |||
| Legal fees and expenses |
* | |||
| Accounting fees and expenses |
* | |||
| Transfer Agent and Registrar fees |
* | |||
| Miscellaneous fees and expenses |
* | |||
|
|
|
|||
| Total |
$ | * | ||
|
|
|
|||
| * | To be provided by amendment. |
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.
II-1
Table of Contents
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.
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
| Number |
Description | |
| 1.1* | Form of Underwriting Agreement | |
| 2.1* | Form of Agreement and Plan of Merger, by and among Guardian Pharmacy, LLC, Guardian Pharmacy Services, Inc. and Guardian Merger Corp. | |
| 3.1** | Certificate of Incorporation of Guardian Pharmacy Services, Inc., as currently in effect | |
| 3.2** | Bylaws of Guardian Pharmacy Services, Inc., as currently in effect | |
| 3.3* | Form of Amended and Restated Certificate of Incorporation of Guardian Pharmacy Services, Inc., to be effective upon completion of this offering | |
| 3.4* | Form of Amended and Restated Bylaws of Guardian Pharmacy Services, Inc., to be effective upon completion of this offering | |
| 4.1* | Form of Stockholders’ Agreement, by and among Guardian Pharmacy Services, Inc. and the stockholders party thereto | |
II-2
Table of Contents
II-3
Table of Contents
| Number |
Description | |
| 99.5** | Consent of Thomas Salentine, Jr. to be named as a director | |
| 99.6** | Consent of Randall Lewis to be named as a director | |
| 107** | Calculation of Filing Fee Tables. | |
| * | To be filed by amendment. |
| ** | Previously filed. |
| # | 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.
II-4
Table of Contents
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 August 22, 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) |
August 22, 2024 | ||
| /s/ David Morris David Morris |
Chief Financial Officer and Director (Principal Financial and Accounting Officer) |
August 22, 2024 | ||
II-5
Exhibit 10.4F
EXECUTION COPY
FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as of October 13, 2023 (this “Amendment”) is entered into by and among GUARDIAN PHARMACY, LLC, an Indiana limited liability company (the “Borrower”), the Guarantors party hereto, the Lenders party hereto, and REGIONS BANK, as administrative agent and collateral agent (in such capacity and together with its successors and assigns, the “Agent”).
RECITALS
WHEREAS, the Borrower, the Guarantors from time to time party thereto, the Lenders from time to time party thereto and Regions Bank, as Agent, entered into that certain Third Amended and Restated Loan and Security Agreement dated as of April 23, 2018 (as amended by that certain First Amendment to Third Amended and Restated Loan and Security Agreement dated as of December 3, 2019, that certain Second Amendment to Third Amended and Restated Loan and Security Agreement dated as of March 20, 2020, that certain Third Amendment to Third Amended and Restated Loan and Security Agreement dated as of December 22, 2021, that certain Fourth Amendment to Third Amended and Restated Loan and Security Agreement dated as of April 22, 2022 and as further amended, modified, supplemented or extended from time to time, the “Existing Loan Agreement”);
WHEREAS, the Borrower has requested certain modifications to the Existing Loan Agreement; and
WHEREAS, the Agent, the Lenders and the Borrower have agreed to the modifications on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Introductory Paragraph and Recitals. The above introductory paragraph and recitals of this Amendment are incorporated herein by reference as if fully set forth in the body of this Amendment.
2. Definitions. Capitalized terms used herein (including in the recitals hereof) and not otherwise defined herein shall have the meanings provided in the Existing Loan Agreement or the Existing Loan Agreement as amended by this Amendment (the “Amended Loan Agreement”), as applicable.
3. Amendments to Existing Loan Agreement.
(a) The definition of “Qualifying IPO” in Section 1.1 of the Existing Loan Agreement is hereby amended and restated in its entirety to read as follows:
“Qualifying IPO” means an underwritten primary public offering of the common stock of the Borrower (or Borrower’s successor in interest or any other Person who becomes Borrower hereunder, in each case, pursuant to a Qualifying IPO Permitted Restructuring) (a) pursuant to an effective registration statement filed with the United States Securities and Exchange Commission in accordance with the Securities Act (whether alone or in conjunction with a secondary public offering) and (b) resulting in gross proceeds of at least $30,000,000. For the avoidance of doubt, it is understood and agreed that the Proposed IPO is a Qualifying IPO.
(b) Section 1.1 of the Existing Loan Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order:
“Fifth Amendment” means that certain Fifth Amendment to Third Amended and Restated Loan and Security Agreement dated as of the Fifth Amendment Effective Date.
“Fifth Amendment Distribution” means a one-time Restricted Payment made by the Borrower to the holders of its Equity Interests at any time during the period from and including the Fifth Amendment Effective Date through and including December 31, 2023 in compliance with the requirements of Section 9.3(g) in an aggregate amount not to exceed $10,000,000.
“Fifth Amendment Effective Date” means October 13, 2023.
“Guardian Pharmacy Services” means Guardian Pharmacy Services, Inc., a Delaware corporation.
“Proposed IPO” means the initial public offering of the stock of Guardian Pharmacy Services pursuant to which (and the related Qualifying IPO Permitted Restructuring) Guardian Pharmacy Services will be the direct parent of the Borrower.
“Proposed IPO Effective Date” means the date of the consummation of the Proposed IPO.
(c) Section 8.18 of the Existing Loan Agreement is hereby amended by inserting the following new clause (c) immediately after clause (b) thereof:
(c) Proposed IPO Joinders.
(i) On or before the date that is thirty (30) days after the Proposed IPO Effective Date (or such later date as agreed to by the Agent in writing), the Credit Parties shall cause Guardian Pharmacy Services to (A) have delivered an affirmation and assumption agreement or joinder agreement pursuant to which it will become the “Borrower” hereunder in form and substance reasonably acceptable to the Agent, (B) take the actions required by Sections 8.15, 8.16 and 8.17 hereof and (C) deliver such other documents, certificates and agreements as would have been delivered if it were a party to this Agreement on the Effective Date.
(ii) On or before the date that is thirty (30) days after the Proposed IPO Effective Date (or such later date as agreed to by the Agent in writing), the Credit Parties shall cause each of the Subsidiaries listed on Schedule 8.18(c) hereto (so long as each such Subsidiary is a wholly-owned Domestic Subsidiary on such date) to (A) take the actions required by Sections 8.15, 8.16 and 8.17 hereof and (B) deliver such other documents, certificates and agreements as would have been delivered if it were a party to this Agreement on the Effective Date.
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(d) Section 9.3 of the Loan Agreement is hereby amended by replacing the “and” immediately prior the text “(f)” with “,”, changing the “.” at the end of clause (f) to “, and” and adding a new clause (g) to read as follows:
(g) the Borrower may make the Fifth Amendment Distribution, so long as (i) no Default exists or would result from the making of the Fifth Amendment Distribution and (ii) the Borrower is in compliance with the financial covenants in Section 9.17 on a pro forma basis after giving effect to the Fifth Amendment Distribution (and if the Borrower elects to increase Consolidated Leverage Ratio test level pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase)
(e) The last sentence of Section 9.13 of the Existing Loan Agreement is hereby amended and restated in its entirety as follows:
Notwithstanding anything herein to the contrary, in the event that the Borrower undertakes an initial public offering (including the Proposed IPO), the Borrower shall be permitted to reorganize in a manner reasonably acceptable to Agent so long as (x) the plan of reorganization or similar documentation is reasonably acceptable to Agent and (y) any new “Borrower” (including Guardian Pharmacy Services) provides an affirmation and assumption agreement or a joinder in form and substance reasonably acceptable to Agent which is acknowledged, affirmed and agreed to by the Guarantors and delivers such other loan documents, certificates, and agreements as would have been delivered if such new Credit Party was a party to this Agreement as of the Effective Date (the foregoing, a “Permitted IPO Restructuring”).
(f) The Existing Loan Agreement is hereby amended by inserting the new Schedule 8.18 in the form attached hereto as Exhibit A.
4. Conditions Precedent. This Amendment shall become effective upon satisfaction of the following conditions precedent in each case in a manner reasonably satisfactory to the Agent (such date, the “Fifth Amendment Effective Date”):
(a) receipt by the Agent of counterparts of this Amendment duly executed by the Borrower, the Guarantors, the Required Lenders and the Agent;
(b) receipt by the Agent of duly executed officer’s certificate of the Borrower certifying that (x) before and after giving effect to this Amendment, (I) the representations and warranties contained in Section 7 of the Existing Loan Agreement and the other Loan Documents (as defined in the Existing Loan Agreement) are true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) on and as of the Fifth Amendment Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) as of such earlier date, and except that, the representations and warranties contained in Section 7.3 of the Existing Loan Agreement shall be deemed to refer to the most recent statements furnished pursuant to Section 8.6 of the Existing Loan Agreement, and (II) no Default or Event of Default exists and (y) the Borrower shall be in compliance with the financial covenants set forth in Section 9.17 of the Existing Loan Agreement, computed as of the last day of the most recently ended fiscal quarter of the Borrower for which financial statements have been delivered pursuant to Section 8.6 of the Existing Loan Agreement; and
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(c) payment by the Borrower of the reasonable out-of-pocket costs and expenses of the Agent, including without limitation, the reasonable fees and expenses of Haynes and Boone, LLP.
5. Amendment is a “Loan Document”. This Amendment is a Loan Document and all references to a “Loan Document” in the Loan Agreement and the other Loan Documents (including, without limitation, all such references in the representations and warranties in the Loan Agreement and the other Loan Documents) shall be deemed to include this Amendment.
6. Representations and Warranties; No Default. Each of the Credit Parties represents and warrants to the Agent that, on and as of the date hereof, immediately after giving effect to this Amendment, (a) the representations and warranties contained in the Loan Agreement and in the other Loan Documents are true and correct in all material respects (or, with respect to any such representation and warranty qualified by materiality or by reference to Material Adverse Effect, in all respects as drafted) to the same extent as though made on and as of the date hereof, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties are true and correct in all material respects (or, with respect to any such representation and warranty qualified by materiality or by reference to Material Adverse Effect, in all respects as drafted) on and as of such earlier date and (b) no event has occurred and is continuing or would result from this Amendment or the consummation of the transactions contemplated herein that would constitute an Event of Default or a Default.
7. Reaffirmation of Obligations. Each of the Credit Parties (a) acknowledges and consents to all of the terms and conditions of this Amendment, (b) affirms all of its obligations under the Loan Documents and (c) agrees that this Amendment and all documents, agreements and instruments executed in connection with this Amendment do not operate to reduce or discharge any Credit Party’s obligations under the Loan Documents.
8. Reaffirmation of Security Interests. Each of the Credit Parties affirms that this Amendment and all documents, agreements and instruments executed in connection with this Amendment do not in any manner impair or otherwise adversely affect any of the Liens granted in or pursuant to the Loan Documents.
9. No Other Changes. Except as modified hereby, all of the terms and provisions of the Loan Documents shall remain in full force and effect.
10. Counterparts/Facsimile. This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by telecopy or other electronic imaging means (e.g. “pdf” or “tif” format) shall be effective as delivery of a manually executed counterpart of this Amendment.
11. Governing Law. This Amendment shall be governed by, and construed in accordance with, the law of the State of Georgia.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.
| BORROWER: | GUARDIAN PHARMACY, LLC, | |||||
| an Indiana limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Executive Vice President | ||||||
| GUARANTORS: | GUARDIAN PHARMACY OF BIRMINGHAM, LLC, | |||||
| a Georgia limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Manager | ||||||
| GUARDIAN PHARMACY OF JACKSONVILLE, LLC, | ||||||
| a Georgia limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Manager | ||||||
| GUARDIAN PHARMACY OF SOUTHEAST FLORIDA, LLC, | ||||||
| a Georgia limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Manager | ||||||
| GUARDIAN PHARMACY OF SOUTHEAST GEORGIA, LLC, | ||||||
| a Georgia limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Manager | ||||||
GUARDIAN PHARMACY, LLC
FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| GUARDIAN PHARMACY OF TEXAS, LLC, | ||||||
| a Georgia limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Manager | ||||||
GUARDIAN PHARMACY, LLC
FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| AGENT: | REGIONS BANK, as Agent | |||||
| By: | /s/ Allen Riley | |||||
| Name: | Allen Riley | |||||
| Title: | Vice President | |||||
GUARDIAN PHARMACY, LLC
FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| LENDERS: | REGIONS BANK, | |||||
| as a Lender | ||||||
| By: | /s/ Allen Riley | |||||
| Name: | Allen Riley | |||||
| Title: | Vice President | |||||
GUARDIAN PHARMACY, LLC
FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| LENDERS: | BANK OF AMERICA, N.A., | |||||
| as a Lender | ||||||
| By: | /s/ Karen Yap | |||||
| Name: | Karen Yap | |||||
| Title: | Vice President | |||||
GUARDIAN PHARMACY, LLC
FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| LENDERS: | CADENCE BANK, | |||||
| as a Lender | ||||||
| By: | /s/ Zachary Colby | |||||
| Name: | Zachary Colby | |||||
| Title: | Portfolio Manager | |||||
GUARDIAN PHARMACY, LLC
FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Exhibit 10.4G
EXECUTION COPY
SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND WAIVER
THIS SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND WAIVER dated as of May 13, 2024 (this “Amendment”) is entered into by and among GUARDIAN PHARMACY, LLC, an Indiana limited liability company (the “Borrower”), the Guarantors party hereto, the Lenders party hereto, and REGIONS BANK, as administrative agent and collateral agent (in such capacity and together with its successors and assigns, the “Agent”).
RECITALS
WHEREAS, the Borrower, the Guarantors from time to time party thereto, the Lenders from time to time party thereto and Regions Bank, as Agent, entered into that certain Third Amended and Restated Loan and Security Agreement dated as of April 23, 2018 (as amended by that certain First Amendment to Third Amended and Restated Loan and Security Agreement dated as of December 3, 2019, that certain Second Amendment to Third Amended and Restated Loan and Security Agreement dated as of March 20, 2020, that certain Third Amendment to Third Amended and Restated Loan and Security Agreement dated as of December 22, 2021, that certain Fourth Amendment to Third Amended and Restated Loan and Security Agreement dated as of April 22, 2022, that certain Fifth Amendment to Third Amended and Restated Loan and Security Agreement dated as of October 13, 2023 and as further amended, modified, supplemented or extended from time to time, the “Existing Loan Agreement”);
WHEREAS, the Borrower has notified the Agent and the Lenders that certain Events of Default have occurred and are continuing (in each case as more fully described in Schedule 1 hereto) under Section 10.1(c) of the Existing Loan Agreement as a result of the Credit Parties’ failure to comply with the requirements of Section 8.17 of the Existing Loan Agreement (each, an “Existing Event of Default”);
WHEREAS, the Borrower has requested (i) that the Lenders waive the Existing Events of Default and (ii) certain modifications to the Existing Loan Agreement and the Pledge Agreement (as such term is defined in the Existing Loan Agreement); and
WHEREAS, the Agent and the Lenders have agreed to provide the requested waivers and the modifications on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Introductory Paragraph and Recitals. The above introductory paragraph and recitals of this Amendment are incorporated herein by reference as if fully set forth in the body of this Amendment.
2. Definitions. Capitalized terms used herein (including in the recitals hereof) and not otherwise defined herein shall have the meanings provided in the Loan Agreement attached hereto as Exhibit A (the “Amended Loan Agreement”).
3. Limited Waiver. The Lenders hereby waive each (a) Existing Event of Default and (b) Resulting Default (as defined in Schedule 2). Each waiver contained herein shall not act as an amendment or modification of the Existing Loan Agreement, or a consent to any other action or inaction by the Borrower or any other Credit Party and shall not be construed to be a waiver (a) as to any future non-compliance with the terms of the Amended Loan Agreement, (b) of any other Default or Event of Default that may exist, (c) of each Credit Party’s obligation to comply with all of the terms and conditions of the
Loan Documents to which it is a party from and after the date hereof or (d) of any other right, power, or remedy of the Agent or the Lenders under, or any provision contained in, the Amended Loan Agreement or any other Loan Document, in each case except as specifically provided herein, and the Agent and the Lenders hereby reserve all of their respective rights, powers and remedies under the Amended Loan Agreement, after giving effect to the waivers contained herein and applicable law. Notwithstanding any of the described events, each Credit Party hereby agrees that it shall be required to strictly comply with all of the terms of the Loan Documents to which it is a party on and after the date hereof and, except as otherwise provided herein, the Existing Loan Agreement (in the form of the Amended Loan Agreement) shall continue in full force and effect.
4. Amendments to Existing Loan Agreement. The Existing Loan Agreement and the Pledge Agreement (as such term is defined in the Existing Loan Agreement) are hereby amended as follows:
(a) The Existing Loan Agreement (other than the schedules, exhibits or appendices thereto (except as set forth below)) is hereby amended in its entirety to read in the form attached hereto as Exhibit A.
(b) Appendices A and B to the Existing Loan Agreement are hereby amended in the respective forms attached hereto as Exhibit B.
(c) Schedule 7.14 to the Existing Loan Agreement is hereby amended in the form attached hereto as Exhibit C.
(d) Annex A to the Pledge Agreement is hereby amended in the form attached hereto as Exhibit D.
5. Conditions Precedent. This Amendment shall become effective upon satisfaction of the following conditions precedent in each case in a manner reasonably satisfactory to the Agent (such date, the “Sixth Amendment Effective Date”):
(a) receipt by the Agent of counterparts of this Amendment duly executed by the Borrower, the Guarantors, the Lenders and the Agent;
(b) receipt by the Agent of a duly executed officer’s certificate of each Credit Party certifying and attaching (i) a copy of the articles of incorporation or articles of formation, as applicable, of such Credit Party certified as of a recent date by the appropriate Governmental Authority, (ii) (A) a copy of the bylaws or limited liability company agreement, as applicable, of such Credit Party (or a certification that there have been no changes to the bylaws or limited liability company agreement, as applicable, of such Credit Party from that attached to the officer’s certificate delivered on the Effective Date), (B) a copy of resolutions approving the transactions contemplated in connection with this Amendment, and (C) incumbency certificates, for such Credit Party, in each case certified by an Authorized Officer in form and substance reasonably satisfactory to the Agent, and (iii) a certificate of good standing, existence or the like of a recent date for such Credit Party from the appropriate Governmental Authority of its jurisdiction of formation;
(c) receipt by the Agent of duly executed officer’s certificate of the Borrower certifying that (x) before and after giving effect to this Amendment, (I) the representations and warranties contained in Section 7 of the Existing Loan Agreement and the other Loan Documents (as defined in the Existing Loan Agreement) are true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) on and as of the Sixth Amendment Effective
2
Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) as of such earlier date, and except that, the representations and warranties contained in Section 7.3 of the Existing Loan Agreement shall be deemed to refer to the most recent statements furnished pursuant to Section 8.6 of the Existing Loan Agreement, and (II) no Default or Event of Default exists and (y) the Borrower shall be in compliance with the financial covenants set forth in Section 9.17 of the Existing Loan Agreement, computed as of the last day of the most recently ended fiscal quarter of the Borrower for which financial statements have been delivered pursuant to Section 8.6 of the Existing Loan Agreement;
(d) [reserved];
(e) the Credit Parties shall have received all consents (including any necessary governmental consents), approvals, authorizations, registrations and filings and orders required to be made or obtained by the Credit Parties under any Applicable Law, the organization documents of any Credit Party or by any contractual obligation of any Credit Party in connection with the execution, delivery, performance, validity and enforceability of this Amendment or any of the transactions contemplated hereby, and such consents, approvals, authorizations, registrations, filings and orders shall be in full force and effect and all applicable waiting periods shall have expired, and no investigation or inquiry by any Governmental Authority regarding the Amendment or any other transaction being financed with the proceeds of the Loans shall be ongoing;
(f) receipt by the Agent of all documentation and other information required by bank regulatory authorities or reasonably requested by the Agent or any Lender under or in respect of applicable “know your customer” and anti-money laundering laws including the PATRIOT Act and, if the Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, a Beneficial Ownership Certification in relation to the Borrower; and
(g) payment by the Borrower of the reasonable out-of-pocket costs and expenses of the Agent, including without limitation, the reasonable fees and expenses of Haynes and Boone, LLP.
6. Amendment is a “Loan Document”. This Amendment is a Loan Document and all references to a “Loan Document” in the Amended Loan Agreement and the other Loan Documents (including, without limitation, all such references in the representations and warranties in the Amended Loan Agreement and the other Loan Documents) shall be deemed to include this Amendment.
7. Representations and Warranties; No Default. Each of the Credit Parties represents and warrants to the Agent that, on and as of the date hereof, immediately after giving effect to this Amendment, (a) the representations and warranties contained in the Amended Loan Agreement and in the other Loan Documents are true and correct in all material respects (or, with respect to any such representation and warranty qualified by materiality or by reference to Material Adverse Effect, in all respects as drafted) to the same extent as though made on and as of the date hereof, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties are true and correct in all material respects (or, with respect to any such representation and warranty qualified by materiality or by reference to Material Adverse Effect, in all respects as drafted) on and as of such earlier date and (b) no event has occurred and is continuing or would result from this Amendment or the consummation of the transactions contemplated herein that would constitute an Event of Default or a Default.
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8. Reaffirmation of Obligations. Each of the Credit Parties (a) acknowledges and consents to all of the terms and conditions of this Amendment, (b) affirms all of its obligations under the Loan Documents and (c) agrees that this Amendment and all documents, agreements and instruments executed in connection with this Amendment do not operate to reduce or discharge any Credit Party’s obligations under the Loan Documents.
9. Reaffirmation of Security Interests. Each of the Credit Parties affirms that this Amendment and all documents, agreements and instruments executed in connection with this Amendment do not in any manner impair or otherwise adversely affect any of the Liens granted in or pursuant to the Loan Documents.
10. No Other Changes. Except as modified hereby, all of the terms and provisions of the Loan Documents shall remain in full force and effect.
11. Counterparts/Facsimile. This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by telecopy or other electronic imaging means (e.g. “pdf” or “tif” format) shall be effective as delivery of a manually executed counterpart of this Amendment.
12. Governing Law. This Amendment shall be governed by, and construed in accordance with, the law of the State of Georgia.
[Signature Pages Follow]
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.
| BORROWER: | GUARDIAN PHARMACY, LLC, | |||||
| an Indiana limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Executive Vice President | ||||||
| GUARANTORS: | GUARDIAN PHARMACY OF BIRMINGHAM, LLC, | |||||
| a Georgia limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Manager | ||||||
| GUARDIAN PHARMACY OF JACKSONVILLE, LLC, a Georgia limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Manager | ||||||
| GUARDIAN PHARMACY OF SOUTHEAST FLORIDA, LLC, a Georgia limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Manager | ||||||
| GUARDIAN PHARMACY OF SOUTHEAST GEORGIA, LLC, a Georgia limited liability company | ||||||
| By: | /s/ David K. Morris | |||||
| Name: David K. Morris | ||||||
| Title: Chief Financial Officer and Manager | ||||||
[Signature Pages Continue]
GUARDIAN PHARMACY, LLC
SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| GUARDIAN PHARMACY OF TEXAS, LLC, a Georgia limited liability company | ||
| By: | /s/ David K. Morris | |
| Name: David K. Morris | ||
| Title: Chief Financial Officer and Manager | ||
[Signature Pages Continue]
GUARDIAN PHARMACY, LLC
SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| AGENT: | REGIONS BANK, | |||||
| as Agent | ||||||
| By: | /s/ Allen Riley | |||||
| Name: Allen Riley | ||||||
| Title: Vice President | ||||||
[Signature Pages Continue]
GUARDIAN PHARMACY, LLC
SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| LENDERS: | REGIONS BANK, | |||||
| as a Lender | ||||||
| By: | /s/ Allen Riley | |||||
| Name: Allen Riley | ||||||
| Title: Vice President | ||||||
[Signature Pages Continue]
GUARDIAN PHARMACY, LLC
SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| LENDERS: | BANK OF AMERICA, N.A., | |||||
| as a Lender | ||||||
| By: | /s/ H. Hope Walker | |||||
| Name: H. Hope Walker | ||||||
| Title: Senior Vice President | ||||||
[Signature Pages Continue]
GUARDIAN PHARMACY, LLC
SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
| LENDERS: | CADENCE BANK, | |||||
| as a Lender | ||||||
| By: | /s/ Zachary Colby | |||||
| Name: Zachary Colby | ||||||
| Title: Portfolio Manager | ||||||
[Signature Pages End]
GUARDIAN PHARMACY, LLC
SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
EXHIBIT A
(see attached)
EXHIBIT A TO SIXTH AMENDMENT
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
dated as of April 23, 2018
among
GUARDIAN PHARMACY, LLC,
as Borrower,
CERTAIN SUBSIDIARIES OF THE BORROWER FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE LENDERS PARTY HERETO,
REGIONS BANK,
as Agent,
and
REGIONS CAPITAL MARKETS,
a division of Regions Bank,
as Sole Lead Arranger and Sole Bookrunner
TABLE OF CONTENTS
| Page | ||||||
| SECTION 1. DEFINITIONS AND INTERPRETATION |
2 | |||||
| Section 1.1 |
Definitions | 2 | ||||
| Section 1.2 |
Accounting Terms | 37 | ||||
| Section 1.3 |
Rules of Interpretation | 37 | ||||
| SECTION 2. LOANS AND LETTERS OF CREDIT |
39 | |||||
| Section 2.1 |
Revolving Loans and Term Loans | 39 | ||||
| Section 2.2 |
Swingline Loans | 44 | ||||
| Section 2.3 |
Issuances of Letters of Credit and Purchase of Participations Therein | 47 | ||||
| Section 2.4 |
Pro Rata Shares; Availability of Funds | 50 | ||||
| Section 2.5 |
Evidence of Debt; Register; Lenders’ Books and Records; Notes | 51 | ||||
| Section 2.6 |
Scheduled Principal Payments | 52 | ||||
| Section 2.7 |
Interest on Loans | 53 | ||||
| Section 2.8 |
Conversion/Continuation | 55 | ||||
| Section 2.9 |
Default Rate of Interest | 56 | ||||
| Section 2.10 |
Fees | 56 | ||||
| Section 2.11 |
Prepayments/Commitment Reductions | 58 | ||||
| Section 2.12 |
Application of Prepayments | 60 | ||||
| Section 2.13 |
General Provisions Regarding Payments | 60 | ||||
| Section 2.14 |
Sharing of Payments by Lenders | 62 | ||||
| Section 2.15 |
Cash Collateral | 62 | ||||
| Section 2.16 |
Defaulting Lenders | 63 | ||||
| Section 2.17 |
Removal or Replacement of Lenders | 65 | ||||
| SECTION 3. YIELD PROTECTION |
66 | |||||
| Section 3.1 |
Making or Maintaining LIBOR Loans | 66 | ||||
| Section 3.2 |
Increased Costs | 70 | ||||
| Section 3.3 |
Taxes | 71 | ||||
| Section 3.4 |
Mitigation Obligations; Designation of a Different Lending Office | 74 | ||||
| SECTION 4. GUARANTY |
75 | |||||
| Section 4.1 |
The Guaranty | 75 | ||||
| Section 4.2 |
Obligations Unconditional | 75 | ||||
| Section 4.3 |
Reinstatement | 76 | ||||
| Section 4.4 |
Certain Additional Waivers | 76 | ||||
| Section 4.5 |
Remedies | 77 | ||||
| Section 4.6 |
Rights of Contribution | 77 | ||||
| Section 4.7 |
Guarantee of Payment; Continuing Guarantee | 77 | ||||
| Section 4.8 |
Keepwell | 77 | ||||
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| SECTION 5. SECURITY AGREEMENT |
77 | |||||
| Section 5.1 |
Security Interest | 77 | ||||
| Section 5.2 |
Financing Statements; Power of Attorney | 78 | ||||
| Section 5.3 |
Other Rights | 79 | ||||
| Section 5.4 |
Waiver of Marshaling | 79 | ||||
| Section 5.5 |
Control; Further Assurances | 79 | ||||
| Section 5.6 |
Remedies | 79 | ||||
| SECTION 6. CONDITIONS PRECEDENT |
82 | |||||
| Section 6.1 |
Conditions Precedent to Initial Credit Extensions | 82 | ||||
| Section 6.2 |
Conditions to Each Credit Extension | 84 | ||||
| SECTION 7. REPRESENTATIONS AND WARRANTIES |
85 | |||||
| Section 7.1 |
Valid Existence and Power | 85 | ||||
| Section 7.2 |
Authority | 85 | ||||
| Section 7.3 |
Financial Condition | 85 | ||||
| Section 7.4 |
Litigation | 85 | ||||
| Section 7.5 |
Agreements, Etc | 86 | ||||
| Section 7.6 |
Authorizations | 86 | ||||
| Section 7.7 |
Title | 86 | ||||
| Section 7.8 |
Collateral | 86 | ||||
| Section 7.9 |
Jurisdiction of Organization; Location | 87 | ||||
| Section 7.10 |
Taxes | 87 | ||||
| Section 7.11 |
Labor Law Matters | 87 | ||||
| Section 7.12 |
Accounts | 87 | ||||
| Section 7.13 |
Judgment Liens | 87 | ||||
| Section 7.14 |
Company Structure | 87 | ||||
| Section 7.15 |
Deposit Accounts | 88 | ||||
| Section 7.16 |
Environmental | 88 | ||||
| Section 7.17 |
ERISA | 88 | ||||
| Section 7.18 |
Mortgages | 89 | ||||
| Section 7.19 |
Insider | 89 | ||||
| Section 7.20 |
Government Regulations | 89 | ||||
| Section 7.21 |
Compliance with Covenants; No Default | 90 | ||||
| Section 7.22 |
Full Disclosure | 91 | ||||
| Section 7.23 |
Collateral Disclosure Certificates | 91 | ||||
| Section 7.24 |
Operating and Capital Leases | 91 | ||||
| Section 7.25 |
Compliance with Laws | 91 | ||||
| Section 7.26 |
Insurance | 91 | ||||
| Section 7.27 |
No Material Adverse Effect; No Default | 91 | ||||
| SECTION 8. AFFIRMATIVE COVENANTS |
92 | |||||
| Section 8.1 |
Use of Loan Proceeds | 92 | ||||
| Section 8.2 |
Maintenance of Business and Properties | 92 | ||||
| Section 8.3 |
Insurance | 92 | ||||
| Section 8.4 |
Certain Notices | 93 | ||||
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| Section 8.5 |
Inspections of Books and Records and Field Examinations; Appraisals; Physical Inventories | 93 | ||||
| Section 8.6 |
Financial Information | 93 | ||||
| Section 8.7 |
Maintenance of Existence and Rights | 94 | ||||
| Section 8.8 |
Payment of Taxes, Etc | 94 | ||||
| Section 8.9 |
Subordination | 95 | ||||
| Section 8.10 |
Compliance; Hazardous Materials | 95 | ||||
| Section 8.11 |
Further Assurances | 95 | ||||
| Section 8.12 |
Covenants Regarding Collateral | 95 | ||||
| Section 8.13 |
Lenders Meetings | 96 | ||||
| Section 8.14 |
Interest Rate Protection | 96 | ||||
| Section 8.15 |
Additional Real Estate Assets | 96 | ||||
| Section 8.16 |
Pledge of Personal Property Assets | 98 | ||||
| Section 8.17 |
Additional Subsidiaries | 99 | ||||
| Section 8.18 |
Post-Closing Covenants | 99 | ||||
| SECTION 9. NEGATIVE COVENANTS |
100 | |||||
| Section 9.1 |
Debt | 100 | ||||
| Section 9.2 |
Liens | 101 | ||||
| Section 9.3 |
Restricted Payments | 102 | ||||
| Section 9.4 |
Loans and Other Investments | 103 | ||||
| Section 9.5 |
Change in Business; Activities Covered by Insurance | 104 | ||||
| Section 9.6 |
Accounts | 104 | ||||
| Section 9.7 |
Transactions with Affiliates | 104 | ||||
| Section 9.8 |
No Change in Name, Offices, or Jurisdiction of Organization; Removal of Collateral | 105 | ||||
| Section 9.9 |
No Sale, Leaseback | 105 | ||||
| Section 9.10 |
Margin Stock | 105 | ||||
| Section 9.11 |
Tangible Collateral | 105 | ||||
| Section 9.12 |
Subsidiaries | 105 | ||||
| Section 9.13 |
Liquidation, Mergers, Consolidations, and Dispositions of Assets; Name and Good Standing | 105 | ||||
| Section 9.14 |
Change of Fiscal Year or Accounting Methods | 106 | ||||
| Section 9.15 |
Material Agreements | 106 | ||||
| Section 9.16 |
Use of Proceeds | 106 | ||||
| Section 9.17 |
Financial Covenants | 106 | ||||
| Section 9.18 |
No Further Negative Pledges | 107 | ||||
| Section 9.19 |
Burdensome Agreements | 107 | ||||
| SECTION 10. EVENTS OF DEFAULT; REMEDIES; APPLICATION OF FUNDS. |
108 | |||||
| Section 10.1 |
Events of Default | 108 | ||||
| Section 10.2 |
Remedies | 110 | ||||
| Section 10.3 |
Application of Funds | 110 | ||||
| SECTION 11. AGENCY |
111 | |||||
| Section 11.1 |
Appointment and Authority | 111 | ||||
| Section 11.2 |
Rights as a Lender | 112 | ||||
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| Section 11.3 |
Exculpatory Provisions | 112 | ||||
| Section 11.4 |
Reliance by Agent | 113 | ||||
| Section 11.5 |
Delegation of Duties | 113 | ||||
| Section 11.6 |
Resignation or Removal of Agent | 114 | ||||
| Section 11.7 |
Non-Reliance on Agent and Other Lenders | 114 | ||||
| Section 11.8 |
No Other Duties, etc | 115 | ||||
| Section 11.9 |
Agent May File Proofs of Claim | 115 | ||||
| Section 11.10 |
Collateral Matters | 115 | ||||
| SECTION 12. MISCELLANEOUS |
120 | |||||
| Section 12.1 |
Notices; Effectiveness; Electronic Communications | 120 | ||||
| Section 12.2 |
Expenses; Indemnity; Damage Waiver | 121 | ||||
| Section 12.3 |
Set-Off | 123 | ||||
| Section 12.4 |
Amendments and Waivers | 123 | ||||
| Section 12.5 |
Successors and Assigns | 125 | ||||
| Section 12.6 |
[Reserved] | 129 | ||||
| Section 12.7 |
Independence of Covenants | 129 | ||||
| Section 12.8 |
Survival of Representations, Warranties and Agreements | 129 | ||||
| Section 12.9 |
No Waiver; Remedies Cumulative | 129 | ||||
| Section 12.10 |
Marshalling; Payments Set Aside | 129 | ||||
| Section 12.11 |
Severability | 130 | ||||
| Section 12.12 |
Obligations Several; Independent Nature of Lenders’ Rights | 130 | ||||
| Section 12.13 |
Headings | 130 | ||||
| Section 12.14 |
Applicable Laws | 130 | ||||
| Section 12.15 |
WAIVER OF JURY TRIAL | 131 | ||||
| Section 12.16 |
Confidentiality | 131 | ||||
| Section 12.17 |
Usury Savings Clause | 132 | ||||
| Section 12.18 |
Counterparts; Integration; Effectiveness | 132 | ||||
| Section 12.19 |
No Advisory of Fiduciary Relationship | 133 | ||||
| Section 12.20 |
Electronic Execution of Assignments and Other Documents | 133 | ||||
| Section 12.21 |
USA PATRIOT Act | 133 | ||||
| Section 12.22 |
Acknowledgement and Consent to Bail-In of EEA Financial Institutions | 133 | ||||
| Section 12.23 |
Certain ERISA Matters | 134 | ||||
| Section 12.24 |
Amendment and Restatement | 135 | ||||
| Section 12.25 |
Reallocation | 135 | ||||
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Appendices
| Appendix A | - | Lenders, Commitments and Commitment Percentages | ||
| Appendix B | - | Notice Information | ||
| Schedules | ||||
| Schedule 7.3 | - | Direct or Contingent Obligations and Liabilities | ||
| Schedule 7.4 | - | Pending or Threatened Litigation | ||
| Schedule 7.14 | - | Corporate Structure | ||
| Schedule 7.16 | - | Environmental | ||
| Schedule 7.24 | - | Operating and Capital Leases | ||
| Schedule 7.26 | - | Insurance | ||
| Schedule 8.18(c) | - | Entities to be Joined | ||
| Schedule 9.1 | - | Existing Indebtedness | ||
| Schedule 9.2 | - | Existing Liens | ||
| Schedule 9.7 | - | Affiliate Transactions | ||
| Exhibits | ||||
| Exhibit 1.1 | - | Form of Collateral Disclosure Certificate | ||
| Exhibit 1.2 | - | Form of Secured Party Designation Notice | ||
| Exhibit 2.1 | - | Form of Funding Notice | ||
| Exhibit 2.3 | - | Form of Issuance Notice | ||
| Exhibit 2.5-1 | - | Form of Revolving Loan Note | ||
| Exhibit 2.5-2 | - | Form of Swingline Note | ||
| Exhibit 2.5-3 | - | Form of Term Loan Note | ||
| Exhibit 2.8 | - | Form of Conversion/Continuation Notice | ||
| Exhibit 3.3 | - | Forms of U.S. Tax Compliance Certificates (Forms 1 – 4) | ||
| Exhibit 8.6(c) | - | Form of Compliance Certificate | ||
| Exhibit 12.5 | - | Form of Assignment Agreement | ||
-v-
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of April 23, 2018 (as amended, restated, supplemented, increased, extended, supplemented or otherwise modified from time to time, this “Agreement”), is entered into by and among GUARDIAN PHARMACY, LLC, an Indiana limited liability company (the “Borrower”), certain Subsidiaries of the Borrower from time to time party hereto, as Guarantors, the Lenders from time to time party hereto, REGIONS BANK (“Regions Bank”), as administrative agent and collateral agent (in such capacity and together with its successors and assigns, the “Agent”).
RECITALS:
WHEREAS, the Borrower, Guardian Pharmacy of Birmingham, LLC, a Georgia limited liability company (“Guardian Birmingham”), Guardian Pharmacy of Jacksonville, LLC, a Georgia limited liability company (“Guardian Jacksonville”), Guardian Pharmacy of Southeast Florida, LLC, a Georgia limited liability company (“Guardian Southeast Florida”) and Guardian Pharmacy of Southeast Georgia, LLC, a Georgia limited liability company (“Guardian Southeast Georgia”), as borrowers (the “Existing Borrowers”), the guarantors party thereto, the lenders party thereto (the “Existing Lenders”) and Regions Bank, as administrative agent and collateral agent (the “Existing Agent”), are parties to that certain Second Amended and Restated Loan and Security Agreement dated October 22, 2014 (as at any time amended, supplemented or otherwise modified prior to the date hereof, the “Existing Loan Agreement”), pursuant to which the Existing Lenders made revolving loans and other financial accommodations (the “Existing Loans”) to the Existing Borrowers, and the Existing Borrowers granted to the Existing Agent, for the benefit of the Existing Lenders, a security interest in all of the “Collateral” (as defined therein, the “Existing Collateral”) as security for all of the “Obligations” (as defined therein, the “Existing Obligations”). Pursuant to the Existing Loan Agreement, the Existing Agent and the Existing Borrowers entered into various “Security Agreements” and “Loan Documents” (each as defined in the Existing Loan Agreement and collectively, including the Existing Loan Agreement, referred to herein as the “Existing Loan Documents”).
WHEREAS, the Borrower has requested that the Existing Lenders agree to extend and continue to provide, and to allow other financial institutions to join them in providing, the Existing Loans, as well as certain additional financial accommodations. The Existing Lenders and such other Lenders as may become party hereto from time to time are willing to extend the Existing Loans and to provide additional loans and other financing to the Borrower, and the Agent has agreed to act as agent for the Lenders, in each case subject to the terms and conditions provided herein.
WHEREAS, the parties have agreed to amend and restate the Existing Loan Agreement in its entirety as set forth herein.
WHEREAS, the parties hereto have agreed that the Existing Loans and the other Existing Obligations outstanding under the Existing Loan Agreement shall be governed by and deemed to be outstanding under the amended and restated terms and conditions set forth in this Agreement, the Collateral Documents and the other Loan Documents, and that the Existing Obligations are and shall continue to be (and all Obligations incurred pursuant hereto shall be) secured by, among other things, the Existing Collateral as well as the other Collateral (as defined herein).
WHEREAS, immediately prior to the effectiveness of this Agreement, the Existing Lenders assigned to the Agent, for the benefit of all the Lenders, the Existing Lenders’ rights under and with respect to the Existing Obligations, the Existing Loan Documents, and its “Commitments” and “Loans” under (and each as defined in) the Existing Loan Agreement. Upon the effectiveness of this Agreement, the Commitments (as defined herein) shall be deemed assigned from the Agent and allocated to and among Lenders as reflected on Appendix A of this Agreement and any “Loans” under (and as defined in) the Existing Loan Agreement shall be deemed advanced and loaned to the Borrower as Loans hereunder.
1
WHEREAS, it is the intent of the parties hereto that the execution and delivery of this Agreement, which is made for the purposes described in the foregoing Recitals, shall not effectuate a novation of any of the Existing Loan Documents, or a release or discharge of the Existing Obligations or Existing Collateral, but rather a substitution of certain of the terms governing the payment and performance of such obligations and indebtedness.
NOW, THEREFORE, in consideration of these premises and the mutual covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows, and agree to amend and restate the Existing Loan Agreement as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions. The following terms used herein, including in the introductory paragraph, recitals, exhibits and schedules hereto, shall have the following meanings:
“Acquisition” means the acquisition by the Borrower or a Subsidiary of the Borrower of (a) all or substantially all of the assets of a Person, (b) a business unit or division of a Person, or (c) more than fifty percent (50%) of the Equity Interests of any Person or otherwise causing any Person to become a Subsidiary of the Borrower (whether through merger, consolidation or otherwise).
“Adjusted Daily Simple SOFR Rate” means an interest rate per annum equal to Daily Simple SOFR plus 0.075% (seven and one half basis points).
“Adjusted Term SOFR Rate” means, for any Interest Period, an interest rate per annum equal to Term SOFR for such Interest Period plus the Term SOFR Adjustment.
“Administrative Questionnaire” means an administrative questionnaire provided by the Lenders in a form supplied by the Agent.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affected Lender” has the meaning given to it in Section 3.1(b).
“Affected Loans” has the meaning given to it in Section 3.1(b).
“Affiliate” means, with respect to any Person, (a) any other Person directly or indirectly owning 5% or more of the Equity Interests of such Person or of which such Person owns 5% or more of such Equity Interests; (b) any other Person controlling, controlled by, or under common control with such Person; (c) any officer, director, or employee of such Person or any Affiliate of such Person; and (d) any family member or Affiliate of such Person.
“Agent” has the meaning given to it in the introductory paragraph hereto.
“Aggregate Revolving Commitments” means the Revolving Commitments of all the Lenders. The aggregate principal amount of the Aggregate Revolving Commitments in effect on the Sixth Amendment Effective Date is FORTY MILLION DOLLARS ($40,000,000).
2
“Agreement” has the meaning given to it in the introductory paragraph hereto.
“ALTA” means American Land Title Association.
“Anti-Corruption Laws” means the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq, the UK Bribery Act of 2010 and all other laws, rules, and regulations of any jurisdiction applicable to any Credit Party or any of its Affiliates from time to time concerning or relating to bribery or corruption.
“Applicable Commitment Fee” means (a) from the Fourth Amendment Effective Date through the date two (2) Business Days immediately following the date a Compliance Certificate is delivered pursuant to Section 8.6(c) for the Fiscal Quarter ending March 31, 2022, the percentage per annum based upon Pricing Level V in the table set forth below, and (b) thereafter, the percentage per annum determined by reference to the table set forth below using the Consolidated Leverage Ratio as set forth in the Compliance Certificate most recently delivered to the Agent pursuant to Section 8.6(c), with any increase or decrease in the Applicable Commitment Fee resulting from a change in the Consolidated Leverage Ratio becoming effective on the date two (2) Business Days immediately following the date on which such Compliance Certificate is delivered.
| Pricing |
Consolidated Leverage Ratio |
Commitment Fee |
||||
| I | Greater than or equal to 2.75 to 1.00 | 0.40 | % | |||
| II | Less than 2.75 to 1.00 but greater than or equal to 2.25 to 1.00 | 0.35 | % | |||
| III | Less than 2.25 to 1.00 but greater than or equal to 1.75 to 1.00 | 0.30 | % | |||
| IV | Less than 1.75 to 1.00 but greater than or equal to 1.25 to 1.00 | 0.25 | % | |||
| V | Less than 1.25 to 1.00 | 0.20 | % | |||
Notwithstanding the foregoing, and without limiting the application of the Default Rate pursuant to the terms of this Agreement, (x) if at any time a Compliance Certificate is not delivered when due in accordance herewith, then Pricing Level I as set forth in the table above shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered; (y) the determination of the Applicable Commitment Fee for any period shall be subject to the provisions of Section 2.7(e); and (z) if an Event of Default occurs and the Agent or the Required Lenders so elect, then, in each case, the Applicable Commitment Fee shall be at Pricing Level I until such time as any Event of Default (whether resulting from a failure to timely deliver financial statements, Compliance Certificates or otherwise) is waived in writing by the Agent and the Required Lenders.
“Applicable Laws” means all applicable laws, including all applicable provisions of constitutions, statutes, rules, ordinances, regulations and orders of all Governmental Authorities and all orders, rulings, writs and decrees of all courts, tribunals and arbitrators.
3
“Applicable Margin” means (a) from the Fourth Amendment Effective Date through the date two (2) Business Days immediately following the date a Compliance Certificate is delivered pursuant to Section 8.6(c) for the Fiscal Quarter ending March 31, 2022, the percentage per annum based upon Pricing Level V in the table set forth below, and (b) thereafter, the percentage per annum determined by reference to the table set forth below using the Consolidated Leverage Ratio as set forth in the Compliance Certificate most recently delivered to the Agent pursuant to Section 8.6(c), with any increase or decrease in the Applicable Margin resulting from a change in the Consolidated Leverage Ratio becoming effective on the date two (2) Business Days immediately following the date on which such Compliance Certificate is delivered.
| Pricing |
Consolidated Leverage Ratio |
Applicable Margin for Term SOFR Rate Loans / Letter of Credit Fees |
Applicable Margin for Base Rate Loans |
|||||||
| I | Greater than or equal to 2.75 to 1.00 | 2.75 | % | 1.75 | % | |||||
| II | Less than 2.75 to 1.00 but greater than or equal to 2.25 to 1.00 | 2.50 | % | 1.50 | % | |||||
| III | Less than 2.25 to 1.00 but greater than or equal to 1.75 to 1.00 | 2.25 | % | 1.25 | % | |||||
| IV | Less than 1.75 to 1.00 but greater than or equal to 1.25 to 1.00 | 2.00 | % | 1.00 | % | |||||
| V | Less than 1.25 to 1.00 | 1.75 | % | 0.75 | % | |||||
Notwithstanding the foregoing, and without limiting the application of the Default Rate pursuant to the terms of this Agreement, (x) if at any time a Compliance Certificate is not delivered when due in accordance herewith, then Pricing Level I as set forth in the table above shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered; (y) the determination of the Applicable Margin for any period shall be subject to the provisions of Section 2.7(e); and (z) if an Event of Default occurs and the Agent or the Required Lenders so elect, then, in each case, the Applicable Margin shall be at Pricing Level I until such time as any Event of Default (whether resulting from a failure to timely deliver financial statements, Compliance Certificates or otherwise) is waived in writing by the Agent and the Required Lenders. The Applicable Margin with respect to any additional Term Loan established pursuant to Section 2.1(d)(iii) shall be as provided in the joinder document(s) and/or commitment agreement(s) executed by the Borrower and the applicable Lenders in connection therewith.
“Applicable Tax Percentage” shall mean, with respect to the Borrower, the lesser of (a) 45% and (b) the highest effective marginal combined rate of Federal, state, and local income taxes (taking into account the deductibility of state and local taxes for Federal income tax purposes) to which the Person holding the greatest number of shares of the Borrower’s voting Equity Interests would be subject in the relevant year of determination, taking into account only such Person’s share of income and deductions attributable to its equity ownership interest in the Borrower.
“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Asset Sale” means a sale, lease, sale and leaseback, assignment, conveyance, exclusive license (as licensor), transfer or other disposition to, or any exchange of property with, any Person, in one transaction or a series of transactions, of all or any part of any Credit Party or any of its Subsidiaries’ businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, created, leased or licensed, including the Equity Interests of any Subsidiary of the Borrower, other than dispositions of Inventory sold in the ordinary course of business.
4
“Assignment Agreement” means an assignment agreement entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 12.5(b)) and accepted by the Agent, in substantially the form of Exhibit 12.5 or any other form (including electronic documentation generated by MarkitClear or other electronic platform) approved by the Agent.
“Attributable Principal Amount” means (a) in the case of Capital Leases, the amount of Capital Lease obligations determined in accordance with GAAP, (b) in the case of Synthetic Leases, an amount determined by capitalization of the remaining lease payments thereunder as if it were a Capital Lease determined in accordance with GAAP, (c) in the case of Securitization Transactions, the outstanding principal amount of such financing, after taking into account reserve amounts and making appropriate adjustments, determined by the Agent in its reasonable judgment and (d) in the case of Sale and Leaseback Transactions, the present value (discounted in accordance with GAAP at the debt rate implied in the applicable lease) of the obligations of the lessee for rental payments during the term of such lease.
“Authorized Officer” means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), chief financial officer or treasurer and, solely for purposes of making the certifications required under Section 6.1(b)(ii) and (iv), any secretary or assistant secretary.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, any tenor for such Benchmark or payment period for interest calculated with reference to such Benchmark, as applicable, that is or may be used for determining the length of an Interest Period pursuant to this Agreement as of such date.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, rule, regulation or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as now and hereafter in effect, or any successor statute.
“Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus one half of one percent (0.5%) and (c) the Adjusted Term SOFR Rate for a one-month tenor in effect on such day plus one percent (1.0%). Any change in the Base Rate due to a change in the Prime Rate, the Federal Funds Rate or the Adjusted Term SOFR Rate shall be effective on the effective day of such change in the Prime Rate, the Federal Funds Rate or the Adjusted Term SOFR Rate, respectively. Notwithstanding anything to the contrary herein, the Base Rate shall not be less than zero.
5
“Base Rate Loan” means a Loan bearing interest at a rate determined by reference to the Base Rate.
“Benchmark” means, initially, Term SOFR; or if any Benchmark Replacement is incorporated into this Agreement pursuant to Section 3.1, then “Benchmark” means the applicable Benchmark Replacement.
“Benchmark Conforming Changes” means, with respect to the use, administration of or any conventions associated with Term SOFR or any implementation of a Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Term SOFR,” the definition of “Term SOFR Reference Rate,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Agent decides in its reasonable discretion may be appropriate to reflect such use, administration or conventions or the adoption and implementation of such applicable rate and to permit the administration thereof by the Agent in a manner substantially consistent with market practice (or, if the Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Agent determines that no market practice for the administration of such applicable rate exists, in such other manner of administration as the Agent decides is reasonably necessary in connection with the administration of this Agreement and any other Loan Document).
“Benchmark Illegality/Impracticability Event” means the occurrence of any one or more of the following: (a) that the making, maintaining or continuation of the then-current Benchmark by any Lender has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), (b) with respect to any Benchmark, that any successor administrator of the published screen rate for such Benchmark or a Governmental Authority having jurisdiction over the Agent or administrator of such Benchmark has made a public statement establishing a specific date (expressly or by virtue of such public statement) after which an Available Tenor of such Benchmark or the published screen rate for such Benchmark shall or will no longer be representative or made available, or used for determining the interest rate of loans, or shall or will otherwise cease, provided, that, at the time of such statement, there is no successor administrator that is satisfactory to the Agent that will continue to provide such representative interest periods of such Benchmark after such specific date, (c) that the making, maintaining or continuation of the then-current Benchmark by any Lender has become impracticable, as a result of contingencies occurring after the Second Amendment Effective Date which materially and adversely affect the ability of a Lender to make, maintain or continue its Loans at the then-current Benchmark (including because the published screen rate for such Benchmark in any relevant tenor is not available or published on a current basis and such circumstances are unlikely to be temporary) or (d) with respect to any Lender, that the then-current Benchmark (including any related mathematical or other adjustments thereto) will not adequately and fairly reflect the cost to such Lender of making, funding or maintaining its Loans at the then-current Benchmark. For the avoidance of doubt, a “Benchmark Illegality/Impracticability Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Replacement” means the Adjusted Daily Simple SOFR Rate, so long as such rate can be determined by the Agent for the applicable Benchmark Replacement Date. Notwithstanding anything to the contrary herein, the Benchmark Replacement shall not be less than zero percent (0%).
“Benchmark Replacement Date” has the meaning specified in Section 3.1(b)(ii).
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“Beneficial Ownership Certification” means a certification regarding beneficial ownership required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (b) a “plan” to which Section 4975 of the Internal Revenue Code applies or (c) any Person whose underlying assets include “plan assets” of any such “employee benefit plan” or “plan” within the meaning of 29 CFR 2510.3-101 as modified by Section 3(42) of ERISA.
“Borrower” has the meaning given such terms in the introductory paragraph hereto.
“Borrowing” means (a) a borrowing consisting of simultaneous Loans of the same Type of Loan and, in the case of Adjusted Term SOFR Rate Loans, having the same Interest Period, or (b) a borrowing of Swingline Loans, as appropriate.
“Business Day” means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of Georgia or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close; provided, that with respect to all notices and determinations in connection with, and payments of principal and interest on Term SOFR Rate Loans, such day is also a U.S. Government Securities Business Day.
“Capital Expenditures” means, for any period, the aggregate cost of all capital assets acquired by the Borrower and its Subsidiaries during such period (including gross leases to be capitalized under GAAP and leasehold improvements), as determined in accordance with GAAP.
“Capital Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person.
“Cash Collateralize” means, to pledge and deposit with or deliver to the Agent, the Issuing Bank or the Swingline Lender, as applicable, as collateral for the Letter of Credit Obligations (in an amount equal to 105% the amount thereof) or Swingline Loans, as applicable, or obligations of Lenders to fund participations in respect thereof, cash or deposit account balances or, if the Agent, the Issuing Bank or Swingline Lender, as applicable, may agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to the Agent, the Issuing Bank and/or Swingline Lender, as applicable. “Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith, (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III and (iii) all requests, rules, guidelines or directives issued by a Governmental Authority in connection with a Lender’s submission or re-submission of a capital plan under 12 C.F.R. § 225.8 or a Governmental Authority’s assessment thereof shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
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“Change of Control” means an event or series of events by which:
(a) prior to a Qualifying IPO, the Permitted Holders (on a fully diluted basis) shall cease to control, with sole power to vote, at least 60% of each class of the Borrower’s Equity Interests;
(b) after a Qualifying IPO, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Bindley Capital Partners I, LLC and any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of thirty percent (30%) or more of the Equity Interests of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or
(c) after a Qualifying IPO, during any period of twenty-four (24) consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election, appointment or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election, appointment or nomination at least a majority of that board or equivalent governing body or (iii) whose election, appointment or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election, appointment or nomination at least a majority of that board or equivalent governing body.
“Collateral” means all property of each Credit Party, wherever located and whether now owned by such Credit Party or hereafter acquired, including but not limited to (a) all General Intangibles; (b) all Accounts; (c) all Chattel Paper; (d) all Instruments and Documents and any other instrument or intangible representing payment for goods or services; (e) all Equipment; (f) all Investment Property; (g) all Inventory; (h) all Commercial Tort Claims; (i) all Letter-of-Credit Rights; (j) all Deposit Accounts and funds on deposit therein, and funds otherwise on deposit with or under the Control of the Agent or its agents or correspondents; (k) all Fixtures; (l) all Joint Venture Loans and Joint Venture Guaranties; (m) all Material Owned Real Estate Assets and (n) all parts, replacements, substitutions, profits, products, Accessions, cash and non-cash Proceeds, and Supporting Obligations of any of the foregoing (including, but not limited to, insurance proceeds) in any form and wherever located. Collateral also includes (x) all written or electronically recorded books and records relating to any such Collateral and other rights relating thereto and (y) any other real or personal property as to which the Agent, at any time of determination, has a Lien to secure the Obligations. Notwithstanding the foregoing, the definition of “Collateral” hereunder shall not include any Excluded Property.
“Collateral Disclosure Certificate” means each certificate substantially in the form of Exhibit 1.1, attached hereto and made a part hereof, executed and delivered by a Credit Party to the Agent in accordance with or pursuant to the terms of this Agreement, as the same may be amended, restated, supplemented, or otherwise modified from time to time to the extent permitted or required herein.
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“Collateral Documents” means the Security Agreement, the Pledge Agreement, the Note Pledge Agreements, the Mortgages, the Third Party Agreements and any other pledge agreement, life insurance assignment, security agreement, or similar agreement or instrument now or hereafter executed by any Credit Party or other Person granting Agent a Lien in any property to secure the Obligations.
“Commitments” means the Revolving Commitments and the Term Loan Commitments.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.).
“Compliance Certificate” means a Compliance Certificate substantially in the form of Exhibit 8.6(c).
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Adjusted EBITDA” means, for any period of determination and without duplication, Consolidated EBITDA of the Borrower and its Subsidiaries calculated after giving pro forma effect to any Acquisition by the Borrower or any of its Subsidiaries during such period as if such Acquisition occurred on the first day of such period; provided that any such adjustments giving such pro forma effect with respect to any such Acquisition shall be supported by financial statements or other information reasonably acceptable to the Agent.
“Consolidated EBITDA” means, for any period of determination and without duplication, the sum of (i) Consolidated Net Income of the Borrower and its Subsidiaries for such period, plus (ii) to the extent deducted in the calculation of Consolidated Net Income for such period, the sum of (A) Consolidated Interest Charges for such period, (B) the provisions for federal, state, local and foreign income taxes payable by the Borrower and its Subsidiaries for such period, (C) depreciation and amortization expense for such period, (D) non-cash losses and expenses for such period (other than (x) any non-cash charge that is expected to be paid in cash in any future period and (y) any write down of or write off of current assets), (E) costs and expenses related to the closing of this Agreement or the closing of Permitted Acquisitions, so long as such costs and expenses are incurred on or after the date that is 120 days before the applicable closing and on or before the date that is 120 days after the applicable closing, and the aggregate amount of such costs and expenses does not to exceed $750,000 for the applicable period of determination, (F) extraordinary losses, and (G) one-time, non-recurring costs, charges and expenses, minus (iii) to the extent included in the calculation of Consolidated Net Income for such period, the sum of (A) non-cash gains, (B) extraordinary gains and (C) net income (loss) attributable to minority ownership interests for such period.
“Consolidated Fixed Charge Coverage Ratio” means, at any time of determination and for any period, (i) the sum of (A) Consolidated Adjusted EBITDA for such period less (B) Tax Distributions made in such period less (C) Capital Expenditures (other than (x) Capital Expenditures financed with Debt, other than with the Revolving Loans and (y) Consolidated Growth Capital Expenditures) made in such period less (D) Taxes paid in cash in such period, divided by (ii) the sum of (A) Consolidated Interest Charges paid in cash or required to be paid in cash in such period plus (B) Consolidated Scheduled Debt Payments for such period.
“Consolidated Growth Capital Expenditures” means, for any period, any Capital Expenditures for such period relating to growth-related spending, including at new or transitioning pharmacy businesses.
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“Consolidated Interest Charges” means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, an amount equal to the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, plus (b) the portion of rent expense with respect to such period under Capital Leases that is treated as interest in accordance with GAAP plus (c) the implied interest component of Synthetic Leases with respect to such period; provided, however, that Consolidated Interest Charges for the four fiscal quarter period ending June 30, 2018 shall be calculated as Consolidated Interest Charges for the fiscal quarter ending June 30, 2018 multiplied by 4; Consolidated Interest Charges for the four fiscal quarter period ending September 30, 2018 shall be calculated as Consolidated Interest Charges for the two fiscal quarters ending September 30, 2018 multiplied by 2; and Consolidated Interest Charges for the four fiscal quarter period ending December 31, 2018 shall be calculated as Consolidated Interest Charges for the three fiscal quarters ending December 31, 2018 multiplied by 1.33.
“Consolidated Leverage Ratio” means, at any time of determination and for any period, the ratio of the consolidated Debt of the Borrower and its Subsidiaries (including, without limitation, the Net Secured Payables Aggregate Amount, but excluding contingent earnout obligations) to Consolidated Adjusted EBITDA.
“Consolidated Net Income” means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the net income of the Borrower and its Subsidiaries (excluding extraordinary gains) for that period, as determined in accordance with GAAP.
“Consolidated Scheduled Debt Payments” means for any period for the Borrower and its Subsidiaries on a consolidated basis, the sum of all scheduled payments of principal on Debt, as determined in accordance with GAAP. For purposes of this definition, “scheduled payments of principal” (a) shall be determined without giving effect to any reduction of such scheduled payments resulting from the application of any voluntary or mandatory prepayments made during the applicable period, (b) shall be deemed to include payments with respect to the Attributable Principal Amount in respect of Capital Leases, Securitization Transactions, Sale and Leaseback Transactions and Synthetic Leases and (c) shall not include any voluntary prepayments or mandatory prepayments required pursuant to Section 2.11; provided, however, that Consolidated Scheduled Debt Payments for the four fiscal quarter period ending June 30, 2018 shall be calculated as Consolidated Scheduled Debt Payments for the fiscal quarter ending June 30, 2018 multiplied by 4; Consolidated Scheduled Debt Payments for the four fiscal quarter period ending September 30, 2018 shall be calculated as Consolidated Scheduled Debt Payments for the two fiscal quarters ending September 30, 2018 multiplied by 2; and Consolidated Scheduled Debt Payments for the four fiscal quarter period ending December 31, 2018 shall be calculated as Consolidated Scheduled Debt Payments for the three fiscal quarters ending December 31, 2018 multiplied by 1.33.
“Contractual Obligation” means, as applied to any Person, any provision of any security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.
“Control” means, with respect to any asset, right, or property with respect to which a security interest therein is perfected by a secured party’s having “control” thereof (whether pursuant to the terms of an agreement or through the existence of certain facts and circumstances), that Agent has “control” of such asset, right, or property in accordance with the terms of Article 9 of the UCC.
“Conversion/Continuation Date” means the effective date of a continuation or conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice.
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“Conversion/Continuation Notice” means a Conversion/Continuation Notice substantially in the form of Exhibit 2.8.
“Credit Date” means the date of a Credit Extension.
“Credit Extension” means the making of a Loan or the issuing or extension of a Letter of Credit.
“Credit Parties” means, collectively, the Borrower and each Guarantor.
“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by the Agent in accordance with the conventions for such rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for business loans; provided, that, if the Agent decides that any such convention is not administratively feasible for the Agent, then the Agent may establish another convention in its reasonable discretion. Notwithstanding anything to the contrary herein, Daily Simple SOFR shall not be less than zero percent (0%).
“Debt” means, with respect to any Person and without duplication as to such Person, any liability, whether or not contingent, (a) which (i) arises in respect of borrowed money, (ii) is evidenced by bonds, notes, debentures, or similar instruments, or (iii) accrues interest or is a type upon which interest or finance charges are customarily paid (excluding trade payables owing in the ordinary course of business), (b) representing the balance deferred and unpaid of the purchase price of any property or services (other than an account payable to a trade creditor incurred in the ordinary course of business of such Person and payable in accordance with customary trade practices), including earnouts or similar payment obligations, (c) all obligations as lessee under leases which have been, or should be, in accordance with GAAP recorded as Capital Leases, (d) any contractual obligation, contingent or otherwise, of such Person to pay or be liable for the payment of any debt described in this definition of another Person, including any such debt, directly or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise acquire such debt, or any security therefor, or to provide funds for the payment or discharge thereof, or to maintain solvency, assets, level of income, or other financial condition, (e) all obligations with respect to redeemable stock and redemption or repurchase obligations under any Equity Interests or other equity securities issued by such Person, except to the extent such obligations can be satisfied with Equity Interests of such Person, (f) all reimbursement obligations and other liabilities of such Person with respect to surety bonds (whether bid, performance, or otherwise), letters of credit, bankers’ acceptances, drafts or similar documents or instruments issued for such Person’s account, (g) all debt of such Person in respect of debt of another Person for borrowed money or debt of another Person otherwise described in this definition which is, in either case, secured by any Lien on any property of such Person, whether or not such debt is assumed by or is a personal liability of such Person (but if not assumed, limited to the lesser of such debt or the value of the assets subject to such Lien), (h) all net obligations, liabilities, and debt of such Person (marked-to-market) arising under Swap Agreements, (i) debt of any partnership or joint venture in which such Person is a general partner or a joint venturer to the extent such person is liable therefor as a result of such Person’s ownership interest in such entity, except to the extent that the terms of such debt expressly provide that such Person is not liable therefor or such Person has no liability therefor under Applicable Law, (j) the principal and interest portions of all rental obligations of such Person under any synthetic lease or similar off-balance sheet financing where such transaction is considered to be borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP, (k) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, and (l) all obligations of such person under take or pay or similar arrangements.
“Debt Transaction” means, with respect to the Borrower or any of its Subsidiaries, any sale, issuance, placement, assumption or guaranty of Funded Debt, whether or not evidenced by a promissory note or other written evidence of Debt, except for Funded Debt permitted to be incurred pursuant to Section 9.1 (after giving effect to any amendments, modifications, or consents to Section 9.1).
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“Debtor Relief Laws” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect.
“Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.
“Default Rate” means an interest rate equal to (a) with respect to Obligations (other than Term SOFR Rate Loans and the Letter of Credit Fee), the Base Rate plus the Applicable Margin, if any, applicable to such Loans plus two percent (2%) per annum, (b) with respect to Term SOFR Rate Loans, the Adjusted Term SOFR Rate plus the Applicable Margin, if any, applicable to Term SOFR Rate Loans plus two percent (2%) per annum and (c) with respect to the Letter of Credit Fee, the Applicable Margin plus two percent (2%) per annum.
“Defaulting Lender” means, subject to Section 2.16(b), any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2) Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Agent, the Issuing Bank, the Swingline Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swingline Loans) within two (2) Business Days of the date when due, (b) has notified the Borrower, the Agent or the Issuing Bank or Swingline Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three (3) Business Days after written request by the Agent or the Borrower, to confirm in writing to the Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.16(b)) upon delivery of written notice of such determination to the Borrower, the Issuing Bank, the Swingline Lender and each Lender.
“Dollars” and the sign “$” mean the lawful money of the United States.
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“Domestic Subsidiary” means any Subsidiary organized under the laws of the United States, any state thereof or the District of Columbia.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Effective Date” means April 23, 2018.
“Effective Date Distribution” means a one-time Restricted Payment in an aggregate amount not to exceed $20,500,000 made by the Borrower to the holders of its Equity Interests at any time during the period from and including the Effective Date through and including May 1, 2018, made in compliance with the requirements of Section 9.3(c).
“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 12.5(b), subject to any consents and representations, if any as may be required therein.
“Environmental Laws” means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980; the Superfund Amendments and Reauthorization Act of 1986; the Resource Conservation and Recovery Act; the Toxic Substances Act; the Clean Water Act; the Clean Air Act; the Oil Pollution and Hazardous Substances Control Act of 1978; and any other “Superfund” or “Superlien” law or any other Federal, state, or local statute, law, ordinance, code, rule, regulation, order, or decree relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance, or material, as now or at any time hereafter in effect, in each case, as the same may be amended from time to time.
“Equity Interests” means, with respect to any Person, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interest in (however designated) equity of such Person, including, without limitation, any common stock, preferred stock, limited or general partnership interests, and limited liability company membership interests, whether voting or non-voting.
“Equity Transaction” means, with respect to the Borrower or any of its Subsidiaries, any issuance or sale by the Borrower or such Subsidiary of shares of its Equity Interests, other than (a) an issuance to the Borrower or any of its wholly-owned Subsidiaries, (b) an issuance in connection with a conversion of debt securities to equity, (c) an issuance in connection with the exercise by a present or former employee, officer or director under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (d) which occurred prior to the Effective Date, (e) a Qualifying IPO, or (f) any issuance, sale, or exchange in connection with a Qualifying IPO Permitted Restructuring.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended to the date hereof and from time to time hereafter, any successor statute, and the regulations thereunder.
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“ERISA Affiliate” means, as applied to any Person, (a) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (b) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (c) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (a) above or any trade or business described in clause (b) above is a member.
“ERISA Event” means (a) a “reportable event” within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which notice to the PBGC has been waived by regulation); (b) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(c) of the Internal Revenue Code), the failure to make by its due date any minimum required contribution or any required installment under Section 430(j) of the Internal Revenue Code with respect to any Pension Plan or the failure to make by its due date any required contribution to a Multiemployer Plan; (c) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (d) the withdrawal from any Pension Plan with two (2) or more contributing sponsors or the termination of any such Pension Plan, in either case resulting in material liability pursuant to Section 4063 or 4064 of ERISA; (e) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition reasonably likely to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (f) the imposition of liability pursuant to Section 4062(a) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA, each case reasonably likely to result in material liability; (g) the withdrawal of any Credit Party, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if such withdrawal is reasonably likely to result in material liability, or the receipt by any Credit Party, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in insolvency pursuant to Section 4241 or 4245 of ERISA, or that it is in “critical” or “endangered” status within the meaning of Section 305 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA, if such reorganization, insolvency or termination is reasonably likely to result in material liability; (h) the imposition of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Pension Plan if such fines, penalties, taxes or related charges are reasonably likely to result in material liability; (i) the assertion of a material claim (other than routine claims for benefits and funding obligations in the ordinary course) against any Pension Plan other than a Multiemployer Plan or the assets thereof, or against any Person in connection with any Pension Plan such Person sponsors or maintains reasonably likely to result in material liability; (j) receipt from the Internal Revenue Service of a final written determination of the failure of any Pension Plan intended to be qualified under Section 401(a) of the Internal Revenue Code to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any such plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (k) the imposition of a lien pursuant to Section 430(k) of the Internal Revenue Code or pursuant to Section 303(k) or 4068 of ERISA.
“Erroneous Payment” has the meaning set forth in Section 11.11(a).
“Erroneous Payment Deficiency Assignment” has the meaning set forth in Section 11.11(d).
“Erroneous Payment Impacted Class” has the meaning set forth in Section 11.11(d).
“Erroneous Payment Return Deficiency” has the meaning set forth in Section 11.11(d).
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“Erroneous Payment Subrogation Rights” has the meaning set forth in Section 11.11(f).
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“Event of Default” means each of the conditions or events set forth in Section 10.1.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.
“Excluded Inventory” means Inventory of the Borrower or any other Credit Party consisting of pharmaceutical Inventory on which a pharmaceutical wholesaler has a Lien.
“Excluded Property” means, with respect to the Borrower and each other Credit Party, including any Person that becomes a Credit Party after the Effective Date as contemplated by Section 8.17, (a) any leasehold interest in any Real Estate Asset, (b) any owned Real Estate Asset that is not a Material Owned Real Estate Asset, (c) Excluded Inventory, (d) motor vehicles and other assets subject to certificates of title, (e) more than 66-2/3% of any voting Equity Interests (as contemplated in Treas. Reg. Section 1.956-2(c)(2)) issued to the Credit Parties by any “controlled foreign corporation” (as such term is defined in Section 957 of the Internal Revenue Code) or by any Domestic Subsidiary substantially all of the assets of which consist of Equity Interests in one or more foreign Subsidiaries, (f) any Margin Stock, or (g) any rights or interests in any contract, lease, permit, license, charter or license agreement covering real or personal property, as such, if under the terms of such contract, lease, permit, license, charter or license agreement, or applicable law with respect thereto, the valid grant of a security interest or lien therein to the Agent is prohibited and such prohibition has not been or is not waived or the consent of the other party to such contract, lease, permit, license, charter or license agreement has not been or is not otherwise obtained or under applicable law such prohibition cannot be waived; provided that the foregoing exclusion shall in no way be construed (x) to apply if any such prohibition is unenforceable under Section 9-406 of the UCC or other applicable law or (y) so as to limit, impair or otherwise affect the Agent’s unconditional continuing security interests in and liens upon any rights or interests of the Credit Parties in or to monies due or to become due under any such contract, lease, permit, license, charter or license agreement (including any Accounts); provided, further, that the security interest granted to the Agent under the Collateral Documents or any other Loan Document shall attach immediately to any asset of any Credit Party at such time as such asset ceases to meet any of the criteria for “Excluded Property” described in any of the foregoing clauses (a) through (g) above.
“Excluded Swap Obligation” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guaranty of such Guarantor of, or the grant under a Loan Document by such Guarantor of a security interest to secure, such Swap Obligation (or any guarantee thereof) is or becomes illegal under the Commodity Exchange Act (or the application or official interpretation thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act (determined after giving effect to Section 4.8 hereof and any and all guarantees of such Guarantor’s Swap Obligations by other Credit Parties) at the time the Guaranty of such Guarantor, or grant by such Guarantor of a security interest, becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a Master Agreement governing more than one Swap Agreement, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to Swap Agreements for which such Guaranty or security interest becomes illegal.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as
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a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.17) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 3.3, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 3.3(f) and (d) any U.S. federal withholding Taxes imposed under FATCA.
“Existing Borrowers”; “Existing Collateral”; “Existing Lender”; “Existing Loan Documents”; “Existing Loans”; and “Existing Obligations” have the meanings given such terms in the recitals hereto.
“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code.
“Federal Funds Rate” means for any day, the rate per annum (expressed, as a decimal, rounded upwards, if necessary, to the next higher one one-hundredth of one percent (1/100 of 1%)) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to Regions Bank or any other Lender selected by the Agent on such day on such transactions as determined by the Agent.
“Fee Letter” means that certain fee letter agreement dated January 25, 2018 among the Borrower, Regions Bank, as Agent, and Regions Capital Markets, a division of Regions Bank, as Lead Arranger.
“Fifth Amendment” means that certain Fifth Amendment to Third Amended and Restated Loan and Security Agreement dated as of the Fifth Amendment Effective Date.
“Fifth Amendment Distribution” means a one-time Restricted Payment made by the Borrower to the holders of its Equity Interests at any time during the period from and including the Fifth Amendment Effective Date through and including December 31, 2023 in compliance with the requirements of Section 9.3(g) in an aggregate amount not to exceed $10,000,000.
“Fifth Amendment Effective Date” means October 13, 2023.
“First Amendment Effective Date” means December 3, 2019.
“Fiscal Quarter” means a fiscal quarter of any Fiscal Year.
“Fiscal Year” means the fiscal year of the Borrower and its Subsidiaries ending on December 31 of each calendar year.
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“Flood Hazard Property” means any Real Estate Asset subject to a mortgage or deed of trust in favor of the Agent, for the benefit of the holders of the Obligations, and located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards.
“Foreign Lender” means (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.
“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
“Fourth Amendment” means that certain Fourth Amendment to Third Amended and Restated Loan and Security Agreement dated as of the Fourth Amendment Effective Date.
“Fourth Amendment Effective Date” means April 22, 2022.
“Fronting Exposure” means, at any time there is a Defaulting Lender, (a) with respect to the Issuing Bank, such Defaulting Lender’s Revolving Commitment Percentage of the outstanding Letter of Credit Obligations with respect to Letters of Credit issued by the Issuing Bank other than Letter of Credit Obligations as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof, and (b) with respect to the Swingline Lender, such Defaulting Lender’s Revolving Commitment Percentage of outstanding Swingline Loans made by the Swingline Lender other than Swingline Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders.
“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.
“Funded Debt” means, at any time of determination and without duplication, (i) Debt for borrowed funds, (ii) Debt evidenced by notes, bonds, debentures, or other instruments (other than checks drawn in the ordinary course of business), (iii) the principal component of all Capital Leases; (iv) all Debt that is secured by a Lien and (v) Debt for the deferred payment by one year or more of any purchase money obligation.
“Funding Notice” means a notice substantially in the form of Exhibit 2.1.
“GAAP” means, subject to the limitations on the application thereof set forth in Section 1.2, accounting principles generally accepted in the United States in effect as of the date of determination thereof.
“General Intangibles” has the meaning set forth in the UCC, and includes, without limitation, general intangibles of each Credit Party, whether now owned or hereafter created or acquired by such Credit Party, including all choses in action, causes of action, company or other business records, inventions, blueprints, designs, patents, patent applications, trademarks, trademark applications, trade names, trade secrets, service marks, goodwill, brand names, copyrights, registrations, licenses, franchises, customer lists, permits, tax refund claims, computer programs, operating manuals, internet addresses and domain names, insurance refunds and premium rebates, all claims under guaranties, security interests or other security held by or granted to such Credit Party to secure payment of any of any of such Credit Party’s Accounts by an Account Debtor, all rights to indemnification and all other intangible property of such Credit Party of every kind and nature (other than Accounts).
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“Governmental Acts” means any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority.
“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank and any group or body charged with setting financial accounting or regulatory capital rules or standards).
“Guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Debt or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Debt or other obligation of the payment or performance of such Debt or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Debt or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Debt or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Debt or other obligation of any other Person, whether or not such Debt or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Debt to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to (x) with respect to the foregoing clause (a) the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith and (y) with respect to the foregoing clause (b), the lesser of (1) the value of the assets securing such Debt or other obligation and (2) the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.
“Guaranteed Obligations” has the meaning given to it in Section 4.1.
“Guarantors” means (a) each Person identified as a “Guarantor” on the signature pages to this Agreement on the Effective Date, (b) each Person that joins this Agreement as a Guarantor pursuant to the terms of Section 8.17(b)(i) after the Effective Date, (c) with respect to (i) Secured Swap Obligations, (ii) Secured Treasury Management Obligations, and (iii) Swap Obligations of a Specified Credit Party (determined before giving effect to Sections 4.1 and 4.8) under the Guaranty hereunder, the Borrower, and (d) their successors, permitted assigns, heirs and executors.
“Guaranty” means the Guarantee made by the Guarantors in favor of the Agent, the Lenders and the other holders of the Obligations pursuant to Section 4.
“Guardian Pharmacy Services” means Guardian Pharmacy Services, Inc., a Delaware corporation.
“Highest Lawful Rate” means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under Applicable Laws relating to any Lender which are currently in effect or, to the extent allowed under such Applicable Laws, which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than Applicable Laws now allow.
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“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Credit Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitee” has the meaning given such term in Section 12.2(b).
“Interest Payment Date” means with respect to (a) any Base Rate Loan and any Swingline Loan, (i) the last Business Day of each calendar quarter, commencing on the first such date to occur after the Effective Date and (ii) the Revolving Commitment Termination Date, the Term Loan A Maturity Date and the final maturity date of any additional Term Loan; and (b) any Term SOFR Rate Loan, (i) the last day of each Interest Period applicable to such Loan; provided, that, in the case of each Interest Period of longer than three (3) months “Interest Payment Date” shall also include each date that is three (3) months, or an integral multiple thereof, after the commencement of such Interest Period and (ii) the Revolving Commitment Termination Date, the Term Loan A Maturity Date and the final maturity date of any additional Term Loan.
“Interest Period” means, in connection with a Term SOFR Rate Loan, an interest period of one (1), three (3) or six (6) months, as selected by the Borrower in the applicable Funding Notice or Conversion/Continuation Notice, (a) initially, commencing on the Credit Date or Conversion/Continuation Date thereof, as the case may be; and (b) thereafter, commencing on the day on which the immediately preceding Interest Period expires; provided, that, (i) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day, (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) of this definition, end on the last Business Day of a calendar month, (iii) no Interest Period with respect to any Term Loan shall extend beyond any principal amortization payment date, except to the extent that the portion of such Loan comprised of Term SOFR Loans that is expiring prior to the applicable principal amortization payment date plus the portion comprised of Term SOFR Loans equals or exceeds the principal amortization payment then due, and (iv) no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Commitment Termination Date.
“Interest Rate Determination Date” means, with respect to any Interest Period, the date that is two (2) Business Days prior to the first day of such Interest Period.
“Internal Revenue Code” means the Internal Revenue Code of 1986.
“Investment” has the meaning given such term in Section 9.4.
“Involuntary Disposition” means the receipt by the Borrower or any of its Subsidiaries of any cash insurance proceeds or condemnation awards payable by reason of theft, loss, physical destruction or damage, taking or similar event with respect to any of its Property.
“IRS” means the United States Internal Revenue Service.
“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance of such Letter of Credit).
“Issuance Notice” means an Issuance Notice substantially in the form of Exhibit 2.3.
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“Issuer Documents” means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the Issuing Bank and the Borrower (or any Subsidiary) or in favor of the Issuing Bank and relating to such Letter of Credit.
“Issuing Bank” means Regions Bank in its capacity as issuer of Letters of Credit hereunder, together with its permitted successors and assigns in such capacity.
“Item” means any “item” as defined in Section 4-104 of the UCC, and shall also mean and include checks, drafts, money orders or other media of payment.
“Joint Venture Guaranty” has the meaning given such term in Section 9.4.
“Joint Venture Loan” has the meaning given such term in Section 9.4.
“JV Vendor Payables” means payables that are arising and outstanding from time to time from the purchase of Inventory in the ordinary course of business by the Borrower’s Subsidiaries that are not Credit Parties from vendors of such Subsidiaries.
“Latest Maturity Date” means, at any time of determination, the latest Maturity Date applicable to any Loan or Commitment hereunder at such time.
“Lead Arranger” means Regions Capital Markets, a division of Regions Bank, in its capacity as sole lead arranger and sole bookrunner.
“Lender” means each financial institution with a Term Loan Commitment or a Revolving Commitment, together with its successors and permitted assigns. The initial Lenders are identified on the signature pages hereto and are set forth on Appendix A.
“Letter of Credit” means any standby letter of credit issued hereunder.
“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the Issuing Bank.
“Letter of Credit Borrowing” means any Credit Extension resulting from a drawing under any Letter of Credit that has not been reimbursed or refinanced as a Borrowing of Revolving Loans.
“Letter of Credit Fees” has the meaning given such term in Section 2.10(b)(i).
“Letter of Credit Obligations” means, at any time, the sum of (a) the maximum amount available to be drawn under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referenced therein, plus (b) the aggregate amount of all drawings under Letters of Credit that have not been reimbursed by the Borrower, including Letter of Credit Borrowings. For all purposes of this Agreement, (i) amounts available to be drawn under Letters of Credit will be calculated as provided in Section 1.3(i), and (ii) if a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.
“Letter of Credit Sublimit” means, as of any date of determination, the lesser of (a) TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) and (b) the aggregate unused amount of the Revolving Commitments then in effect.
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“Lien” means any lien (statutory or otherwise), mortgage, deed of trust, deed to secure debt, pledge, hypothecation, security interest, trust arrangement, security deed, financing lease, collateral assignment, encumbrance, conditional sale or title retention agreement, or any other interest in property designed to secure the repayment or performance of any obligation, whether arising by agreement or under any statute or law or otherwise.
“Loan” means any Revolving Loan, Swingline Loan or Term Loan, and the Base Rate Loans and Term SOFR Rate Loans comprising such Loans.
“Loan Document” means any of this Agreement, each Note, each Issuer Document, the Collateral Documents, the Fee Letter, the Sixth Amendment Fee Letter, each Collateral Disclosure Certificate, any document executed and delivered by the Borrower and/or any other Credit Party pursuant to which any Aggregate Revolving Commitments are increased pursuant to Section 2.1(d)(ii) or an additional Term Loan is established pursuant to Section 2.1(d)(iii), any documents or certificates executed by any Credit Party in favor of the Issuing Bank relating to Letters of Credit, and, to the extent evidencing or securing the Obligations, all other documents, instruments or agreements executed and delivered by any Credit Party for the benefit of the Agent, the Issuing Bank or any Lender in connection herewith or therewith, and including for the avoidance of doubt, any joinder agreement (but specifically excluding any Secured Swap Agreements and Secured Treasury Management Agreements).
“Margin Stock” has the meaning given to it in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.
“Master Agreement” has the meaning given such term in the definition of “Swap Agreement”.
“Material Acquisition” means any individual Permitted Acquisition or series of Permitted Acquisitions consummated in any six consecutive month period in which the Total Consideration for such Acquisition exceeds $15,000,000.
“Material Adverse Effect” means any (a) material adverse effect upon the validity or enforceability of any of the Loan Documents or the rights, remedies and benefits available to, or conferred upon, Agent and any Lender or any holder of Obligations under any Loan Document; (b) material adverse effect upon the properties, operations, business, or financial condition of any Credit Party; (c) material adverse effect upon the ability of the Credit Parties, taken as a whole, to fulfill any obligation under any of the Loan Documents; or (d) material adverse effect on a material portion of the Collateral.
“Material Agreement” means an agreement to which any Credit Party is a party (other than the Loan Documents) and (a) which involves amounts in excess of $2,000,000 or (b) for which breach, termination, cancellation, nonperformance, or failure to renew could reasonably be expected to have a Material Adverse Effect.
“Material Owned Real Estate Asset” means each Real Estate Asset owned in fee simple by the Borrower or any other Credit Party with a fair market value of at least $2,000,000.
“Maturity Date” means (i) with respect to the Revolving Commitments and permitted increases thereof pursuant to Section 2.1(d)(ii), the Revolving Commitment Termination Date, (ii) with respect to the Term Loan A and the Sixth Amendment Term Loan A, the Term Loan A Maturity Date and (iii) with respect to any additional Term Loan incurred pursuant to Section 2.1(d)(iii), the maturity date set forth in the applicable documentation therefor.
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“Medicaid” means that government-sponsored entitlement program under Title XIX, P.L. 89-97 of the Social Security Act, which provides federal grants to states for medical assistance based on specific eligibility criteria, as set forth on Section 1396, et seq. of Title 42 of the United States Code.
“Medicare” means that government-sponsored insurance program under Title XVIII, P.L. 89-97, of the Social Security Act, which provides for a health insurance system for eligible elderly and disabled individuals, as set forth at Section 1395, et seq. of Title 42 of the United States Code.
“Mortgages” means any mortgages, deeds of trust or deeds to secure debt that purport to grant to the Agent, for the benefit of the holders of the Obligations, a security interest in the real property interest (including with respect to any improvements and Fixtures) of the Borrower or any other Credit Party in real property.
“Multiemployer Plan” means any “multiemployer plan” as defined in Section 3(37) of ERISA which is sponsored, maintained or contributed to by, or required to be contributed to by, any Credit Party or any of its ERISA Affiliates or with respect to which any Credit Party or any of its ERISA Affiliates previously sponsored, maintained or contributed to or was required to contributed to, and still has liability.
“Net Cash Proceeds” means the aggregate proceeds paid in cash or cash equivalents received by the Borrower or any of its Subsidiaries in connection with any Asset Sale, Involuntary Disposition, Debt Transaction or Equity Transaction, net of (a) reasonable and customary costs and expenses incurred or estimated for which reserves are maintained in connection therewith (including legal, accounting and investment banking fees and expenses, sales commissions and underwriting discounts) not to exceed 5% of the gross proceeds; (b) estimated taxes paid or payable (including sales, use or other transactional taxes and any net marginal increase in income taxes) as a result thereof; (c) the amount required to retire any Debt secured by a Permitted Lien on the related property; and (d) in connection with any sale of property, a reasonable reserve (not to exceed 5% of the total purchase price) for post-closing adjustments to the purchase price (provided that upon the expiration of ninety (90) days after the sale, any remaining reserve balance shall constitute Net Cash Proceeds). For purposes hereof, “Net Cash Proceeds” includes any cash or cash equivalents received upon the disposition of any non-cash consideration received by the Borrower or any of its Subsidiaries in any Asset Sale, Involuntary Disposition, Debt Transaction or Equity Transaction.
“Net Secured Payables Aggregate Amount” means, for purposes of determining the Consolidated Leverage Ratio, the lesser of (i) the sum of the Net Secured Payables Amount for each vendor of the Borrower’s Subsidiaries and (ii) $30,000,000.
“Net Secured Payables Amount” shall equal, on any date of determination and with respect to each vendor of the Borrower’s Subsidiaries, (a) the amount of secured JV Vendor Payables, minus (b) the book value of the Inventory purchased from the vendors with respect to such secured JV Vendor Payables; provided that to the extent the value of such Inventory exceeds such secured JV Vendor Payables, the Net Secured Payables Amount shall equal $0 with respect to such vendor.
“Non-Consenting Lender” has the meaning given such term in Section 2.17.
“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.
“Note” means a Revolving Loan Note, a Swingline Note or a Term Loan Note.
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“Note Pledge Agreements” means (a) that certain Note Pledge Agreement dated November 1, 2014 by and between the Borrower and Regions Bank, as agent and (b) that certain Note Pledge Agreement dated October 22, 2014 by and between the Borrower and Regions Bank, as agent.
“Notice” means a Funding Notice, an Issuance Notice or a Conversion/Continuation Notice.
“Obligations” means all obligations, indebtedness and other liabilities of every nature of (a) each Credit Party from time to time owed to the Agent (including any former Agent), the Issuing Bank, the Lenders (including former Lenders in their capacity as such) or any of them, the Qualifying Swap Banks and the Qualifying Treasury Management Banks, under any Loan Document, Secured Swap Agreement or Secured Treasury Management Agreement, (b) each Subsidiary of any Credit Party from time to time owed to the Qualifying Swap Banks and the Qualifying Treasury Management Banks under any Secured Swap Agreement or Secured Treasury Management Agreement, in each case, together with all renewals, extensions, modifications or refinancings of any of the foregoing, whether for principal, interest (including fees and interest which, but for the filing of a petition in bankruptcy with respect to such Credit Party or such Subsidiary, would have accrued on any Obligation, whether or not a claim is allowed against such Credit Party or such Subsidiary for such interest or fees in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Swap Agreements, fees, expenses, indemnification or otherwise and (c) consisting of Erroneous Payment Subrogation Rights; provided, however, that the “Obligations” of a Credit Party shall exclude any Excluded Swap Obligations with respect to such Credit Party. Notwithstanding anything to the contrary contained herein or under any of the other Loan Documents, the obligations of any Credit Party or any Subsidiary of a Credit Party under any Secured Swap Agreement or any Secured Treasury Management Agreement shall be secured and guaranteed pursuant to the Loan Documents only to the extent that, and for so long as, the Obligations (other than any Obligations with respect to Secured Swap Agreements and Secured Treasury Management Agreements) are so secured and guaranteed.
“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.17).
“Outstanding Amount” means (a) with respect to Revolving Loans and Swingline Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowings and prepayments or repayments of Revolving Loans and Swingline Loans, as the case may be, occurring on such date; (b) with respect to any Letter of Credit Obligations on any date, the aggregate outstanding amount of such Letter of Credit Obligations on such date after giving effect to any Credit Extension of a Letter of Credit occurring on such date and any other changes in the amount of the Letter of Credit Obligations as of such date, including as a result of any reimbursements by the Borrower of any drawing under any Letter of Credit; and (c) with respect to any Term Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any prepayments or repayments of such Term Loan on such date.
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“Parmed” means Parmed Pharmaceuticals, Inc., a Delaware corporation.
“Participant” has the meaning given such term in Section 12.5(d).
“Participant Register” has the meaning given such term in Section 12.5(d).
“PATRIOT Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
“Payment Recipient” the meaning set forth in Section 11.11(a).
“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.
“Pension Plan” means any “employee pension benefit plan” as defined in Section 3(2) of ERISA other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA and which is sponsored, maintained or contributed to by, or required to be contributed to by, any Credit Party or any of its ERISA Affiliates or with respect to which any Credit Party or any of its ERISA Affiliates previously sponsored, maintained or contributed to, or was required to contribute to, and still has liability.
“Periodic Term SOFR Determination Day” has the meaning set forth in the definition of “Term SOFR”.
“Permitted Acquisition” means an Acquisition by the Borrower or a Subsidiary thereof undertaken either (a) with the prior written approval of the Agent or (b) subject to the satisfaction of each of the following conditions, as determined by the Agent in its reasonable judgment:
(i) such acquired assets (including the assets of a Person whose Equity Interests are acquired) are located in the continental United States of America and are in the same or substantially similar field as the business conducted by the Borrower on the Effective Date;
(ii) the Borrower has made available to the Agent, not later than ten (10) Business Days (or such later date to which the Agent may agree) prior to the proposed date of such Acquisition, (A) a general description of the business and assets of the Acquisition target, (B) the Acquisition documents (or drafts thereof), including a copy of the purchase and sale agreement with all schedules and exhibits thereto and (C) financial diligence with respect to the Acquisition target that is consistent with the size and scope of the proposed Acquisition (including, if available, such audited financial statements of the Acquisition target or, if not available, such other financial statements as shall be reasonably acceptable to the Agent);
(iii) the Borrower has made available to the Agent, not later than five (5) Business Days prior to the proposed date of such Acquisition (or such later date to which the Agent may agree in its reasonable discretion), a general description of the business and assets of the Acquisition target, (A) for an Acquisition the aggregate consideration for which is greater than $2,000,000, lien search results which reflect that, after giving effect to the Acquisition and any contemplated releases, there shall be no Liens other than Permitted Liens with respect to the Acquisition target, (B) for an Acquisition the aggregate consideration for which is greater than $5,000,000, Projections for the immediately following twelve-month period after giving effect to such Acquisition demonstrating Credit Parties’ compliance with the covenants set forth in Section 9.17 (and if the Borrower has delivered to the Agent notice of its election to increase Consolidated Leverage Ratio test level
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pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase), (C) if requested by Agent, a certificate from an Authorized Officer of the Borrower that (x) certifies compliance with the conditions set forth in this definition of Permitted Acquisition, provides for other customary closing certifications, including by attaching certified copies of the applicable material Acquisition documents, certifies as to the closing of such Acquisition, and that representations and warranties are true, correct and complete after giving effect to such Acquisition, and (y) for an Acquisition the aggregate consideration for which is greater than $5,000,000, certifies compliance with the financial covenants contained in this Agreement after giving pro forma effect to such Acquisition (and if the Borrower has delivered to the Agent notice of its election to increase Consolidated Leverage Ratio test level pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase)), and (D) any and all other information reasonably requested by the Agent in its discretion;
(iv) the Credit Parties shall have executed and delivered, on or prior to the date of such Acquisition (or such later date to which the Agent may agree in its reasonable discretion), (A) such amendments or supplements to this Agreement or the other Loan Documents or such other documents as the Agent may deem necessary or advisable to grant the Agent a first priority Lien on all of the assets (including Equity Interests) acquired by the Borrower and, unless the Acquisition target as of the closing of the Acquisition is a joint venture that is not wholly owned by the Borrower, to join any acquired Person as a Guarantor hereto pursuant to joinder and collateral documentation acceptable to Agent and (B) if requested by Agent, a collateral assignment of rights under the Acquisition documents and an acknowledgment thereof executed by the Person whose assets are being acquired and, as applicable, the seller thereof;
(v) no Default or Event of Default shall exist or result therefrom (including any Default or Event of Default arising from a breach under Section 9.17 after giving pro forma effect to such Acquisition (and if the Borrower has delivered to the Agent notice of its election to increase Consolidated Leverage Ratio test level pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase));
(vi) if requested by Agent, the Agent shall have received evidence reasonably satisfactory to it (including a solvency certificate from the Credit Parties satisfactory to Agent) that, both before and after giving pro forma effect to such Acquisition, each Credit Party is Solvent;
(vii) the board of directors (or other comparable governing body) of the Person whose assets are being acquired shall have duly approved such Acquisition and such Person shall not have announced that it will oppose such Acquisition and shall not have commenced any action that alleges that such Acquisition will violate Applicable Laws;
(viii) such Acquisition is consummated in accordance with the applicable Acquisition documents (or drafts thereof) delivered to the Agent pursuant to clause (b)(iii)(C) above (or, if such delivery to Agent is not required by the terms of the Loan Documents, such Acquisition is consummated in accordance with the applicable documents otherwise permitted by the Loan Documents), without giving effect to any waiver, amendment, modification or consent thereto that is materially adverse to the interests of the Lenders, without the consent of the Agent, and all consents for such Acquisition shall have been received; and
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(ix) the Total Consideration for such Acquisition shall not exceed $17,500,000 (or such greater amount as may be agreed to by the Required Lenders in connection with a consent to a Permitted Acquisition) for any individual Acquisition (or series of related Acquisitions) and, after giving effect to such Acquisition (or series of related Acquisitions) and the borrowing of all Revolving Loans in connection therewith, the Borrower shall have borrowing availability remaining under the Revolving Commitments of not less than $2,500,000.
“Permitted Holders” means Bindley Capital Partners I, LLC.
“Permitted Liens” means each of the Liens permitted pursuant to Section 9.2.
“Permitted Location” means (a) any location described on Schedule 2 or Schedule 8 of the Collateral Disclosure Certificate and (b) any location as to which the Borrower shall have provided written notice to the Agent.
“Permitted Parmed Debt” means Debt owing to Parmed by the Borrower or its Subsidiaries so long as such Debt is incurred pursuant to the terms of Section 9.1(c) of this Agreement.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Pharmaceutical Wholesalers Guaranties” means (a) unsecured guaranties by the Borrower with respect to Debt provided by pharmaceutical wholesalers to Subsidiaries of the Borrower for purposes of financing the start-up of new pharmacy businesses; provided that (x) such Debt is incurred and guaranteed within three (3) months of such new business commencing operations and (y) for the avoidance of doubt, such guaranties shall be included in Debt for purposes calculating the Consolidated Leverage Ratio and (b) unsecured guaranties by the Borrower of trade payables owing by any of its Subsidiaries in the ordinary course of business.
“Plan” means any employee benefit plan or other plan maintained for employees of any Credit Party or any Subsidiary of a Credit Party and covered by Title IV of ERISA.
“Platform” has the meaning given to it in Section 12.1(d).
“Pledge Agreement” means that certain Second Amended and Restated Pledge Agreement dated as of the Effective Date given by the Credit Parties, as pledgors, to the Agent for the benefit of the holders of the Obligations, and any other pledge agreements or security agreements that may be given by any Person pursuant to the terms hereof, in each case as the same may be amended and modified from time to time.
“Post-Effective Date Distribution” means the one-time Restricted Payment made by the Borrower to the holders of its Equity Interests on or about August 1, 2019 in compliance with the requirements of Section 9.3(d) in the aggregate amount of $10,072,550.
“Prime Rate” means the per annum rate which the Agent publicly announces from time to time to be its prime lending rate, as in effect from time to time. The Agent’s prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers.
“Principal Office” means, for the Agent, the Swingline Lender and the Issuing Bank, such Person’s “Principal Office” as set forth on Appendix B, or such other office as it may from time to time designate in writing to the Borrower and each Lender.
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“Projections” means, for any period and as to such period, the Borrower’s and its Subsidiaries’ forecasted consolidated and consolidating internal budget compilations prepared on a quarter by quarter basis.
“Properly Contested” means, in the case of any Debt or taxes of any Credit Party which are not paid when due or payable by reason of such Credit Party’s bona fide dispute over its liability therefor or the amount thereof, (a) such Debt or taxes are being properly contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (b) such Credit Party has established appropriate reserves in accordance with GAAP; (c) the non-payment of such Debt or taxes will not have a Material Adverse Effect and will not result in a forfeiture or sale of any of such Credit Party’s assets; (d) no Lien is imposed upon any of such Credit Party’s assets with respect to such Debt or taxes unless such Lien is at all times subordinate in priority to the Liens in favor of the Agent (except only with respect to property taxes that have priority as a matter of applicable law) and enforcement of such Lien is stayed pending the final resolution or disposition of such dispute; (e) if the Debt or taxes result from, or are determined by the entry, rendition, or issuance against such Credit Party or any of its assets of a judgment, writ, order, or decree, enforcement of such judgment, writ, order, or decree is stayed pending a timely appeal or other judicial review; and (f) if such contest is abandoned, settled, or determined adversely (in whole or in part) to such Credit Party, such Credit Party forthwith pays such Debt or taxes and all penalties, interest, and other amounts due in connection therewith. Only that portion of the Debt or taxes which is in dispute may be Properly Contested.
“Proposed IPO” means the initial public offering of the stock of Guardian Pharmacy Services pursuant to which (and the related Qualifying IPO Permitted Restructuring) Guardian Pharmacy Services will be the direct parent of the Borrower.
“Proposed IPO Effective Date” means the date of the consummation of the Proposed IPO.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Qualified ECP Guarantor” means, in respect of any Swap Obligation, each Credit Party that, at the time the Guaranty (or grant of security interest, as applicable) becomes or would become effective with respect to such Swap Obligation, has total assets exceeding $10,000,000 or such other Credit Party as constitutes an “eligible contract participant” under the Commodity Exchange Act and which may cause another Person to qualify as an “eligible contract participant” with respect to such Swap Obligation at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
“Qualifying IPO” means an underwritten primary public offering of the common stock of the Borrower (or Borrower’s successor in interest or any other Person who becomes Borrower hereunder, in each case, pursuant to a Qualifying IPO Permitted Restructuring) (a) pursuant to an effective registration statement filed with the United States Securities and Exchange Commission in accordance with the Securities Act (whether alone or in conjunction with a secondary public offering) and (b) resulting in gross proceeds of at least $30,000,000. For the avoidance of doubt, it is understood and agreed that the Proposed IPO is a Qualifying IPO.
“Qualifying IPO Permitted Restructuring” has the meaning given to it in Section 9.13.
“Qualifying Swap Bank” means (a) any of Regions Bank and its Affiliates, and (b) any Person that (i) at the time it enters into a Swap Agreement, is a Lender or an Affiliate of a Lender, or (ii) in the case of a Swap Agreement in effect on or prior to the Effective Date, is, as of the Effective Date or within thirty (30) days thereafter, a Lender or an Affiliate of a Lender, and, in each such case under clause (b), shall have provided a Secured Party Designation Notice to the Agent within thirty (30) days of entering into the Swap Agreement or otherwise becoming eligible in respect thereof. For purposes hereof, the term “Lender” shall be deemed to include the Agent.
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“Qualifying Treasury Management Bank” means (a) any of Regions Bank and its Affiliates, and (b) any Person that (i) at the time it enters into a Treasury Management Agreement, is a Lender or an Affiliate of a Lender, or (ii) in the case of a Treasury Management Agreement in effect on or prior to the Effective Date, is, as of the Effective Date or within thirty (30) days thereafter, a Lender or an Affiliate of a Lender, and, in each such case under clause (b), shall have provided a Secured Party Designation Notice to the Agent within thirty (30) days of entering into the Treasury Management Agreement or otherwise becoming eligible in respect thereof. For purposes hereof, the term “Lender” shall be deemed to include the Agent.
“Real Estate Asset” means, at any time of determination, any fee or leasehold interest then owned by the Borrower or any of its Subsidiaries in any real property.
“Recipient” means (a) the Agent, (b) any Lender and (c) the Issuing Bank, as applicable.
“Refunded Swingline Loans” has the meaning given such term in Section 2.2(b)(iii).
“Register” has the meaning given such term in Section 12.5(c).
“Regulated Materials” means any hazardous, toxic, or dangerous waste, substance, or material, the generation, handling, storage, disposal, treatment, or emission of which is subject to any Environmental Law.
“Reimbursement Date” has the meaning given such term in Section 2.3(d).
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“Relevant Governmental Body” means the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or any successor thereto.
“Removal Effective Date” has the meaning given such term in Section 11.6(b).
“Required Lenders” means, as of any date of determination, at least two (2) Lenders having Total Credit Exposure representing more than fifty-one percent (51.0%) of the Total Credit Exposures of all Lenders; provided that (i) at any time that there are two (2) or fewer Lenders, “Required Lenders” shall mean all Lenders and (ii) the Total Credit Exposure of any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
“Resignation Effective Date” has the meaning given such term in Section 11.6(a).
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
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“Restricted Payment” means (a) any cash dividend or other cash distribution, direct or indirect, on account of any Equity Interests issued by any Credit Party or any of its Subsidiaries, as the case may be, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Equity Interests issued by any Credit Party or any of its Subsidiaries now or hereafter outstanding by any Credit Party or any of its Subsidiaries, as the case may be, except for any redemption, retirement, sinking funds or similar payment payable solely in such other shares or units of the same class of Equity Interests or any class of Equity Interests which are junior to that class of Equity Interests, or (c) any cash payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire any Equity Interests issued by any Credit Party or any of its Subsidiaries now or hereafter outstanding.
“Revolving Commitment” means the commitment of a Lender to make or otherwise fund any Revolving Loan and to acquire participations in Letters of Credit and Swingline Loans hereunder and “Revolving Commitments” means such commitments of all Lenders in the aggregate. The amount of each Lender’s Revolving Commitment, if any, is set forth on Appendix A or in the applicable Assignment Agreement or other agreement pursuant to which it becomes a party hereto, subject to any increase, adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Commitments as of the Sixth Amendment Effective Date is FORTY MILLION DOLLARS ($40,000,000).
“Revolving Commitment Fee” has the meaning given to such term in Section 2.10(a).
“Revolving Commitment Percentage” means, for each Lender, a fraction (expressed as a percentage carried to the ninth decimal place), the numerator of which is such Lender’s Revolving Commitment and the denominator of which is the Aggregate Revolving Commitments; provided, that on any date that the Revolving Commitments have been terminated “Revolving Commitment Percentage” means, for any Lender, a fraction (expressed as a percentage carried to the ninth decimal place), the numerator of which is such Lender’s Revolving Credit Exposure on such date and the denominator of which is the Total Revolving Outstandings on such date. The Revolving Commitment Percentages as of the Sixth Amendment Effective Date are set forth on Appendix A.
“Revolving Commitment Period” means the period from and including the Effective Date to the earlier of (a) (i) in the case of Revolving Loans and Swingline Loans, the Revolving Commitment Termination Date or (ii) in the case of the Letters of Credit, the expiration date thereof, or (b) in each case, the date on which the Revolving Commitments shall have been terminated as provided herein.
“Revolving Commitment Termination Date” means the earliest to occur of (a) April 23, 2027; (b) the date the Revolving Commitments are permanently reduced to zero pursuant to Section 2.11(b); and (c) the date of the termination of the Revolving Commitments pursuant to Section 10.2.
“Revolving Credit Exposure” means, as to any Lender at any time, the aggregate principal amount at such time of its outstanding Revolving Loans and such Lender’s participation in Letter of Credit Obligations and Swingline Loans at such time.
“Revolving Loan” means a Loan made by a Lender to the Borrower pursuant to Section 2.1(a).
“Revolving Loan Note” means a promissory note in the form of Exhibit 2.5-1, as it may be amended, supplemented or otherwise modified from time to time.
“Revolving Obligations” means the Revolving Loans, the Letter of Credit Obligations and the Swingline Loans.
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“Sale and Leaseback Transaction” means, with respect to the Borrower or any Subsidiary, any arrangement, directly or indirectly, with any Person (other than a Credit Party) whereby the Borrower or such Subsidiary shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred.
“Sanctioned Country” means (a) a country, territory or a government of a country or territory, (b) an agency of the government of a country or territory, or (c) an organization directly or indirectly owned or controlled by a country, territory or its government, that is subject to Sanctions.
“Sanctioned Person” means (a) a Person named on the list of “Specially Designated Nationals” or any other Sanctions related list of designated Persons maintained by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union or any European Union member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b).
“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State, (b) the United Nations Security Council, (c) the European Union, (d) any European Union member state, (e) Her Majesty’s Treasury of the United Kingdom or (f) any other relevant sanctions authority.
“Second Amendment Effective Date” means March 20, 2020.
“Secured Party Designation Notice” means a notice in the form of Exhibit 1.2 (or other writing in form and substance reasonably satisfactory to the Agent) from a Qualifying Swap Bank or a Qualifying Treasury Management Bank to the Agent that it holds Obligations entitled to share in the guaranties and collateral interests provided herein in respect of a Secured Swap Agreement or Secured Treasury Management Agreement, as appropriate.
“Secured Swap Agreement” means any Swap Agreement between any Credit Party or any Subsidiary of a Credit Party, on the one hand, and a Qualifying Swap Bank, on the other hand. For the avoidance of doubt, a holder of Obligations in respect of a Secured Swap Agreement shall be subject to the provisions of Section 10.3 and 11.10.
“Secured Swap Obligations” means all obligations owing to a Qualifying Swap Bank in connection with any Secured Swap Agreement including any and all cancellations, buy backs, reversals, terminations or assignments of any Secured Swap Agreement, any and all renewals, extensions and modifications of any Secured Swap Agreement and any and all substitutions for any Secured Swap Agreement, including all fees, costs, expenses and indemnities, whether primary, secondary, direct, fixed or otherwise (including any monetary obligations incurred during the pendency of any bankruptcy or insolvency proceedings, regardless of whether allowed or allowable in such bankruptcy or insolvency proceedings), in each case, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising.
“Secured Treasury Management Agreement” means any Treasury Management Agreement between any Credit Party or any Subsidiary of a Credit Party, on the one hand, and a Qualifying Treasury Management Bank, on the other hand. For the avoidance of doubt, a holder of Obligations in respect of a Secured Treasury Management Agreement shall be subject to the provisions of Section 10.3 and 11.10.
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“Secured Treasury Management Obligations” means all obligations owing to a Qualifying Treasury Management Bank under a Secured Treasury Management Agreement, including all fees, costs, expenses and indemnities, whether primary, secondary, direct, fixed or otherwise (including any monetary obligations incurred during the pendency of any bankruptcy or insolvency proceedings, regardless of whether allowed or allowable in such bankruptcy or insolvency proceedings), in each case, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising.
“Securitization Transaction” means any financing or factoring or similar transaction (or series of such transactions) entered by the Borrower or any of its Subsidiaries pursuant to which the Borrower or such Subsidiary may sell, convey or otherwise transfer, or grant a security interest in, accounts, payments, receivables, rights to future lease payments or residuals or similar rights to payment (the “Securitization Receivables”) to a special purpose subsidiary or affiliate (a “Securitization Subsidiary”) or any other Person.
“Security Agreement” means this Agreement as it relates to a security interest in the Collateral.
“Sixth Amendment” means that certain Sixth Amendment to Third Amended and Restated Loan and Security Agreement dated as of the Sixth Amendment Effective Date.
“Sixth Amendment Effective Date” means May 13, 2024.
“Sixth Amendment Fee Letter” means that certain letter agreement dated May 13, 2024 among the Borrower and Regions Capital Markets, a division of Regions Bank.
“Sixth Amendment Term Loan A” has the meaning given to it in Section 2.1(b)(ii). The aggregate principal amount of the outstanding Sixth Amendment Term Loan A as of the Sixth Amendment Effective Date is FIFTEEN MILLION DOLLARS ($15,000,000).
“Sixth Amendment Term Loan A Commitment” means, for each Lender, the commitment of such Lender to make a portion of the Sixth Amendment Term Loan A hereunder. The Sixth Amendment Term Loan A Commitment of each Lender as of the Sixth Amendment Effective Date is set forth on Appendix A.
“Sixth Amendment Term Loan A Commitment Percentage” means, for each Lender, a fraction (expressed as a percentage carried to the ninth decimal place), (a) the numerator of which is the outstanding principal amount of such Lender’s portion of the Sixth Amendment Term Loan A, and (b) the denominator of which is the aggregate outstanding principal amount of the Sixth Amendment Term Loan A. The Sixth Amendment Term Loan A Commitment Percentage of each Lender as of the Sixth Amendment Effective Date is set forth on Appendix A.
“Sixth Amendment Term Loan A Note” means a promissory note in the substantially in the form of Exhibit 2.5-3, as it may be amended, supplemented or otherwise modified from time to time.
“Social Security Act” means the Social Security Act of 1965.
“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day published by the SOFR Administrator on the SOFR Administrator’s Website on the immediately succeeding U.S. Government Securities Business Day; provided, that, if the published rate is subsequently corrected and provided by the SOFR Administrator or on the SOFR Administrator’s Website within the longer of one hour of the time when such rate is first published and the republication cut-off time for SOFR, if any, as specified by the SOFR Administrator in the SOFR benchmark methodology then the secured overnight financing rate for such Business Day will be subject to those corrections.
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“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
“Solvent” or “Solvency” means, with respect to any Person as of a particular date, that on such date (a) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the ordinary course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person and (e) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Specified Credit Party” means, any Credit Party that is, at the time on which the Guaranty (or grant of security interest, as applicable) becomes effective with respect to a Swap Obligation, a corporation, partnership, proprietorship, organization, trust or other entity that would not be an “eligible contract participant” under the Commodity Exchange Act at such time but for the effect of Section 4.8.
“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than fifty percent (50%) of the total voting power of Equity Interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person, or the accounts of which would be consolidated with those of such Person in its consolidated financial statements in accordance with GAAP, if such statements were prepared as of such date, or one or more of the other Subsidiaries of that Person or a combination thereof; provided, in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a “qualifying share” of the former Person shall be deemed to be outstanding. Unless otherwise provided, “Subsidiary” shall refer to a Subsidiary of the Borrower.
“Swap Agreement” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, currency swap transactions, cross-currency rate swap transactions, currency options, cap transactions, floor transactions, collar transactions, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options or warrants to enter into any
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of the foregoing), whether or not any such transaction is governed by, or otherwise subject to, any master agreement or any netting agreement, and (b) any and all transactions or arrangements of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement (or similar documentation) published from time to time by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such agreement or documentation, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.
“Swap Obligation” means with respect to any Credit Party any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.
“Swap Provider” means any Person that is a party to a Swap Agreement with any Credit Party or any Subsidiary of a Credit Party.
“Swingline Lender” means Regions Bank in its capacity as provider of Swingline Loans hereunder, together with its permitted successors and assigns in such capacity.
“Swingline Loan” means a Loan made by the Swingline Lender to the Borrower pursuant to Section 2.2.
“Swingline Note” means a promissory note in the form of Exhibit 2.5-2, as it may be amended, supplemented or otherwise modified from time to time.
“Swingline Rate” means the Base Rate plus the Applicable Margin applicable to Base Rate Loans.
“Swingline Sublimit” means, at any time of determination, the lesser of (a) TWENTY MILLION DOLLARS ($20,000,000) and (b) the aggregate unused amount of Revolving Commitments then in effect.
“Synthetic Lease” means a lease transaction under which the parties intend that (a) the lease will be treated as an “operating lease” by the lessee pursuant to Statement of Financial Accounting Standards No. 13, as amended and (b) the lessee will be entitled to various tax and other benefits ordinarily available to owners (as opposed to lessees) of like property; provided, that, for the avoidance of doubt, Synthetic Leases shall not include operating leases.
“Tax Distributions” means, for so long as the Borrower is organized as a limited liability company, cash distributions made by the Borrower to its members in an amount not to exceed, with respect to any period, an amount equal to the product of (i) the taxable income of the Borrower times (ii) the Applicable Tax Percentage; provided, however, that the computation of distributions under this definition shall also take into account (x) the deductibility of state and local taxes for federal income tax purposes and (y) any difference in the Applicable Tax Percentage resulting from the nature of the taxable income (such as capital gain as opposed to ordinary income).
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Loan” means the Term Loan A, the Sixth Amendment Term Loan A and any additional term loans established under Section 2.1(d)(iii).
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“Term Loan A” has the meaning given to it in Section 2.1(b)(i). The aggregate principal amount of the outstanding Term Loan A as of the Fourth Amendment Effective Date is THIRTY MILLION DOLLARS ($30,000,000).
“Term Loan A Commitment” means, for each Lender, the commitment of such Lender to make a portion of the Term Loan A hereunder. The Term Loan A Commitment of each Lender as of the Effective Date is set forth on Appendix A.
“Term Loan A Commitment Percentage” means, for each Lender, a fraction (expressed as a percentage carried to the ninth decimal place), (a) the numerator of which is the outstanding principal amount of such Lender’s portion of the Term Loan A, and (b) the denominator of which is the aggregate outstanding principal amount of the Term Loan A. The Term Loan A Commitment Percentage of each Lender as of the Effective Date is set forth on Appendix A.
“Term Loan A Maturity Date” means April 23, 2027; provided, that, if the Revolving Commitments are terminated prior to such date, then the “Term Loan A Maturity Date” shall mean the date on which the Revolving Commitments are terminated.
“Term Loan A Note” means a promissory note in the form of Exhibit 2.5-3, as it may be amended, supplemented or otherwise modified from time to time.
“Term Loan Commitment Percentage” means, for each Lender providing a portion of a Term Loan, a fraction (expressed as a percentage carried to the ninth decimal place), (a) the numerator of which is the outstanding principal amount of such Lender’s portion of such Term Loan, and (b) the denominator of which is the aggregate outstanding principal amount of such Term Loan.
“Term Loan Commitments” means (a) for each Lender, such Lender’s Term Loan A Commitment, (b) for each Lender, such Lender’s Sixth Amendment Term Loan A Commitment and (c) for each Lender providing an additional Term Loan pursuant to Section 2.1(d)(iii), the commitment of such Lender to make such additional term loan as set forth in the document(s) executed by the Borrower establishing such additional Term Loan.
“Term Loan Notes” means the Term Loan A Notes, the Sixth Amendment Term Loan A Notes and any other promissory notes given to evidence Term Loans hereunder.
“Term SOFR” means, for any calculation with respect to a Term SOFR Rate Loan, the Term SOFR Reference Rate for a tenor comparable to the applicable Interest Period on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to the first day of such Interest Period, as such rate is published by the Term SOFR Administrator; provided, that, if as of 11:00 a.m. (New York City time) on any Periodic Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator, subject to Section 3.1. Notwithstanding anything to the contrary herein, Term SOFR shall not be less than zero percent (0%).
“Term SOFR Adjustment” means (i) 0.05% (five basis points) for an Interest Period of one-month’s duration, (ii) 0.10% (ten basis points) for an Interest Period of three-month’s duration, and (iii) 0.15% (fifteen basis points) for an Interest Period of six-months’ duration.
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“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Agent in its reasonable discretion).
“Term SOFR Rate Loan” means a Loan that bears interest at a rate based on the Adjusted Term SOFR Rate, other than pursuant to clause (c) of the definition of “Base Rate”.
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“Third Amendment Distribution” means a one-time Restricted Payment made by the Borrower to the holders of its Equity Interests at any time during the period from and including the Third Amendment Effective Date through and including December 31, 2022 in compliance with the requirements of Section 9.3(f) in an aggregate amount not to exceed $15,000,000.
“Third Amendment Effective Date” means December 22, 2021.
“Third Party” means (a) any lessor, mortgagee, mechanic or repairman, warehouse operator, processor, packager, consignee, or other third party which may have possession of any Collateral or lienholders’ enforcement rights against any Collateral or (b) any licensor whose rights in or with respect to any intellectual property or Collateral limit or restrict or may, in the Agent’s determination, limit or restrict any Credit Party’s or the Agent’s right to sell or otherwise dispose of such Collateral.
“Third Party Agreement” means an agreement in form and substance reasonably satisfactory to the Agent pursuant to which a Third Party, as applicable and as required by the Agent, (i) waives or subordinates in favor of the Agent any Liens such Third Party may have in and to any Collateral; (ii) grants the Agent access to the Collateral which may be located on such Third Party’s premises or in the custody, care, or possession of such Third Party for purposes of allowing the Agent to inspect, repossess, sell, or otherwise exercise its rights under the Loan Documents with respect to such Collateral; (iii) authorizes the Agent to complete the manufacture of work-in-process (if the manufacturing of such goods requires the use or exploitation of a Third Party’s intellectual property); (iv) authorizes the Agent to dispose of Collateral bearing or consisting of, in whole or in part, such Third Party’s intellectual property; or (v) agrees to terms regarding Collateral held on consignment by such Third Party, in each case containing terms acceptable to the Agent and as the same may be amended, restated, supplemented, or otherwise modified from time to time.
“Total Consideration” means, in connection with any Acquisition, the aggregate amount of cash and non-cash consideration (including all cash and Debt, including contingent obligations and including assumed liabilities, incurred or assumed and the determinable amount of any earnout or similar payment in connection therewith (whether or not actually earned)) paid by the Borrower and its Subsidiaries in connection with such Acquisition.
“Total Credit Exposure” means, as to any Lender at any time, the Outstanding Amount of the Term Loans of such Lender at such time and the unused Revolving Commitments and Revolving Credit Exposure of such Lender at such time.
“Total Revolving Outstandings” means the aggregate Outstanding Amount of all Revolving Loans, all Swingline Loans and all Letter of Credit Obligations.
“Treasury Management Agreement” means any agreement governing the provision of treasury or cash management services, including Deposit Accounts, funds transfer, automated clearinghouse, commercial credit cards, purchasing cards, cardless e-payable services, debit cards, stored value cards, zero balance accounts, returned check concentration, controlled disbursement, lockbox, account reconciliation and reporting and trade finance services.
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“Treasury Management Bank” means any Person that is a party to a Treasury Management Agreement with any Credit Party or any Subsidiary of a Credit Party.
“Type of Loan” means a Base Rate Loan or a Term SOFR Rate Loan.
“UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in the State of Georgia (or any other applicable jurisdiction, as the context may require).
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended form time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person subject to IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“United States” or “U.S.” means the United States of America.
“U.S. Government Securities Business Day” means any day except for (a) a Saturday, (b) a Sunday or (c) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
“U.S. Person” means any Person that is a “United States person” as defined in Section 7701(a)(30) of the Internal Revenue Code.
“U.S. Tax Compliance Certificate” has the meaning given to it in Section 3.3(f).
“Withholding Agent” means any Credit Party and the Agent.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
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Section 1.2 Accounting Terms.
(a) Terms Generally. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by the Borrower to the Agent pursuant to Section 8.6 shall be prepared in accordance with GAAP as in effect at the time of such preparation. If at any time any change in GAAP or in the consistent application thereof would affect the computation of any financial covenant or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall object in writing to determining compliance based on such change, then the Lenders and the Borrower shall negotiate in good faith to amend such financial covenant, requirement or applicable defined terms to preserve the original intent thereof in light of such change to GAAP; provided that, until so amended such computations shall continue to be made on a basis consistent with the most recent financial statements delivered pursuant to Section 8.6 as to which no such objection has been made.
(b) FASB ASC 825 and FASB ASC 470-20. Notwithstanding the above, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Debt of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.
(c) In addition, in the event that any provision of this Agreement requires a determination of pro forma compliance with the financial covenants in Section 9.17 and such determination is being made prior to the time that the Borrower is required to deliver the first Compliance Certificate in accordance with Section 8.6(c), then such pro forma compliance shall be calculated as if the initial test levels for such financial covenants were in effect at the time of such calculation.
(d) Notwithstanding anything to the contrary in this Agreement or any other Loan Document, all leases of the Credit Parties and their Subsidiaries that are treated as operating leases for purposes of GAAP on the Effective Date shall continue to be accounted for as operating leases for purposes of the defined financial terms and the financial covenants contained herein, regardless of any change to GAAP following the Effective Date which would otherwise require such leases to be treated as Capital Leases.
Section 1.3 Rules of Interpretation.
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “hereto”, “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision hereof or thereof, (iv) all references in a Loan Document to Sections, Exhibits, Appendices and Schedules shall be construed to refer to Sections of, and Exhibits, Appendices and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory rules, regulations, orders and provisions consolidating, amending, replacing or interpreting such law and any references to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended,
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modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, Accounts and contract rights. All Appendices, Exhibits and Schedules to this Agreement, as well as the preamble and recitals to this Agreement, shall be deemed an integral part of this Agreement and are incorporated by reference.
(b) The terms lease and license shall include sub-lease and sub-license.
(c) All terms not specifically defined herein or by GAAP, which terms are defined in the UCC (whether such terms are capitalized or not and including, without limitation, such terms as are used in the definition of Collateral), shall have the meanings assigned to them in the UCC of the relevant jurisdiction, with the term “instrument” being that defined under Article 9 of the UCC of such jurisdiction.
(d) Unless otherwise expressly indicated, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”, the words “to” and “until” each mean “to but excluding”, and the word “through” means “to and including”.
(e) To the extent that any of the representations and warranties contained in Section 7 under this Agreement or in any of the other Loan Documents is qualified by “Material Adverse Effect”, the qualifier “in all material respects” contained in Section 6.2(c) and the qualifier “in any material respect” contained in Section 10.1(d) shall not apply.
(f) Whenever the phrase “to the knowledge of” or words of similar import relating to the knowledge of a Person are used herein or in any other Loan Document, such phrase shall mean and refer to the actual knowledge of the Authorized Officers of such Person.
(g) This Agreement and the other Loan Documents are the result of negotiation among, and have been reviewed by counsel to, among others, the Agent and the Credit Parties, and are the product of discussions and negotiations among all parties. Accordingly, this Agreement and the other Loan Documents are not intended to be construed against the Agent or any of the Lenders merely on account of the Agent’s or any Lender’s involvement in the preparation of such documents.
(h) Unless otherwise indicated, all references to a specific time shall be construed to Eastern Standard Time or Eastern Daylight Savings Time, as the case may be. Unless otherwise expressly provided herein, all references to dollar amounts and “$” shall mean Dollars.
(i) Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time (after giving effect to any permanent reduction in the stated amount of such Letter of Credit pursuant to the terms of such Letter of Credit); provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
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(j) Any reference herein or in any other Loan Document to a merger, transfer, consolidation, amalgamation, assignment, sale or disposition, or similar term, shall be deemed to apply to a division of or by a limited liability company, or an allocation of assets to a series of a limited liability company (or the unwinding of such a division or allocation), as if it were a merger, transfer, consolidation, amalgamation, assignment, sale or disposition, or similar term, as applicable, to, of or with a separate Person. Any division of a limited liability company shall constitute a separate Person hereunder and under each other Loan Document (and each division of any limited liability company that is a Subsidiary, joint venture or any other like term shall also constitute such a Person or entity).
Section 1.4 Rates. The Agent does not warrant, nor accept responsibility, nor shall the Agent have any liability with respect to (a) the continuation of, administration of, submission of, calculation of or any other matter related to the Base Rate, the Term SOFR Reference Rate or Term SOFR, or any component definition thereof or rates referred to in the definition thereof, or any alternative, successor or replacement rate thereto (including any Benchmark Replacement) or any related spread or other adjustment, including whether the composition or characteristics of any such alternative, successor or replacement rate (including any Benchmark Replacement) will be similar to, or produce the same value or economic equivalence of, or have the same volume or liquidity as, the Base Rate, the Term SOFR Reference Rate, Term SOFR or any other Benchmark prior to its discontinuance or unavailability, or (b) the effect, implementation or composition of any Benchmark Conforming Changes. The Agent and its affiliates or other related entities may engage in transactions that affect the calculation of the Base Rate, the Term SOFR Reference Rate, Term SOFR, any alternative, successor or replacement rate (including any Benchmark Replacement) or any relevant adjustments thereto, in each case, in a manner adverse to the Borrower. The Agent may select information sources or services in its reasonable discretion to ascertain the Base Rate, the Term SOFR Reference Rate, Term SOFR or any other Benchmark, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service, except to the extent that such damages, costs, losses or expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of the Agent.
Section 1.5 Conforming Changes Relating to Term SOFR. In connection with the use or administration of Term SOFR, the Agent will have the right to make Benchmark Conforming Changes from time to time and, notwithstanding anything to the contrary contained herein or in any other Loan Document, any amendments implementing such Benchmark Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document. The Agent will promptly notify the Borrower and the Lenders in writing of the effectiveness of any Benchmark Conforming Changes in connection with the use or administration of Term SOFR.
SECTION 2. LOANS AND LETTERS OF CREDIT
Section 2.1 Revolving Loans and Term Loans.
(a) Revolving Loans. During the Revolving Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make revolving loans in Dollars (each such loan, a “Revolving Loan”) to the Borrower in an aggregate amount up to but not exceeding such Lender’s Revolving Commitment; provided, that after giving effect to the making of any Revolving Loan, (i) the Total Revolving Outstandings shall not exceed the Aggregate Revolving Commitments, and (ii) the Revolving Credit Exposure of any Lender shall not exceed such Lender’s Revolving Commitment. Amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed without premium or penalty (subject to Section 3.1(c)) during the Revolving Commitment Period. The Revolving Loans may consist of Base Rate Loans, Term SOFR Rate Loans, or a combination thereof, as the Borrower may request. Each Lender’s Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Commitments shall be paid in full no later than such date.
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(b) Term Loans.
(i) Subject to the terms and conditions set forth herein, the Lenders will make advances of their respective Term Loan A Commitment Percentages of a term loan in Dollars (the “Term Loan A”) in an amount not to exceed the Term Loan A Commitment which Term Loan A will be disbursed to the Borrower in Dollars in a single advance on the Effective Date. The Term Loan A may consist of Base Rate Loans, Term SOFR Rate Loans, or a combination thereof, as the Borrower may request. Amounts repaid on the Term Loan A may not be reborrowed. Each Lender’s respective Term Loan A Commitments shall terminate on the Effective Date upon such Lender’s funding thereof.
(ii) Subject to the terms and conditions set forth herein, the Lenders will make advances of their respective Sixth Amendment Term Loan A Commitment Percentages of a term loan in Dollars (the “Sixth Amendment Term Loan A”) in an amount not to exceed the Sixth Amendment Term Loan A Commitment which Sixth Amendment Term Loan A will be disbursed to the Borrower in Dollars in a single advance on the Sixth Amendment Effective Date. The Sixth Amendment Term Loan A may consist of Base Rate Loans, Term SOFR Rate Loans, or a combination thereof, as the Borrower may request. Amounts repaid on the Sixth Amendment Term Loan A may not be reborrowed. Each Lender’s respective Sixth Amendment Term Loan A Commitments shall terminate on the Sixth Amendment Effective Date upon such Lender’s funding thereof.
(c) Mechanics for Revolving Loans and Term Loans.
(i) All Term Loans and all Revolving Loans (other than Swingline Loans) shall be made in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount.
(ii) Whenever the Borrower desires that the Lenders make a Term Loan or a Revolving Loan, the Borrower shall deliver to the Agent a fully executed and delivered Funding Notice no later than (x) 1:00 p.m. at least three (3) U.S. Government Securities Business Days in advance of the proposed Credit Date in the case of a Term SOFR Rate Loan and (y) 1:00 p.m. at least one (1) Business Day in advance of the proposed Credit Date in the case of a Loan that is a Base Rate Loan. Except as otherwise provided herein, any Funding Notice for any Loans that are Term SOFR Rate Loans shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to make a borrowing in accordance therewith. Notwithstanding the foregoing or anything else contained in this Section 2, all Loans existing or made as of the Effective Date shall be Base Rate Loans.
(iii) Notice of receipt of each Funding Notice in respect of each Revolving Loan or Term Loan, together with the amount of each Lender’s Revolving Commitment Percentage or Term Loan Commitment Percentage thereof, respectively, if any, together with the applicable interest rate, shall be provided by the Agent to each applicable Lender by telefacsimile with reasonable promptness, but (provided the Agent shall have received such notice by 1:00 p.m.) not later than 4:00 p.m. on the same day as the Agent’s receipt of such notice from the Borrower.
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(iv) Each Lender shall make its Revolving Commitment Percentage of the requested Revolving Loan or its Term Loan Commitment Percentage of the requested Term Loan available to the Agent not later than 11:00 a.m. on the applicable Credit Date by wire transfer of same day funds in Dollars, at the Agent’s Principal Office. Except as provided herein, upon satisfaction or waiver of the applicable conditions precedent specified herein, the Agent shall make the proceeds of such Credit Extension available to the Borrower on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all Loans received by the Agent in connection with the Credit Extension from the Lenders to be credited to the account of the Borrower at the Agent’s Principal Office or such other account as may be designated in writing to the Agent by the Borrower.
(d) Increase in Revolving Commitments and Establishment of Additional Term Loans. The Borrower may, at any time and from time to time, upon prior written notice by the Borrower to the Agent, increase the Revolving Commitments (but not the Letter of Credit Sublimit or the Swingline Sublimit) and/or establish one or more additional term loans subject to the following:
(i) the sum of the (A) aggregate principal amount of any increases in the Revolving Commitments pursuant to this Section 2.1(d) plus (B) the aggregate principal amount of any additional Term Loans pursuant to this Section 2.1(d), in each case, made after the Sixth Amendment Effective Date, shall not exceed THIRTY-FIVE MILLION DOLLARS ($35,000,000);
(ii) The Borrower may, at any time and from time to time, upon prior written notice by the Borrower to the Agent increase the Aggregate Revolving Commitments (but not the Letter of Credit Sublimit or the Swingline Sublimit) with additional Revolving Commitments from any existing Lender with a Revolving Commitment or new Revolving Commitments from any other Person (other than the Borrower or any Affiliate or Subsidiary of the Borrower) selected by the Borrower and, with respect to any new Lender, reasonably acceptable to the Agent, the Swingline Lender and the Issuing Bank; provided that:
(A) any such increase shall be in a minimum principal amount of $5,000,000 and in integral multiples of $1,000,000 in excess thereof;
(B) no Default or Event of Default shall exist before and immediately after giving effect to such increase;
(C) the Borrower shall be in compliance, on a pro forma basis after giving effect to the incurrence of any such increase in the Revolving Commitments (in each case assuming that such increase in the Revolving Commitments was fully drawn), with the financial covenants set forth in Section 9.17, recomputed as of the last day of the most recently ended Fiscal Quarter of the Borrower for which financial statements have been delivered pursuant to Section 8.6 (and if the Borrower has delivered to the Agent notice of its election to increase Consolidated Leverage Ratio test level pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase);
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(D) no existing Lender shall be under any obligation to increase its Revolving Commitment and any such decision whether to increase its Revolving Commitment shall be in such Lender’s sole and absolute discretion;
(E) (1) any new Lender providing a Revolving Commitment in connection with any increase in Aggregate Revolving Commitments shall join this Agreement by executing such joinder documents reasonably required by the Agent and/or (2) any existing Lender electing to increase its Revolving Commitment shall have executed a commitment agreement reasonably satisfactory to the Agent;
(F) any such increase in the Revolving Commitments shall be subject to receipt by the Agent of a certificate of the Borrower dated as of the date of such increase signed by an Authorized Officer of the Borrower (x) certifying and attaching the resolutions adopted by the Borrower and each Guarantor approving or consenting to such increase or certifying that the prior resolutions delivered on the Effective Date approving such increase are still in full force and effect and (y) certifying that, before and after giving effect to such increase, (1) the representations and warranties contained in Section 7 and the other Loan Documents are true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) on and as of the date of such increase, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) as of such earlier date, and except that for purposes of this Section 2.1(d), the representations and warranties contained in Section 7.3 shall be deemed to refer to the most recent statements furnished pursuant to Section 8.6, and (2) no Default or Event of Default exists;
(G) the applicable margin of, and/or commitment fee for, additional Revolving Commitments shall equal the Applicable Margin and/or Revolving Commitment Fee with respect to the existing Revolving Commitments;
(H) the Borrower shall have paid any applicable arrangement or upfront fees in connection with any such increase in the Revolving Commitments;
(I) the terms of the additional Revolving Commitments shall be identical to those of the existing Revolving Commitments; and
(J) the Borrower shall have delivered legal opinions, resolutions, officer’s certificates and any other customary documentation as reasonably requested by the Agent.
The Borrower shall prepay any Revolving Loans owing under this Agreement on the date of any such increase in the Revolving Commitments to the extent necessary to keep the outstanding Revolving Loans ratable with any revised Revolving Commitments arising from any nonratable increase in the Revolving Commitments under this Section 2.1(d).
(iii) The Borrower may, at any time and from time to time, upon prior written notice to the Agent, request the establishment of one or more additional term loans from existing Lenders or other Persons selected by the Borrower (other than the Borrower or any Affiliate or Subsidiary of the Borrower) and, with respect to any new Lender, reasonably acceptable to the Agent; provided, that:
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(A) any such increase shall be in a minimum aggregate principal amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof;
(B) no Default or Event of Default shall exist before and immediately after giving effect to such additional Term Loan;
(C) the Borrower shall be in compliance, on a pro forma basis after giving effect to the incurrence of any additional Term Loan (and after giving effect on a pro forma basis to any Permitted Acquisition consummated simultaneously therewith), with the financial covenants set forth in Section 9.17, recomputed as of the last day of the most recently ended Fiscal Quarter of the Borrower for which financial statements have been delivered pursuant to Section 8.6 (and if the Borrower has delivered to the Agent notice of its election to increase Consolidated Leverage Ratio test level pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase);
(D) no existing Lender shall be under any obligation to provide a portion of any additional Term Loan and any such decision whether to provide a portion of any additional Term Loan shall be in such Lender’s sole and absolute discretion;
(E) (1) any new Lender providing all or any portion of any additional term loan shall join this Agreement by executing such joinder documents reasonably required by the Agent and/or (2) any existing Lender electing to provide a Term Loan Commitment with respect to such additional Term Loan shall have executed a commitment or joinder agreement reasonably satisfactory to the Agent;
(F) the establishment of any additional Term Loan shall be subject to receipt by the Agent of a certificate of the Borrower dated as of the date of the establishment of such additional Term Loan signed by an Authorized Officer of the Borrower (x) certifying and attaching the resolutions adopted by the Borrower and each Guarantor approving or consenting to such increase or certifying that the prior resolutions delivered on the Effective Date approving such increase are still in full force and effect and (y) certifying that, before and after giving effect to such increase, (1) the representations and warranties contained in Section 7 and the other Loan Documents are true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) on and as of the date of such increase, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) as of such earlier date, and except that for purposes of this Section 2.1(d), the representations and warranties contained in Section 7.3 shall be deemed to refer to the most recent statements furnished pursuant to Section 8.6, and (2) no Default or Event of Default exists;
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(G) the Applicable Margin of any additional Term Loan shall be as set forth in the commitment or joinder agreement executed by the Borrower in connection therewith; provided that the all-in yield (including interest rate margins, any interest rate floors, original issue discount and upfront fees (based on the lesser of a four-year average life to maturity or the remaining life to maturity), but excluding arrangement, structuring and underwriting fees paid or payable to the Lead Arranger or its Affiliates) for any additional Term Loan shall not be more than 50 basis points (0.50%) more than the corresponding all-in yield (determined on the same basis) applicable to any then existing Term Loans unless the Applicable Margin of any then existing Terms Loans is increased such that the all-in yield (determined on the same basis) of such additional Term Loan does not exceed the all-in yield (determined on the same basis) of any then existing Term Loans by more than 50 basis points (0.50%);
(H) the maturity date for any additional Term Loan shall be as set forth in the commitment or joinder agreement executed by the Borrower in connection therewith; provided that such date shall not be earlier than the Latest Maturity Date of any then existing Term Loan;
(I) the scheduled principal amortization payments under any additional Term Loan shall be as set forth in the commitment or joinder agreement executed by the Borrower in connection therewith; provided that the weighted average life to maturity of any such additional Term Loan shall not be less than the weighted life to maturity of the Term Loan A, Sixth Amendment Term Loan A and any other then existing Term Loan;
(J) the Borrower shall have paid any applicable arrangement or upfront fees in connection with any such additional Term Loan; and
(K) the Borrower shall have delivered legal opinions, resolutions, officer’s certificates and any other customary documentation as reasonably requested by the Agent.
Section 2.2 Swingline Loans.
(a) Swingline Loans Commitments. During the Revolving Commitment Period, subject to the terms and conditions hereof, the Swingline Lender may, in its sole discretion, make Swingline Loans in Dollars to the Borrower in the aggregate amount up to but not exceeding the Swingline Sublimit; provided, that after giving effect to the making of any Swingline Loan, in no event shall (i) the Total Revolving Outstandings exceed the Aggregate Revolving Commitments or (ii) the Revolving Credit Exposure of any Lender exceed such Lender’s Revolving Commitment. Amounts borrowed pursuant to this Section 2.2 may be repaid and reborrowed during the Revolving Commitment Period. The Swingline Lender’s Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Swingline Loans and all other amounts owed hereunder with respect to the Swingline Loans and the Revolving Commitments shall be paid in full no later than such date.
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(b) Borrowing Mechanics for Swingline Loans.
(i) Whenever the Borrower desires that the Swingline Lender make a Swingline Loan, the Borrower shall deliver to the Agent a Funding Notice no later than 11:00 a.m. on the proposed Credit Date.
(ii) The Swingline Lender shall make the amount of its Swingline Loan available to the Agent not later than 3:00 p.m. on the applicable Credit Date by wire transfer of same day funds in Dollars, at the Agent’s Principal Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, the Agent shall make the proceeds of such Swingline Loans available to the Borrower on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Swingline Loans received by the Agent from the Swingline Lender to be credited to the account of the Borrower at the Agent’s Principal Office, or to such other account as may be designated in writing to the Agent by the Borrower.
(iii) With respect to any Swingline Loans which have not been voluntarily prepaid by the Borrower pursuant to Section 2.11, the Swingline Lender may at any time in its sole and absolute discretion, deliver to the Agent (with a copy to the Borrower), no later than 11:00 a.m. on the day of the proposed Credit Date, a notice (which shall be deemed to be a Funding Notice given by the Borrower) requesting that each Lender holding a Revolving Commitment make Revolving Loans that are Base Rate Loans to the Borrower on such Credit Date in an amount equal to the amount of such Swingline Loans (the “Refunded Swingline Loans”) outstanding on the date such notice is given which the Swingline Lender requests Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (1) the proceeds of such Revolving Loans made by the Lenders other than the Swingline Lender shall be immediately delivered by the Agent to the Swingline Lender (and not to the Borrower) and applied to repay a corresponding portion of the Refunded Swingline Loans and (2) on the day such Revolving Loans are made, the Swingline Lender’s Revolving Commitment Percentage of the Refunded Swingline Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by the Swingline Lender to the Borrower, and such portion of the Swingline Loans deemed to be so paid shall no longer be outstanding as Swingline Loans and shall no longer be due under the Swingline Note of the Swingline Lender but shall instead constitute part of the Swingline Lender’s outstanding Revolving Loans to the Borrower and shall be due under the Revolving Loan Note issued by the Borrower to the Swingline Lender. The Borrower hereby authorizes the Agent and the Swingline Lender to charge the Borrower’s accounts with the Agent and the Swingline Lender (up to the amount available in each such account) in order to immediately pay the Swingline Lender the amount of the Refunded Swingline Loans to the extent the proceeds of such Revolving Loans made by the Lenders, including the Revolving Loans deemed to be made by the Swingline Lender, are insufficient to repay in full the Refunded Swingline Loans. If any portion of any such amount paid (or deemed to be paid) to the Swingline Lender should be recovered by or on behalf of the Borrower from the Swingline Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by Section 2.14.
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(iv) If for any reason Revolving Loans are not made pursuant to Section 2.2(b)(iii) in an amount sufficient to repay any amounts owed to the Swingline Lender in respect of any outstanding Swingline Loans on or before the third Business Day after demand for payment thereof by the Swingline Lender, each Lender holding a Revolving Commitment shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swingline Loans, and in an amount equal to its Revolving Commitment Percentage of the applicable unpaid amount together with accrued interest thereon; provided that any such participation purchased by a Lender shall be limited to an amount that would not cause the Revolving Credit Exposure of such Lender (after giving effect to such participation) to exceed such Lender’s Revolving Commitment. On the Business Day that notice is provided by the Swingline Lender (or by the 11:00 a.m. on the following Business Day if such notice is provided after 2:00 p.m.), each Lender holding a Revolving Commitment shall deliver to the Swingline Lender an amount equal to its respective participation in the applicable unpaid amount in same day funds at the Principal Office of the Swingline Lender. In order to evidence such participation each Lender holding a Revolving Commitment agrees to enter into a participation agreement at the request of the Swingline Lender in form and substance reasonably satisfactory to the Swingline Lender. In the event any Lender holding a Revolving Commitment fails to make available to the Swingline Lender the amount of such Lender’s participation as provided in this paragraph, the Swingline Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon for three (3) Business Days at the rate customarily used by the Swingline Lender for the correction of errors among banks and thereafter at the Base Rate, as applicable.
(v) Notwithstanding anything contained herein to the contrary, (1) each Lender’s obligation to make Revolving Loans for the purpose of repaying any Refunded Swingline Loans pursuant to clause (iii) above and each Lender’s obligation to purchase a participation in any unpaid Swingline Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swingline Lender, any Credit Party or any other Person for any reason whatsoever; (B) the occurrence or continuation of a Default or Event of Default; (C) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Credit Party; (D) any breach of this Agreement or any other Loan Document by any party thereto; or (E) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that such obligations of each Lender are subject to the condition that the Swingline Lender had not received prior notice from the Borrower or the Required Lenders that any of the conditions under Section 6.2 to the making of the applicable Refunded Swingline Loans or other unpaid Swingline Loans were not satisfied at the time such Refunded Swingline Loans or other unpaid Swingline Loans were made; and (2) the Swingline Lender shall not be obligated to make any Swingline Loans (A) if it has elected not to do so after the occurrence and during the continuation of a Default or Event of Default, (B) it does not in good faith believe that all conditions under Section 6.2 to the making of such Swingline Loan have been satisfied or waived by the Required Lenders or (C) at a time when a Defaulting Lender exists, unless the Swingline Lender has entered into arrangements satisfactory to it and the Borrower to eliminate the Swingline Lender’s risk with respect to the Defaulting Lender’s participation in such Swingline Loan, including by Cash Collateralizing such Defaulting Lender’s Revolving Commitment Percentage of the outstanding Swingline Loans in a manner reasonably satisfactory to the Swingline Lender and the Agent.
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Section 2.3 Issuances of Letters of Credit and Purchase of Participations Therein.
(a) Letters of Credit. During the Revolving Commitment Period, subject to the terms and conditions hereof, the Issuing Bank agrees to issue Letters of Credit for the account of the Borrower or any of its Subsidiaries in the aggregate amount up to but not exceeding the Letter of Credit Sublimit; provided, (i) each Letter of Credit shall be denominated in Dollars; (ii) the stated amount of each Letter of Credit shall not be less than $50,000 or such lesser amount as is acceptable to the Issuing Bank; (iii) after giving effect to such issuance, in no event shall (x) the Total Revolving Outstandings exceed the Aggregate Revolving Commitments, (y) the Revolving Credit Exposure of any Lender exceed such Lender’s Revolving Commitment and (z) the Outstanding Amount of Letter of Credit Obligations exceed the Letter of Credit Sublimit; and (iv) in no event shall any standby Letter of Credit have an expiration date later than the earlier of (1) seven (7) days prior to the Revolving Commitment Termination Date, and (2) the date which is one (1) year from the date of issuance of such standby Letter of Credit. Subject to the foregoing (other than clause (iv)), the Issuing Bank may agree that a standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one (1) year each, unless the Issuing Bank elects not to extend for any such additional period; provided, the Issuing Bank shall not extend any such Letter of Credit if it has received written notice that an Event of Default has occurred and is continuing at the time the Issuing Bank must elect to allow such extension; provided, further, in the event that any Lender is at such time a Defaulting Lender, unless the Issuing Bank has entered into arrangements satisfactory to the Issuing Bank (in its sole discretion) with the Borrower or such Defaulting Lender to eliminate the Issuing Bank’s Fronting Exposure with respect to such Lender (after giving effect to Section 2.16(a)(iv) and any Cash Collateral provided by the Defaulting Lender), including by Cash Collateralizing such Defaulting Lender’s Revolving Commitment Percentage of the Outstanding Amount of the Letter of Credit Obligations in a manner reasonably satisfactory to Agents, the Issuing Bank shall not be obligated to issue or extend any Letter of Credit hereunder. The Issuing Bank may send a Letter of Credit or conduct any communication to or from the beneficiary via the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) message or overnight courier, or any other commercially reasonable means of communicating with a beneficiary.
(b) Notice of Issuance. Whenever the Borrower desires the issuance of a Letter of Credit, the Borrower shall deliver to the Agent an Issuance Notice no later than 1:00 p.m. at least three (3) Business Days or such shorter period as may be agreed to by the Issuing Bank in any particular instance, in advance of the proposed date of issuance. Upon satisfaction or waiver of the conditions set forth in Section 6.2, the Issuing Bank shall issue the requested Letter of Credit only in accordance the Issuing Bank’s standard operating procedures (including, without limitation, the delivery by the Borrower of such executed documents and information pertaining to such requested Letter of Credit, including any Issuer Documents, as the Issuing Bank or the Agent may require). Upon the issuance of any Letter of Credit or amendment or modification to a Letter of Credit, the Issuing Bank shall promptly notify the Agent and each Lender of such issuance, which notice shall be accompanied by a copy of such Letter of Credit or amendment or modification to a Letter of Credit and the amount of such Lender’s respective participation in such Letter of Credit pursuant to Section 2.3(e).
(c) Responsibility of the Issuing Bank With Respect to Requests for Drawings and Payments. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, the Issuing Bank shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. As between the Borrower and the Issuing Bank, the Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by the Issuing Bank, by the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank shall not
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be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Issuing Bank, including any Governmental Acts; none of the above shall affect or impair, or prevent the vesting of, the Issuing Bank’s rights or powers hereunder. Without limiting the foregoing and in furtherance thereof, any action taken or omitted by the Issuing Bank under or in connection with the Letters of Credit or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not give rise to any liability on the part of the Issuing Bank to any Credit Party. Notwithstanding anything to the contrary contained in this Section 2.3(c), the Borrower shall retain any and all rights it may have against the Issuing Bank for any liability arising solely out of the gross negligence or willful misconduct of the Issuing Bank, as determined by a court of competent jurisdiction in a final, non-appealable order.
(d) Reimbursement by the Borrower of Amounts Drawn or Paid Under Letters of Credit. In the event the Issuing Bank has determined to honor a drawing under a Letter of Credit, it shall immediately notify the Borrower and the Agent, and the Borrower shall reimburse the Issuing Bank on or before the Business Day immediately following the date on which such drawing is honored (the “Reimbursement Date”) in an amount in Dollars and in same day funds equal to the amount of such honored drawing; provided, anything contained herein to the contrary notwithstanding, (i) unless the Borrower shall have notified the Agent and the Issuing Bank prior to 11:00 a.m. on the date such drawing is honored that the Borrower intends to reimburse the Issuing Bank for the amount of such honored drawing with funds other than the proceeds of Revolving Loans, the Borrower shall be deemed to have given a timely Funding Notice to the Agent requesting the Lenders to make Revolving Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount of such honored drawing, and (ii) subject to satisfaction or waiver of the conditions specified in Section 6.2, the Lenders shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount of such honored drawing, the proceeds of which shall be applied directly by the Agent to reimburse the Issuing Bank for the amount of such honored drawing; and provided further, if for any reason proceeds of Revolving Loans are not received by the Issuing Bank on the Reimbursement Date in an amount equal to the amount of such honored drawing, the Borrower shall reimburse the Issuing Bank, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this Section 2.3(d) shall be deemed to relieve any Lender from its obligation to make Revolving Loans on the terms and conditions set forth herein, and the Borrower shall retain any and all rights it may have against any Lender resulting from the failure of such Lender to make such Revolving Loans under this Section 2.3(d).
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(e) Lenders’ Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Letter of Credit, each Lender having a Revolving Commitment shall be deemed to have purchased, and hereby agrees to irrevocably purchase, from the Issuing Bank a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Lender’s Revolving Commitment Percentage (with respect to the Revolving Commitments) of the maximum amount which is or at any time may become available to be drawn thereunder; provided that any such participation purchased by a Lender shall be limited to an amount that would not cause the Revolving Credit Exposure of such Lender (after giving effect to such participation) to exceed such Lender’s Revolving Commitment. In the event that the Borrower shall fail for any reason to reimburse the Issuing Bank as provided in Section 2.3(d), the Issuing Bank shall promptly notify each Lender of the unreimbursed amount of such honored drawing and of such Lender’s respective participation therein based on such Lender’s Revolving Commitment Percentage. Each Lender shall make available to the Issuing Bank an amount equal to its respective participation, in Dollars and in same day funds, at the office of the Issuing Bank specified in such notice, not later than 12:00 p.m. on the first Business Day (under the laws of the jurisdiction in which such office of the Issuing Bank is located) after the date notified by the Issuing Bank. In the event that any Lender fails to make available to the Issuing Bank on such Business Day the amount of such Lender’s participation in such Letter of Credit as provided in this Section 2.3(e), the Issuing Bank shall be entitled to recover such amount on demand from such Lender together with interest thereon for three (3) Business Days at the rate customarily used by the Issuing Bank for the correction of errors among banks and thereafter at the Base Rate. Nothing in this Section 2.3(e) shall be deemed to prejudice the right of any Lender to recover from the Issuing Bank any amounts made available by such Lender to the Issuing Bank pursuant to this Section 2.3 in the event that it is determined that the payment with respect to a Letter of Credit in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of the Issuing Bank, as determined by a court of competent jurisdiction in a final, non-appealable order. In the event the Issuing Bank shall have been reimbursed by other Lenders pursuant to this Section 2.3(e) for all or any portion of any drawing honored by the Issuing Bank under a Letter of Credit, the Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under this Section 2.3(e) with respect to such honored drawing such Lender’s Revolving Commitment Percentage of all payments subsequently received by the Issuing Bank from the Borrower in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on Appendix B or at such other address as such Lender may request.
(f) Obligations Absolute. The obligation of the Borrower to reimburse the Issuing Bank for drawings honored under the Letters of Credit issued by it and to repay any Revolving Loans made by the Lenders pursuant to Section 2.3(d) and the obligations of the Lenders under Section 2.3(e) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms hereof under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense (other than that such drawing has been repaid) or other right which the Borrower or any Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), the Issuing Bank, a Lender or any other Person or, in the case of a Lender, against the Borrower, whether in connection herewith, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between the Borrower or any of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the Issuing Bank under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, or financial condition of the Borrower or any of its Subsidiaries; (vi) any breach hereof or any other Loan Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Default shall have occurred and be continuing; provided, in each case, that payment by the Issuing Bank under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of the Issuing Bank under the circumstances in question, as determined by a court of competent jurisdiction in a final, non-appealable order.
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(g) Indemnification. Without duplication of any obligation of the Credit Parties under Section 12.2, in addition to amounts payable as provided herein, each of the Credit Parties hereby agrees, on a joint and several basis, to protect, indemnify, pay and save harmless the Issuing Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable out-of-pocket fees, expenses and disbursements of counsel) which the Issuing Bank may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by the Issuing Bank, other than as a result of (1) the gross negligence or willful misconduct of the Issuing Bank, as determined by a court of competent jurisdiction in a final, non-appealable order, or (2) the wrongful dishonor by the Issuing Bank of a proper demand for payment made under any Letter of Credit issued by it, or (ii) the failure of the Issuing Bank to honor a drawing under any such Letter of Credit as a result of any Governmental Act.
(h) Applicability of ISP. Unless otherwise expressly agreed by the Issuing Bank and the Borrower when a Letter of Credit is issued, the rules of the ISP shall apply to each Letter of Credit.
(i) Letters of Credit Issued for Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary of the Borrower, the Borrower shall be obligated to reimburse the Issuing Bank hereunder for any and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account of the Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Subsidiaries.
(j) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.
Section 2.4 Pro Rata Shares; Availability of Funds.
(a) Pro Rata Shares. All Loans shall be made, and all participations purchased, by the Lenders simultaneously and proportionately to their respective pro rata shares of the Loans, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender’s obligation to make a Loan requested hereunder or purchase a participation required hereby nor shall any Revolving Commitment or any Term Loan Commitment, or the portion of the aggregate outstanding principal amount of the Revolving Loans or the Term Loans, of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender’s obligation to make a Loan requested hereunder or purchase a participation required hereby.
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(b) Availability of Funds.
(i) Funding by Lenders; Presumption by Agent. Unless the Agent shall have received notice from a Lender prior to the proposed date of any Borrowing (or, in the case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will not make available to the Agent such Lender’s share of such Borrowing, the Agent may assume that such Lender has made such share available on such date in accordance with Section 2.1(c) or, in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.1(c) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Agent, then the applicable Lender and the Borrower severally agree to pay to the Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Agent in accordance with banking industry rules on interbank compensation and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans, plus, in either case, any administrative, processing or similar fees customarily charged by the Agent in connection therewith. If the Borrower and such Lender shall pay such interest to the Agent for the same or an overlapping period, the Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Agent, then the amount so paid shall constitute such Lender’s Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Agent.
(ii) Payments by the Borrower; Presumptions by Agent. Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Agent forthwith on demand the amount so distributed to such Lender or the Issuing Bank, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Agent, at the greater of the Federal Funds Rate and a rate determined by the Agent in accordance with banking industry rules on interbank compensation.
Notices given by the Agent under this Section 2.4(b) shall be conclusive absent manifest error.
Section 2.5 Evidence of Debt; Register; Lenders’ Books and Records; Notes.
(a) Lenders’ Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Obligations of the Borrower and each other Credit Party to such Lender, including the amounts of the Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on the Borrower, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect any Lender’s Commitment or the Borrower’s obligations in respect of any applicable Loans; and provided, further, in the event of any inconsistency between the Register and any Lender’s records, the recordations in the Register shall govern in the absence of demonstrable error therein.
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(b) Notes. The Borrower shall execute and deliver to each (i) Lender on the Effective Date, (ii) Person who is a permitted assignee of such Lender pursuant to Section 12.5 and (iii) Person who becomes a Lender in accordance with Section 2.1(d), in each case to the extent requested by such Person, a Note or Notes to evidence such Person’s portion of the Revolving Loans, Swingline Loans or Term Loans, as applicable.
Section 2.6 Scheduled Principal Payments.
(a) Revolving Loans. The principal amount of Revolving Loans is due and payable in full on the Revolving Commitment Termination Date.
(b) Swingline Loans. The principal amount of the Swingline Loans is due and payable in full on the earlier to occur of (i) the date of demand by the Swingline Lender and (ii) the Revolving Commitment Termination Date.
(c) Term Loans.
(i) The principal amount of the Term Loan A shall be repaid in installments on the date and in the amounts set forth in the table below, as such installments may hereafter be adjusted as a result of prepayments made pursuant to Section 2.11, unless accelerated sooner pursuant to Section 10:
| Quarterly Payment Dates |
Quarterly Principal Amortization Payments | |
| June 30, 2018 and the last day of each calendar quarter thereafter through and including March 31, 2020 |
1.25% of the original principal amount of the Term Loan A | |
| June 30, 2020 and the last day of each calendar quarter thereafter through and including March 31, 2022 |
1.875% of the original principal amount of the Term Loan A | |
| June 30, 2022 and the last day of each calendar quarter thereafter through and including March 31, 2027 | 2.50% of the original principal amount of the Term Loan A | |
| Term Loan A Maturity Date |
Outstanding principal balance of Term Loan A |
(ii) The principal amount of the Sixth Amendment Term Loan A shall be repaid in installments on the date and in the amounts set forth in the table below, as such installments may hereafter be adjusted as a result of prepayments made pursuant to Section 2.11, unless accelerated sooner pursuant to Section 10:
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| Quarterly Payment Dates |
Quarterly Principal Amortization Payments | |
| June 30, 2024 and the last day of each calendar quarter thereafter through and including March 31, 2027 | 2.50% of the original principal amount of the Sixth Amendment Term Loan A | |
| Term Loan A Maturity Date |
Outstanding principal balance of Sixth Amendment Term Loan A |
(d) Additional Term Loans. The principal amount of any Term Loan established after the Effective Date pursuant to Section 2.1(d)(iii) shall be repaid in installments on the dates and in the amounts set forth in the documents executed and delivered by the Borrower pursuant to which such additional Term Loan is established.
Section 2.7 Interest on Loans.
(a) Except as otherwise set forth herein, each Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:
(i) in the case of Revolving Loans, the Term Loan A or the Sixth Amendment Term Loan A:
(A) if a Base Rate Loan (including a Base Rate Loan referencing the Adjusted Term SOFR Rate), the Base Rate plus the Applicable Margin; or
(B) if a Term SOFR Rate Loan, the Adjusted Term SOFR Rate plus the Applicable Margin; and
(ii) in the case of Swingline Loans, at the Swingline Rate;
(iii) in the case of any Term Loan established pursuant to Section 2.1(d)(iii), at the percentages per annum specified in the lender joinder agreement(s) and/or the commitment agreement(s) whereby such Term Loan is established.
(b) The basis for determining the rate of interest with respect to any Loan (except a Swingline Loan, which may only be made and maintained at the Swingline Rate (unless and until converted into a Revolving Loan pursuant to the terms and conditions hereof)), and the Interest Period with respect to any Adjusted Term SOFR Rate Loan, shall be selected by the Borrower and notified to the Agent and the Lenders pursuant to the applicable Funding Notice or Conversion/Continuation Notice, as the case may be. If on any day a Loan is outstanding with respect to which a Funding Notice or Conversion/Continuation Notice has not been delivered to the Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day (i) if such Loan is a Term SOFR Rate Loan, such Loan shall become a Base Rate Loan and (ii) if such Loan is a Base Rate Loan, such Loan shall remain a Base Rate Loan.
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(c) In connection with Term SOFR Rate Loans, there shall be no more than six (6) Interest Periods outstanding at any time. In the event the Borrower fails to specify between a Base Rate Loan or a Term SOFR Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, such Loan (i) if outstanding as a Term SOFR Rate Loan, will be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Loan, and (ii) if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. In the event the Borrower fails to specify an Interest Period for any Term SOFR Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, the Borrower shall be deemed to have selected an Interest Period of one (1) month. As soon as practicable after 10:00 a.m. on each Interest Rate Determination Date, the Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to each of the Term SOFR Rate Loans for which an interest rate is then being determined (and for the applicable Interest Period in the case of Term SOFR Rate Loans) and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and each Lender.
(d) Interest payable pursuant to this Section 2.7 shall be computed on the basis of (i) for interest at the Base Rate (including Base Rate Loans determined by reference to the Adjusted Term SOFR Rate), a year of three hundred sixty-five (365) or three hundred sixty-six (366) days, as the case may be, and (ii) for all other computations of fees and interest, a year of three hundred sixty (360) days, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Term SOFR Rate Loan, the date of conversion of such Term SOFR Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Term SOFR Rate Loan, the date of conversion of such Base Rate Loan to such Term SOFR Rate Loan, as the case may be, shall be excluded; provided, that if a Loan is repaid on the same day on which it is made, one (1) day’s interest shall be paid on that Loan.
(e) If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason, the Borrower or the Lenders determine that (i) the Consolidated Leverage Ratio as calculated by the Borrower as of any applicable date was inaccurate and (ii) a proper calculation of the Consolidated Leverage Ratio would have resulted in higher pricing for such period, the Borrower shall immediately and retroactively be obligated to pay to the Agent for the account of the Lenders promptly on demand by the Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code or other Debtor Relief Law, automatically and without further action by the Agent or any Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This Section 2.7(e) shall not limit the rights of the Agent or any Lender, as the case may be, under any other provision of this Agreement. The Borrower’s obligations under this paragraph shall survive the termination of the Commitments and the repayment of all other Obligations.
(f) Except as otherwise set forth herein, interest on each Loan shall accrue on a daily basis and shall be payable in arrears on and to (i) each Interest Payment Date applicable to that Loan; (ii) upon any prepayment of that Loan (other than a voluntary prepayment of a Revolving Loan or Term Loan which interest shall be payable in accordance with clause (i) above), to the extent accrued on the amount being prepaid; and (iii) at maturity, including final maturity.
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(g) The Borrower agrees to pay to the Issuing Bank, with respect to drawings honored under any Letter of Credit issued by the Issuing Bank, interest on the amount paid by the Issuing Bank in respect of each such honored drawing from the date such drawing is honored to but excluding the date such amount is reimbursed by or on behalf of the Borrower at a rate equal to (i) for the period from the date such drawing is honored to but excluding the applicable Reimbursement Date, the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Base Rate Loans, and (ii) thereafter, a rate which is the lesser of (y) two percent (2%) per annum in excess of the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Base Rate Loans, and (z) the Highest Lawful Rate.
(h) Interest payable pursuant to Section 2.7(g) shall be computed on the basis of a year of three hundred sixty-five (365) or three hundred sixty-six (366) days, as the case may be, for the actual number of days elapsed in the period during which it accrues, and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. Promptly upon receipt by the Issuing Bank of any payment of interest pursuant to Section 2.7(g), the Issuing Bank shall distribute to each Lender, out of the interest received by the Issuing Bank in respect of the period from the date such drawing is honored to but excluding the date on which the Issuing Bank is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of any Revolving Loans), the amount that such Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period if no drawing had been honored under such Letter of Credit. In the event the Issuing Bank shall have been reimbursed by the Lenders for all or any portion of such honored drawing, the Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under Section 2.3(e) with respect to such honored drawing such Lender’s Revolving Commitment Percentage of any interest received by the Issuing Bank in respect of that portion of such honored drawing so reimbursed by the Lenders for the period from the date on which the Issuing Bank was so reimbursed by the Lenders to but excluding the date on which such portion of such honored drawing is reimbursed by the Borrower.
Section 2.8 Conversion/Continuation.
(a) So long as no Default or Event of Default shall have occurred and then be continuing or would result therefrom, the Borrower shall have the option:
(i) to convert at any time all or any part of any Loan equal to $100,000 and integral multiples of $50,000 in excess of that amount from one Type of Loan to another Type of Loan; provided, a Term SOFR Rate Loan may only be converted on the expiration of the Interest Period applicable to such Term SOFR Rate Loan unless the Borrower shall pay all amounts due under Section 3.1(c) in connection with any such conversion; or
(ii) upon the expiration of any Interest Period applicable to any Term SOFR Rate Loan, to continue all or any portion of such Loan as a Term SOFR Rate Loan.
(b) The Borrower shall deliver a Conversion/Continuation Notice to the Agent no later than 1:00 p.m. at least three (3) U.S. Government Securities Business Days in advance of the proposed Conversion/Continuation Date. Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any Term SOFR Rate Loans (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to effect a conversion or continuation in accordance therewith.
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Section 2.9 Default Rate of Interest.
(a) If any amount of principal of any Loan is not paid when due, whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by Applicable Laws.
(b) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (after the expiration of any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then at the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by Applicable Laws.
(c) During the continuance of an Event of Default under Section 10.1(g) or Section 10.1(h), the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by Applicable Laws.
(d) During the continuance of an Event of Default other than an Event of Default under Section 10.1(g) or Section 10.1(h), the Borrower shall, at the request of the Required Lenders, pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by Applicable Laws.
(e) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.
(f) In the case of any Term SOFR Rate Loan, upon the expiration of the Interest Period in effect at the time the Default Rate of interest is effective, each such Term SOFR Rate Loan shall thereupon become a Base Rate Loan and shall thereafter bear interest at the Default Rate then in effect for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.9 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Agent or any Lender.
Section 2.10 Fees.
(a) Revolving Commitment Fee. The Borrower shall pay to the Agent for the account of each Lender in accordance with its Revolving Commitment Percentage, a fee (the “Revolving Commitment Fee”) equal to the Applicable Commitment Fee times the actual daily amount by which the Aggregate Revolving Commitments exceeds the Total Revolving Outstandings, subject to adjustments as provided in Section 2.16 and in the definition of Applicable Commitment Fee. The Revolving Commitment Fee shall accrue at all times during the Revolving Commitment Period, including at any time during which one or more of the conditions in Section 6 is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Effective Date, and on the Revolving Commitment Termination Date; provided that (1) no Revolving Commitment Fee shall accrue on any of the Revolving Commitment of a Defaulting Lender so long as such Lender shall be a Defaulting Lender and (2) any Revolving Commitment Fee accrued with respect to the Revolving Commitment of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender. The Revolving Commitment Fee shall be calculated quarterly in arrears. For purposes hereof, Swingline Loans shall not be counted toward or be considered as usage of the Aggregate Revolving Commitments.
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(b) Letter of Credit Fees.
(i) General Letter of Credit Fees. The Borrower shall pay to the Agent for the account of each Lender in accordance with its Revolving Commitment Percentage a Letter of Credit fee for each Letter of Credit equal to the Applicable Margin multiplied by the daily maximum amount available to be drawn under such Letter of Credit (collectively, the “Letter of Credit Fees”). For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.3(i). The Letter of Credit Fees shall be computed on a quarterly basis in arrears, and shall be due and payable on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the expiration date thereof and thereafter on demand; provided that (1) no Letter of Credit Fees shall accrue in favor of a Defaulting Lender so long as such Lender shall be a Defaulting Lender and (2) any Letter of Credit Fees accrued in favor of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender. If there is any change in the Applicable Margin during any quarter, the daily maximum amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Margin separately for each period during such quarter that such Applicable Margin was in effect. Notwithstanding anything to the contrary contained herein, during the continuance of an Event of Default under Sections 10.1(g) and (h), all Letter of Credit Fees shall accrue at the Default Rate, and during the continuance of an Event of Default other than an Event of Default under Sections 10.1(g) or (h), then upon the request of the Required Lenders, all Letter of Credit Fees shall accrue at the Default Rate.
(ii) Fronting Fee and Documentary and Processing Charges Payable to the Issuing Bank. The Borrower shall pay directly to the Issuing Bank for its own account a fronting fee with respect to each Letter of Credit, at the rate per annum specified in the Fee Letter, computed on the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears. Such fronting fee shall be due and payable on the last Business Day of each March, June, September and December in respect of the most recently-ended quarterly period (or portion thereof, in the case of the first payment), commencing with the first such date to occur after the issuance of such Letter of Credit, on its expiration date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.3(i). In addition, the Borrower shall pay directly to the Issuing Bank for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Issuing Bank relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
(c) Other Fees. The Borrower shall pay (i) to Regions Capital Markets, a division of Regions Bank, and the Agent for their own respective accounts fees in the amounts and at the times specified in the Fee Letter and (ii) to each of the Lenders for their own respective accounts fees in the amounts and at the times specified in the Sixth Amendment Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever, except to the extent set forth in the Fee Letter or the Sixth Amendment Fee Letter, as applicable.
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Section 2.11 Prepayments/Commitment Reductions.
(a) Voluntary Prepayments.
(i) Any time and from time to time, the Loans may be repaid in whole or in part without premium or penalty (subject to Section 3.1(c)):
(A) with respect to Base Rate Loans (including Base Rate Loans referencing the Adjusted Term SOFR Rate), the Borrower may prepay any such Loans on any Business Day in whole or in part, in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount;
(B) with respect to Term SOFR Rate Loans, the Borrower may prepay any such Loans on any Business Day in whole or in part (together with any amounts due pursuant to Section 3.1(c)) in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount; and
(C) with respect to Swingline Loans, the Borrower may prepay any such Loans on any Business Day in whole or in part in any amount;
(ii) All such prepayments shall be made:
(A) upon written or telephonic notice on the date of prepayment in the case of Base Rate Loans or Swingline Loans; and
(B) upon not less than three (3) U.S. Government Securities Business Days’ prior written or telephonic notice in the case of Term SOFR Rate Loans;
in each case given to the Agent, or the Swingline Lender, as the case may be, by 11:00 a.m. on the date required and, if given by telephone, promptly confirmed in writing to the Agent (and the Agent will promptly transmit such telephonic or original notice for a Credit Extension by telefacsimile or telephone to each Lender). Upon the giving of any such notice, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in Section 2.12(a).
(b) Voluntary Commitment Reductions.
(i) The Borrower may, from time to time upon not less than three (3) Business Days’ prior written or telephonic notice confirmed in writing to the Agent (which original written or telephonic notice the Agent will promptly transmit by telefacsimile or telephone to each applicable Lender), at any time and from time to time terminate in whole or permanently reduce in part (i) the Revolving Commitments (ratably among the Lenders in accordance with their respective commitment percentage thereof); provided, (A) any such partial reduction of the Revolving Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount, (B) the Borrower shall not terminate or reduce the Aggregate Revolving Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the aggregate Total Revolving Outstandings exceed the Aggregate Revolving Commitments, (C) if, after giving effect to any reduction of the Aggregate Revolving Commitments, the Letter of Credit Sublimit and/or the Swingline Sublimit exceed the amount of the Aggregate Revolving Commitments, the Letter of Credit Sublimit and/or the Swingline Sublimit, as applicable, shall be automatically reduced by the amount of such excess, and (D) the Aggregate Revolving Commitments shall not be reduced below $7,500,000 unless concurrently therewith they are terminated in whole and all Obligations are paid in full in cash or, in the case of Letters of Credit, Cash Collateralized in the amount of 105% of the issued and outstanding amount of such Letters of Credit.
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(ii) The Borrower’s notice to the Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Commitments shall be effective on the date specified in the Borrower’s notice and shall reduce the Revolving Commitments of each Lender proportionately to its Revolving Commitment Percentage thereof.
(c) Mandatory Prepayments.
(i) Revolving Commitments. If at any time (A) the Total Revolving Outstandings shall exceed the Aggregate Revolving Commitments, (B) the Outstanding Amount of Letter of Credit Obligations shall exceed the Letter of Credit Sublimit, or (C) the Outstanding Amount of Swingline Loans shall exceed the Swingline Sublimit, immediate prepayment will be made on or in respect of the Revolving Obligations in an amount equal to such excess; provided, that, except with respect to clause (B), Letter of Credit Obligations will not be Cash Collateralized hereunder until the Revolving Loans and Swingline Loans have been paid in full.
(ii) Asset Sales and Involuntary Dispositions. Prepayment will be made on the Obligations on the Business Day following receipt of Net Cash Proceeds required to be prepaid pursuant to the provisions hereof in an amount equal to one hundred percent (100%) of the Net Cash Proceeds in excess of $1,000,000 during any Fiscal Year received from any Asset Sale or Involuntary Disposition by any Credit Party; provided that such Credit Party may reinvest such Net Cash Proceeds in assets used or useful in such Credit Party’s business, so long as (i) such reinvestment occurs within 180 days after the date of receipt of such Net Cash Proceeds (or if, within such 180 day period, such Credit Party enters into a legally binding commitment to reinvest such Net Cash Proceeds, such reinvestment occurs within 360 days after the date of receipt of such Net Cash Proceeds) (or, in each case, such longer period of time agreed to in writing by the Agent in its sole discretion), (ii) until such reinvestment is completed, all of such Net Cash Proceeds shall be on deposit at a Deposit Account over which the Agent has Control, and (iii) no Default or Event of Default exists or is caused by such Asset Sale or Involuntary Disposition. If an Event of Default occurs pursuant to which the Agent exercises its rights to accelerate the Obligations as provided in Section 10.2 or the Obligations are automatically accelerated or such reinvestment is not completed within the timeframe set forth in the immediately preceding sentence (or such longer period of time agreed to in writing by the Agent in its sole discretion), the Agent may require such Credit Party to immediately apply all of such Net Cash Proceeds to the Obligations, regardless of any other prior agreement regarding the disposition of such Net Cash Proceeds.
(iii) Debt Transactions. Prepayment will be made on the Obligations in an amount equal to one hundred percent (100%) of the Net Cash Proceeds from any Debt Transactions on the Business Day following receipt thereof.
(iv) Equity Transactions. Prepayment will be made on the Obligations in an amount equal to fifty percent (50%) of the Net Cash Proceeds from any Equity Transactions (other than a Qualifying IPO) by the Borrower on the Business Day following receipt thereof.
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(v) [reserved].
(vi) Termination of Revolver. The Borrower shall repay the Term Loans in full on the date on which the Revolving Commitments terminate. The coming due of the Revolving Loans and the termination of the Revolving Commitments shall cause the Term Loans to become immediately due and payable, in full, without prior notice or demand.
Section 2.12 Application of Prepayments. Within each Loan, prepayments will be applied first to Base Rate Loans, then to Term SOFR Rate Loans in direct order of Interest Period maturities. In addition:
(a) Voluntary Prepayments. Voluntary prepayments will be applied as specified by the Borrower; provided that in the case of prepayments on the Term Loans, (i) the prepayment will be applied ratably to the Term Loans then outstanding and (ii) with respect to each Term Loan then outstanding, the prepayments will be applied to remaining principal installments thereunder (including the principal installment to be paid on the applicable Maturity Date) on a pro rata basis.
(b) Mandatory Prepayments. Mandatory prepayments will be applied as follows:
(i) Mandatory prepayments in respect of the Revolving Commitments under Section 2.11(c)(i) above shall be applied to the respective Revolving Obligations as appropriate but without a permanent reduction thereof.
(ii) Mandatory prepayments in respect of Asset Sales and Involuntary Dispositions under Section 2.11(c)(ii) above, Debt Transactions under Section 2.11(c)(iii) and Equity Transactions under Section 2.11(c)(iv) shall be applied as follows: first, ratably to the Term Loans, until paid in full, and then to the Revolving Obligations without a permanent reduction thereof. Mandatory prepayments with respect to each of the Term Loans will be applied to remaining principal installments (including the principal installment to be paid on the applicable Maturity Date) thereunder in inverse order of maturity.
Prepayments on the Obligations will be paid by the Agent to the Lenders ratably in accordance with their respective interests therein (except for Defaulting Lenders where their share will be applied as provided in Section 2.16(a)(ii) hereof).
Section 2.13 General Provisions Regarding Payments.
(a) All payments by the Borrower of principal, interest, fees and other Obligations hereunder or under any other Loan Document shall be made in Dollars in immediately available funds, without defense, recoupment, setoff or counterclaim, free of any restriction or condition. The Agent shall, and the Borrower hereby authorizes the Agent to, debit a Deposit Account of any Credit Party held with the Agent or any of its Affiliates and designated for such purpose by such Credit Party in order to cause timely payment to be made to the Agent of all principal, interest and fees due hereunder or under any other Loan Document (subject to sufficient funds being available in its accounts for that purpose).
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(b) In the event that the Agent is unable to debit a Deposit Account of a Credit Party held with the Agent or any of its Affiliates in order to cause timely payment to be made to the Agent of all principal, interest and fees due hereunder or any other Loan Document (including because insufficient funds are available in its accounts for that purpose), payments hereunder and under any other Loan Document shall be delivered to the Agent, for the account of the Lenders, not later than 2:00 p.m. on the date due at the Principal Office of the Agent or via wire transfer of immediately available funds to an account designated by the Agent (or at such other location as may be designated in writing by the Agent from time to time); for purposes of computing interest and fees, funds received by the Agent after that time on such due date shall be deemed to have been paid by the Borrower on the next Business Day.
(c) All payments in respect of the principal amount of any Loan (other than voluntary repayments of Revolving Loans) shall be accompanied by payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest then due and payable before application to principal.
(d) The Agent shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender’s applicable pro rata share of all payments and prepayments of principal and interest due to such Lender hereunder, together with all other amounts due with respect thereto, including all fees payable with respect thereto, to the extent received by the Agent.
(e) Notwithstanding the foregoing provisions hereof, if any Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its pro rata share of any Term SOFR Rate Loans, the Agent shall give effect thereto in apportioning payments received thereafter.
(f) Subject to the provisos set forth in the definition of “Interest Period,” whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the Revolving Commitment Fee hereunder, but such payment shall be deemed to have been made on the date therefor for all other purposes hereunder.
(g) The Agent may, but shall not be obligated to, deem any payment by or on behalf of the Borrower hereunder that is not made in same day funds prior to 2:00 p.m. to be a non-conforming payment. Any such payment shall not be deemed to have been received by the Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. The Agent shall give prompt telephonic notice to the Borrower and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 10.1(a). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the Default Rate (unless otherwise provided by the Required Lenders) from the date such amount was due and payable until the date such amount is paid in full.
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Section 2.14 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or other obligations hereunder resulting in such Lender receiving payment of a proportion of the aggregate amount of such Loans and accrued interest thereon or other such obligations greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them; provided that:
(i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(ii) the provisions of this Section 2.14 shall not be construed to apply to (A) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), (B) any amounts applied by the Swingline Lender to outstanding Swingline Loans, (C) any amounts applied to Letter of Credit Obligations by the Issuing Bank or Swingline Loans by the Swingline Lender, as appropriate, from Cash Collateral provided under Section 2.15 or Section 2.16, or (D) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in Letter of Credit Obligations, Swingline Loans or other obligations hereunder to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section 2.14 shall apply).
Each of the Credit Parties consents to the foregoing and agrees, to the extent it may effectively do so under Applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Credit Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Credit Party in the amount of such participation.
Section 2.15 Cash Collateral. At any time that there shall exist a Defaulting Lender, within one (1) Business Day following the written request of the Agent or the Issuing Bank (with a copy to the Agent) or Swingline Lender (with a copy to the Agent) the Borrower shall Cash Collateralize the Issuing Bank’s and Swingline Lender’s Fronting Exposure with respect to such Defaulting Lender in an amount sufficient to cover the applicable Fronting Exposure (after giving effect to Section 2.16(a)(iv) and any Cash Collateral provided by the Defaulting Lender).
(a) Grant of Security Interest. The Borrower, and to the extent provided by any Defaulting Lender, such Defaulting Lender, hereby grant to the Agent, for the benefit of the Issuing Bank and Swingline Lender, and agree to maintain, a perfected first priority security interest in all such Cash Collateral as security for the Defaulting Lenders’ obligation to fund participations in respect of Letter of Credit Obligations and Swingline Loans, to be applied pursuant to clause (b) below. If at any time the Agent determines that Cash Collateral is subject to any right or claim of any Person (other than the Agent, the Issuing Bank and Swingline Lender as herein provided), or that the total amount of such Cash Collateral is less than the applicable Fronting Exposure, the Borrower will, promptly upon demand by the Agent, pay or provide to the Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency (after giving effect to any Cash Collateral provided by the Defaulting Lender).
(b) Application. Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under this Section 2.15 or Section 2.16 in respect of Letters of Credit or Swingline Loans shall be applied to the satisfaction of the Defaulting Lender’s obligation to fund participations in respect of Letter of Credit Obligations and Swingline Loans, as applicable (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) for which the Cash Collateral was so provided, prior to any other application of such property as may otherwise be provided for herein.
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(c) Termination of Requirement. Cash Collateral (or the appropriate portion thereof) provided to reduce the Issuing Bank’s or Swingline Lender’s Fronting Exposure shall no longer be required to be held as Cash Collateral pursuant to this Section 2.15 following (i) the elimination of the applicable Fronting Exposure (including by the termination of Defaulting Lender status of the applicable Lender), or (ii) the determination by the Agent and the Issuing Bank and Swingline Lender that there exists excess Cash Collateral; provided, however, (x) that Cash Collateral furnished by or on behalf of a Credit Party shall not be released during the continuance of a Default or Event of Default (and following application as provided in this Section 2.15 may be otherwise applied in accordance with Section 10.3) but shall be released upon the cure, termination or waiver of such Default or Event of Default in accordance with the terms of this Agreement, and (y) the Person providing Cash Collateral and the Issuing Bank or Swingline Lender, as applicable, may agree that Cash Collateral shall not be released but instead held to support future anticipated Fronting Exposure or other obligations.
Section 2.16 Defaulting Lenders.
(a) Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by Applicable Law:
(i) Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in Section 12.4(a)(iii).
(ii) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amount (other than fees which any Defaulting Lender is not entitled to receive pursuant to Section 2.16(a)(iii)) received by the Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Section 10 or otherwise, and including any amounts made available to the Agent by that Defaulting Lender pursuant to Section 12.3), shall be applied at such time or times as may be determined by the Agent as follows: first, to the payment of any amounts owing by that Defaulting Lender to the Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by that Defaulting Lender to the Issuing Bank or the Swingline Lender hereunder; third, to Cash Collateralize the Issuing Bank’s and Swingline Lender’s Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.15; fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which that Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Agent; fifth, if so determined by the Agent and the Borrower, to be held in a non-interest bearing Deposit Account and released in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the Issuing Bank’s future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.15; sixth, to the payment of any amounts owing to the Lenders, the Issuing Bank or the Swingline Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, the Issuing Bank or the Swingline Lender against that Defaulting Lender as a result of that Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against that Defaulting Lender as a result of that Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to that Defaulting Lender or as otherwise directed by a court
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of competent jurisdiction; provided, that, if (x) such payment is a payment of the principal amount of any Loans or Letter of Credit Borrowings in respect of which that Defaulting Lender has not fully funded its appropriate share and (y) such Loans or Letter of Credit Borrowings were made at a time when the conditions set forth in Section 6.2 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and Letter of Credit Borrowings owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or Letter of Credit Borrowings owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in Letter of Credit Obligations and Swingline Loans are held by the Lenders pro rata in accordance with their Revolving Commitments without giving effect to Section 2.16(a)(iv). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.16(a)(ii) shall be deemed paid to (and the underlying obligations satisfied to the extent of such payment) and redirected by that Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees.
(A) Such Defaulting Lender shall not be entitled to receive any Revolving Commitment Fee, any fees with respect to Letters of Credit (except as provided in clause (b) below) or any other fees hereunder for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(B) Each Defaulting Lender shall be entitled to receive Letter of Credit Fees for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Revolving Commitment Percentage of the stated amount of Letters of Credit for which it has provided Cash Collateral pursuant to Section 2.15.
(C) With respect to any fee not required to be paid to any Defaulting Lender pursuant to clause (A) or (B) above, the Borrower shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in Letter of Credit Obligations or Swingline Loans that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below, (y) pay to the Issuing Bank and Swingline Lender, as applicable, the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to the Issuing Bank’s or Swingline Lender’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
(iv) Reallocation of Participations to Reduce Fronting Exposure. All or any part of such Defaulting Lender’s participation in Letter of Credit Obligations and Swingline Loans shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Revolving Commitment Percentages (calculated without regard to such Defaulting Lender’s Revolving Commitment) but only to the extent that (x) the conditions set forth in Section 6.2 are satisfied at the time of such reallocation (and, unless the Borrower shall have otherwise notified the Agent at such time, the Borrower shall be deemed to have represented and warranted that such conditions are satisfied at such time), and (y) such reallocation does not cause the aggregate Revolving Credit Exposure at such
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time to exceed such Non-Defaulting Lender’s Revolving Commitment. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(v) Cash Collateral, Repayment of Swingline Loans. If the reallocation described in clause (iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under law, (x) first, prepay Swingline Loans in an amount equal to the Swingline Lender’s Fronting Exposure and (y) second, Cash Collateralize the Issuing Bank’s Fronting Exposure in accordance with the procedures set forth in Section 2.15.
(b) Defaulting Lender Cure. If the Borrower, the Agent and the Swingline Lender and the Issuing Bank agree in writing that a Lender is no longer a Defaulting Lender, the Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swingline Loans to be held pro rata by the Lenders in accordance with the Revolving Commitments (without giving effect to Section 2.16(a)(iv)), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
(c) New Swingline Loans/Letters of Credit. So long as any Lender is a Defaulting Lender, (i) the Swingline Lender shall not be required to fund Swingline Loans unless it is satisfied that it will have no Fronting Exposure after giving effect to such Swingline Loan, and (ii) the Issuing Bank shall not be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.
Section 2.17 Removal or Replacement of Lenders. If (a) any Lender requests compensation under Section 3.2, (b) any Credit Party is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.3, (c) any Lender gives notice of an inability to fund Term SOFR Rate Loans under Section 3.1(b)(i), (d) any Lender is a Defaulting Lender, or (e) any Lender (a “Non-Consenting Lender”) does not consent (including by way of a failure to respond in writing to a proposed amendment, consent or waiver by the date and time specified by the Agent) to a proposed amendment, consent, change, waiver, discharge or termination hereunder or with respect to any Loan Document that has been approved by the Required Lenders or implemented pursuant to Section 3.1(b)(ii), then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Agent, require such Lender to assign and delegate without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 12.5, all of its interests, rights (other than its rights under Section 3.2, Section 3.3 and Section 12.2) and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment)), provided that:
(i) the Borrower shall have paid to the Agent the assignment fee specified in Section 12.5(b)(iv);
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(ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in Letter of Credit Borrowings, as applicable, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.1(c)) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(iii) in the case of any such assignment resulting from a claim for compensation under Section 3.2 or payments required to be made pursuant to Section 3.3, such assignment is reasonably expected to result in a reduction in such compensation or payments thereafter;
(iv) such assignment does not conflict with Applicable Law; and
(v) in the case of any such assignment resulting from a Non-Consenting Lender’s failure to consent to a proposed amendment, consent, change, waiver, discharge or termination, the successor replacement Lender shall have consented to the proposed amendment, consent, change, waiver, discharge or termination.
Each Lender agrees that in the event it, or its interests in the Loans and obligations hereunder, shall become subject to the replacement and removal provisions of this Section 2.17, it will cooperate with the Borrower and the Agent to give effect to the provisions hereof, including execution and delivery of an Assignment Agreement in connection therewith, but the replacement and removal provisions of this Section 2.17 shall be effective regardless of whether an Assignment Agreement shall have been given.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
SECTION 3. YIELD PROTECTION
Section 3.1 Making or Maintaining Interest Rates.
(a) Inability to Determine Applicable Interest Rate. Notwithstanding anything to the contrary in this Agreement or any Loan Document, in the event that the Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Term SOFR Rate Loans, that reasonable and adequate means do not exist for ascertaining the interest rate applicable to such Term SOFR Rate Loans on the basis provided for in the definition of SOFR or Term SOFR, the Agent shall give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Term SOFR Rate Loans until such time as the Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (ii) any Funding Notice or Conversion/Continuation Notice given by the Borrower with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by the Borrower and (iii) all such Loans described in clause (ii) hereof shall be automatically made or continued as, or converted to, as applicable, Base Rate Loans on the last day of the then current Interest Period applicable thereto without reference to the Adjusted Term SOFR Rate component of the Base Rate, unless the Borrower prepays such Loans in accordance with this Agreement. If the circumstances described in this Section 3.1(a) occur but only with respect to limited, but not all, tenors of the then applicable term rate Benchmark (including Term SOFR), then (x) the Agent may modify the definition of
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“Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such illegal or impracticable tenor and (y) if a tenor that was removed pursuant to clause (x) of this sentence is subsequently displayed on a screen or information service for a Benchmark, then the Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(b) Illegality or Impracticability of Benchmark.
(i) Subject to Section 3.1(b)(ii), in the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after notice to and consultation with the Borrower and the Agent) that a Benchmark Illegality/Impracticability Event has occurred with respect to such Lender, such Lender shall be an “Affected Lender” and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and the Agent of such determination (which notice the Agent shall promptly transmit to each other Lender). Thereafter (1) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Term SOFR Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (2) to the extent such determination by the Affected Lender relates to a Term SOFR Rate Loan then being requested by the Borrower pursuant to a Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall make such Loan as (or continue such Loan as or convert such Loan to, as the case may be) a Base Rate Loan without reference to the Adjusted Term SOFR Rate (or other then-current Benchmark) component of the Base Rate, (3) the Affected Lender’s obligation to maintain its outstanding Term SOFR Rate Loans (the “Affected Loans”) shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (4) the Affected Loans shall automatically convert into Base Rate Loans without reference to the Adjusted Term SOFR Rate (or other then-current Benchmark) component of the Base Rate on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Term SOFR Rate Loan then being requested by the Borrower pursuant to a Funding Notice or a Conversion/Continuation Notice, the Borrower shall have the option, subject to the provisions of Section 3.1(a), to rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to the Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission the Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 3.1(b)(i) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Term SOFR Rate Loans in accordance with the terms hereof. If a Benchmark Illegality/Impracticability Event occurs but only with respect to limited, but not all, tenors of the then applicable term rate Benchmark (including Term SOFR), then (x) the Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such illegal or impracticable tenor and (y) if a tenor that was removed pursuant to clause (x) of this sentence is not, or is no longer, subject to a Benchmark Illegality/Impracticability Event, then the Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor.
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(ii) Notwithstanding anything to the contrary in this Agreement or any other Loan Document, if the Agent determines (which determination shall be conclusive absent manifest error), or the Required Lenders notify the Agent (with, in the case of the Required Lenders, a copy to the Borrower) that the Required Lenders (as applicable) have determined, that a Benchmark Illegality/Impracticability Event has occurred, then, on a date and time determined by the Agent (any such date, the “Benchmark Replacement Date”), which date shall be at the end of an Interest Period or on the relevant Interest Payment Date, as applicable, for interest calculated, the then current Benchmark will be replaced hereunder and under any other Loan Document with the Benchmark Replacement.
Notwithstanding anything to the contrary in this Agreement or any other Loan Document, (x) if the Agent determines that the alternative set forth in the definition of Benchmark Replacement is not available on or prior to the Benchmark Replacement Date or (y) a Benchmark Illegality/Impracticability Event has occurred with respect to the non-Term SOFR Benchmark Replacement then in effect, then in each case, the Agent and the Borrower may amend this Agreement solely for the purpose of replacing Term SOFR or any then current Benchmark Replacement in accordance with this Section 3.1 at the end of any Interest Period, relevant Interest Payment Date or payment period for interest calculated, as applicable, with another alternate benchmark rate giving due consideration to any evolving or then existing convention for similar Dollar denominated syndicated credit facilities for such alternative benchmarks and, in each case, including any mathematical or other adjustments to such benchmark giving due consideration to any evolving or then existing convention for similar Dollar denominated syndicated credit facilities for such benchmarks, which adjustment or method for calculating such adjustment shall be published on an information service as selected by the Agent from time to time in its reasonable discretion and may be periodically updated. For the avoidance of doubt, any such proposed rate and adjustments shall constitute a Benchmark Replacement. Any such amendment shall become effective at 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date the Agent shall have posted such proposed amendment to all Lenders and the Borrower without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders.
The Agent will notify (in one or more notices) the Borrower and each Lender of the implementation of any Benchmark Replacement.
Any Benchmark Replacement shall be applied in a manner consistent with market practice; provided, that, to the extent such market practice is not administratively feasible for the Agent, such Benchmark Replacement shall be applied in a manner as otherwise reasonably determined by the Agent. It is understood and agreed that interest shall be payable with respect to each Loan bearing interest at the Adjusted Daily Simple SOFR Rate on the last Business Day of each calendar quarter, the Revolving Commitment Termination Date, the Maturity Date and the final maturity date of any additional Term Loan established under Section 2.1(d)(iii).
Notwithstanding anything to the contrary in this Agreement or any other Loan Document, if at any time any Benchmark Replacement as so determined would otherwise be less than zero percent (0%), the Benchmark Replacement will be deemed to be zero percent (0%) for the purposes of this Agreement and the other Loan Documents.
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In connection with the implementation of a Benchmark Replacement, the Agent will have the right to make Benchmark Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Conforming Changes will become effective without any further action or consent of any other party to this Agreement; provided, that, with respect to any such amendment effected, the Agent shall post each such amendment implementing such Benchmark Conforming Changes to the Borrower and the Lenders reasonably promptly after such amendment becomes effective.
(iii) Any determination, decision or election that may be made by the Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 3.1(b)(ii), including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 3.1(b)(ii).
(c) Compensation for Breakage or Non-Commencement of Interest Periods. The Borrower shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable out-of-pocket losses, expenses and liabilities (including any interest paid or calculated to be due and payable by such Lender to lenders of funds borrowed by it to make or carry its Term SOFR Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits) which such Lender sustains: (i) if for any reason (other than a default by such Lender) a borrowing of any Term SOFR Rate Loans does not occur on a date specified therefor in a Funding Notice or a telephonic request for borrowing, or a conversion to or continuation of any Term SOFR Rate Loans does not occur on a date specified therefor in a Conversion/Continuation Notice or a telephonic request for conversion or continuation, (ii) if any prepayment or other principal payment of, or any conversion of, any of its Term SOFR Rate Loans occurs on any day other than the last day of an Interest Period applicable to that Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise), including as a result of an assignment in connection with the replacement of a Lender pursuant to Section 2.17; or (iii) if any prepayment of any of its Term SOFR Rate Loans is not made on any date specified in a notice of prepayment given by the Borrower.
(d) Booking of Term SOFR Rate Loans. Any Lender may make, carry or transfer Term SOFR Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender.
(e) Certificates for Reimbursement. A certificate of a Lender setting forth in reasonable detail the amount or amounts necessary to compensate such Lender, as specified in Section 3.1(c) and the circumstances giving rise thereto shall be delivered to the Borrower and shall be conclusive absent manifest error. In the absence of any such manifest error, the Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten (10) Business Days after receipt thereof.
(f) Delay in Requests. The Borrower shall not be required to compensate a Lender pursuant to this Section for any such amounts incurred more than six (6) months prior to the date that such Lender delivers to the Borrower the certificate referenced in Section 3.1(f).
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Section 3.2 Increased Costs.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender or the Issuing Bank;
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;
(iii) impose on any Lender or the Issuing Bank or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein; or
(iv) and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, converting to, continuing or maintaining any Loan or of maintaining its obligation to make any such Loan, or to increase the cost to such Lender, the Issuing Bank or such other Recipient of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender, the Issuing Bank or other Recipient hereunder (whether of principal, interest or any other amount)
then, upon request of such Lender, the Issuing Bank or other Recipient, the Borrower will pay to such Lender, the Issuing Bank or other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, the Issuing Bank or other Recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital and Liquidity Requirements. If any Lender, the Issuing Bank or the Swingline Lender (for purposes hereof, may be referred to collectively as “the Lenders” or a “Lender”) determines that any Change in Law affecting such Lender or any lending office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity ratios or requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the commitments of such Lender hereunder or the Loans made by, or participations in Letters of Credit and Swingline Loans held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender or the Issuing Bank setting forth in reasonable detail the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section 3.2 and the circumstances giving rise thereto shall be delivered to the Borrower and shall be conclusive absent manifest error. In the absence of any such manifest error, the Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten (10) Business Days after receipt thereof.
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(d) Delay in Requests. Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section 3.2 shall not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section 3.2 for any increased costs incurred or reductions suffered more than six (6) months prior to the date that such Lender or the Issuing Bank, as the case may be, delivers to the Borrower the certificate referenced in Section 3.2(c) and notifies the Borrower of such Lender’s or the Issuing Bank’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof).
Section 3.3 Taxes.
(a) Issuing Bank. For purposes of this Section 3.3, the term “Lender” shall include the Issuing Bank and the term “Applicable Law” shall include FATCA.
(b) Payments Free of Taxes; Obligation to Withhold; Payments on Account of Taxes. Any and all payments by or on account of any obligation of any Credit Party hereunder or under any other Loan Document shall be made without deduction or withholding for any Taxes, except as required by Applicable Law. If any Applicable Law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with Applicable Law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Credit Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 3.3) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(c) Payment of Other Taxes by the Credit Parties. The Credit Parties shall timely pay to the relevant Governmental Authority in accordance with Applicable Law, or at the option of the Agent timely reimburse it for the payment of, any Other Taxes.
(d) Tax Indemnification.
(i) The Credit Parties shall jointly and severally indemnify each Recipient and shall make payment in respect thereof within ten (10) Business Days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 3.3) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of any such payment or liability delivered to the Borrower by a Lender (with a copy to the Agent), or by the Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
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(ii) Each Lender shall severally indemnify the Agent within ten (10) Business Days after demand therefor, for (A) any Indemnified Taxes attributable to such Lender (but only to the extent that any Credit Party has not already indemnified the Agent for such Indemnified Taxes and without limiting the obligation of the Credit Parties to do so), (B) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 12.5(d) relating to the maintenance of a Participant Register and (C) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Agent to the Lender from any other source against any amount due to the Agent under this clause (ii).
(e) Evidence of Payments. As soon as practicable after any payment of Taxes by any Credit Party to a Governmental Authority pursuant to this Section 3.3, such Credit Party shall deliver to the Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of a return reporting such payment or other evidence of such payment reasonably satisfactory to the Agent.
(f) Status of Lenders; Tax Documentation. (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Agent, at the time or times reasonably requested by the Borrower or the Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Agent, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by the Borrower or the Agent as will enable the Borrower or the Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in clauses (ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
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(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Agent), whichever of the following is applicable:
(i) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN-E (or W-8BEN as applicable) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN-E (or W-8BEN as applicable) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(ii) executed originals of IRS Form W-8ECI;
(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Internal Revenue Code, (x) a certificate substantially in the form of Exhibit 3.3-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Internal Revenue Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN-E (or W-8BEN as applicable); or
(iv) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E (or W-8BEN as applicable), a U.S. Tax Compliance Certificate substantially in the form of Exhibit 3.3-2 or Exhibit 3.3-3, IRS Form W9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit 3.3-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Agent), executed originals of any other form prescribed by Applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by Applicable Law to permit the Borrower or the Agent to determine the withholding or deduction required to be made; and
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(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Internal Revenue Code, as applicable), such Lender shall deliver to the Borrower and the Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Agent such documentation prescribed by Applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue Code) and such additional documentation reasonably requested by the Borrower or the Agent as may be necessary for the Borrower and the Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Agent in writing of its legal inability to do so.
(g) Treatment of Certain Refunds. Unless required by Applicable Law, at no time shall the Agent have any obligation to file for or otherwise pursue on behalf of a Lender, or have any obligation to pay to any Lender, any refund of Taxes withheld or deducted from funds paid for the account of such Lender. If any indemnified party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 3.3 (including by the payment of additional amounts pursuant to this Section 3.3), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 3.3 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of the indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(h) Survival. Each party’s obligations under this Section 3.3 shall survive the resignation or replacement of the Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
Section 3.4 Mitigation Obligations; Designation of a Different Lending Office. If any Lender requests compensation under Section 3.2, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.3, then such Lender shall (at the request of the Borrower) use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations
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hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.2 or Section 3.3, as the case may be, in the future, and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
SECTION 4. GUARANTY
Section 4.1 The Guaranty. Each of the Guarantors hereby jointly and severally guarantees to the Agent, the Lenders, the Qualifying Swap Banks, the Qualifying Treasury Management Banks and the other holders of the Obligations as hereinafter provided, as primary obligor and not as surety, the prompt payment of the Obligations (the “Guaranteed Obligations”) in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory Cash Collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory Cash Collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory Cash Collateralization or otherwise) in accordance with the terms of such extension or renewal.
Notwithstanding any provision to the contrary contained herein, in any other of the Loan Documents, Swap Agreements, Treasury Management Agreements or other documents relating to the Obligations, (a) the obligations of each Guarantor under this Agreement and the other Loan Documents shall be limited to an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under the Debtor Relief Laws or any comparable provisions of any applicable state law and (b) the Guaranteed Obligations of a Guarantor shall exclude any Excluded Swap Obligations with respect to such Guarantor.
Section 4.2 Obligations Unconditional. The obligations of the Guarantors under Section 4.1 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan Documents, Swap Agreements or Treasury Management Agreements, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Obligations, and, to the fullest extent permitted by Applicable Law, irrespective of any law or regulation or other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor for amounts paid under this Section 4 until such time as the Obligations have been paid in full and the Commitments have expired or terminated. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder, which shall remain absolute and unconditional as described above:
(a) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived;
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(b) any of the acts mentioned in any of the provisions of any of the Loan Documents, any Swap Agreement between any Credit Party or any Subsidiary of a Credit Party and any Swap Provider, or any Treasury Management Agreement between any Credit Party or any Subsidiary of a Credit Party and any Treasury Management Bank, or any other agreement or instrument referred to in the Loan Documents, such Swap Agreements or such Treasury Management Agreements shall be done or omitted;
(c) the maturity of any of the Obligations shall be accelerated, or any of the Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Loan Documents, any Swap Agreement between any Credit Party or any Subsidiary of a Credit Party and any Swap Provider or any Treasury Management Agreement between any Credit Party or any Subsidiary of a Credit Party and any Treasury Management Bank, or any other agreement or instrument referred to in the Loan Documents, such Swap Agreements or such Treasury Management Agreements shall be waived or any other guarantee of any of the Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with;
(d) any Lien granted to, or in favor of, the Agent or any Lender or Lenders as security for any of the Obligations shall fail to attach or be perfected; or
(e) any of the Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Loan Documents, any Swap Agreement between any Credit Party or any Subsidiary of a Credit Party and any Swap Provider or any Treasury Management Agreement between any Credit Party or any Subsidiary of a Credit Party and any Treasury Management Bank, or any other agreement or instrument referred to in the Loan Documents, such Swap Agreements or such Treasury Management Agreements, or against any other Person under any other guarantee of, or security for, any of the Obligations. Without limiting the generality of any waivers in this Section 4, each Guarantor hereby waives all rights under Section 10-724 of the Official Code of Georgia Annotated, as amended, including any right to require the Agent or any Lender to proceed against the Borrower.
Section 4.3 Reinstatement. The obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, the fees, charges and disbursements of counsel) incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.
Section 4.4 Certain Additional Waivers. Each Guarantor agrees that such Guarantor shall have no right of recourse to security for the Obligations, except through the exercise of rights of subrogation pursuant to Section 4.2 and through the exercise of rights of contribution pursuant to Section 4.6.
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Section 4.5 Remedies. The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Agent and the Lenders, on the other hand, the Obligations may be declared to be forthwith due and payable as provided in Section 10.2 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 10.2) for purposes of Section 4.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Obligations being deemed to have become automatically due and payable), the Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of Section 4.1. The Guarantors acknowledge and agree that their obligations hereunder are secured in accordance with the terms of the Collateral Documents and that the Lenders may exercise their remedies thereunder in accordance with the terms thereof.
Section 4.6 Rights of Contribution. The Guarantors agree among themselves that, in connection with payments made hereunder, each Guarantor shall have contribution rights against the other Guarantors as permitted under Applicable Law. Such contribution rights shall be subordinate and subject in right of payment to the obligations of such Guarantors under the Loan Documents and no Guarantor shall exercise such rights of contribution until all Obligations have been paid in full and the Commitments have terminated.
Section 4.7 Guarantee of Payment; Continuing Guarantee. The guarantee in this Section 4 is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Obligations whenever arising.
Section 4.8 Keepwell. Each Qualified ECP Guarantor hereby jointly and severally absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each Specified Credit Party to honor all of such Specified Credit Party’s obligations under the Guaranty, the Collateral Documents and the other Loan Documents in respect of Swap Obligations (provided, however, that each Qualified ECP Guarantor shall only be liable under this Section 4.8 for the maximum amount of such liability that can be hereby incurred without rendering such Qualified ECP Guarantor’s obligations and undertakings under this Section 4, voidable under applicable Debtor Relief Laws, and not for any greater amount). The obligations and undertakings of each Qualified ECP Guarantor under this Section 4.8 shall remain in full force and effect until the Guaranteed Obligations have been indefeasibly paid and performed in full and the commitments relating thereto have expired or terminated, or, with respect to any Guarantor, if earlier, such Guarantor is released from its Guaranteed Obligations in accordance with Section 11.10(a). Each Qualified ECP Guarantor intends that this Section 4.8 constitute, and this Section 4.8 shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each Specified Credit Party for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
SECTION 5. SECURITY AGREEMENT
Section 5.1 Security Interest.
(a) As security for the full and final payment and performance of the Obligations, each Credit Party hereby grants to the Agent (for itself, the Lenders, the Issuing Bank and the other holders of the Obligations) a continuing security interest in and to all right, title, and interest of such Credit Party in and to the Collateral, whether now owned or hereafter acquired by such Credit Party.
(b) Except as expressly required by this Section 5, the other Collateral Documents or applicable law, the Agent shall have no obligation to (i) exercise any degree of care in connection with any Collateral in its possession or (ii) take any steps necessary to preserve any rights in the Collateral or to preserve any rights in the Collateral against senior or prior parties (which steps Credit Parties agree to take). In any case, the Agent shall be deemed to have exercised reasonable
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care of the Collateral if the Agent takes such steps for the care and preservation of the Collateral or rights therein as the Credit Parties reasonably request the Agent to take; provided that the Agent’s omission to take any action not requested by Credit Parties shall not be deemed a failure to exercise reasonable care. The Agent’s segregation or specific allocation of specified items of Collateral against any of the Credit Parties’ liabilities shall not waive or affect any Lien against other items of Collateral or any of the Agent’s options, powers, or rights under this Agreement or otherwise arising.
(c) During the existence of an Event of Default, the Agent may at any time and from time to time, with or without notice to any Credit Party, (i) transfer any of the Collateral into the name of the Agent or the name of the Agent’s nominee, (ii) notify any Account Debtor or other obligor with respect to any of the Collateral to make payment of any amounts due or to become due thereon directly to the Agent, and (iii) receive and direct the disposition of any proceeds of any Collateral. All proceeds of Collateral received by the Agent during the existence of an Event of Default shall be applied in whatever order the Agent shall determine.
(d) Any term or provision of this Agreement or the other Loan Documents to the contrary notwithstanding, (i) no Account, Instrument, Chattel Paper, or other obligation or property of any kind due from, owed by, or belonging to, a Sanctioned Person or (ii) any lease under which the lessee is a Sanctioned Person shall be Collateral or shall be credited toward the payment of the Obligations.
(e) The Collateral shall not include any Excluded Property.
Section 5.2 Financing Statements; Power of Attorney. Each Credit Party authorizes the Agent to file any financing statements (and other similar filings or public records or notices relating to the perfection of Liens), fixture filings, and amendments thereto relating to the Collateral which the Agent deems appropriate, in form and substance required by the Agent, and to (a) describe the Collateral thereon (i) as “all personal property of the debtor,” “all assets,” or words of similar effect, if appropriate and permitted by applicable law, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC or any other applicable law, or (ii) by specific collateral category and (b) include therein all other information which is required by Article 9 of the UCC or other applicable law with respect to the preparation or filing of a financing statement (or other similar filings or public records or notices relating to the perfection of Liens), fixture filing, or amendment. Each Credit Party appoints the Agent as its attorney-in-fact to perform all acts which the Agent deems appropriate to perfect and to continue perfection of the Lien granted to the Agent under any Collateral Document, including, without limitation, (x) the filing of financing statements (and other similar filings or public records or notices relating to the perfection of Liens), fixture filings, and amendments, and (y) the indorsement, presentation, and collection on behalf of such Credit Party and in such Credit Party’s name of any Items or other documents necessary or desirable to collect any amounts which such Credit Party may be owed, such power of attorney being coupled with an interest and is therefore irrevocable. Each Credit Party grants the Agent a non-exclusive license and, during the existence of an Event of Default, a right to use, without royalty or other charge, such Credit Party’s intellectual and other property (including, without limitation, any licensed intellectual property, unless prohibited by the enforceable terms of such license) for purposes of advertising any Collateral for sale, collecting any Accounts, disposing of or liquidating any Collateral, settling claims, or otherwise exercising any of its rights and remedies under the Loan Documents (including, without limitation, labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, product line names, advertising materials, and any other property of a similar nature). Each Credit Party’s rights under all licenses and all franchise agreements shall inure to the Agent’s benefit. The Borrower shall be liable for any and all expense incurred in connection with the Agent’s exercising its rights under this Section 5.2.
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Section 5.3 Other Rights. Without limiting any Credit Party’s obligations under the Loan Documents, each Credit Party authorizes the Agent from time to time (a) to (i) take from any party and hold additional Collateral or Guaranty for the payment of the Obligations or any part thereof, (ii) exchange, enforce, or release such Collateral or Guaranty or any part thereof, and (iii) release or substitute any indorser or Guarantor or any party who has granted the Agent any security interest in any property as security for the payment of the Obligations or any part thereof or any party in any way obligated to pay the Obligations or any part thereof, and (b) during the existence of any Event of Default, to direct the manner of the disposition of the Collateral and the enforcement of any indorsements, guaranties, letters of credit, or other security or Supporting Obligations relating to the Obligations or any part thereof as the Agent in its sole discretion may determine.
Section 5.4 Waiver of Marshaling. Each Credit Party hereby waives any right it may have to require marshaling of its assets.
Section 5.5 Control; Further Assurances. Each Credit Party will, at its expense, cooperate with the Agent in (a) obtaining Control of, or Control agreements with respect to, Collateral for which Control or a Control agreement is required for perfection or priority of the Agent’s security interest under the UCC (other than with respect to Deposit Accounts for which Control in favor of Agent is not required pursuant to Section 8.16) and (b) perfecting the Agent’s Lien in the Collateral.
Section 5.6 Remedies.
(a) General Remedies. Upon the occurrence of an Event of Default and during continuation thereof, the Agent shall have, in addition to the rights and remedies provided herein, in the Loan Documents, in any other documents relating to the Obligations, or by Applicable Laws (including, but not limited to, levy of attachment, garnishment and the rights and remedies set forth in the UCC of the jurisdiction applicable to the affected Collateral), the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights and remedies are asserted and regardless of whether the UCC applies to the affected Collateral), and further, the Agent may, with or without judicial process or the aid and assistance of others, (i) enter on any premises on which any of the Collateral may be located and, without resistance or interference by the Credit Parties, take possession of the Collateral, (ii) dispose of any Collateral on any such premises, (iii) require the Credit Parties to assemble and make available to the Agent at the expense of the Credit Parties any Collateral at any place and time designated by the Agent which is reasonably convenient to both parties, (iv) remove any Collateral from any such premises for the purpose of effecting sale or other disposition thereof, and/or (v) without demand and without advertisement, notice, hearing or process of law, all of which each of the Credit Parties hereby waives to the fullest extent permitted by Applicable Laws, at any place and time or times, sell and deliver any or all Collateral held by or for it at public or private sale (which in the case of a private sale of Equity Interests constituting Collateral (the “Pledged Equity”), shall be to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof), at any exchange or broker’s board or elsewhere, by one or more contracts, in one or more parcels, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion (subject to any and all mandatory legal requirements). Each Credit Party acknowledges that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such private sale shall be deemed to have been made in a commercially reasonable manner and, in the case of a sale of Pledged Equity, that the Agent shall have no obligation to delay sale of any such securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act of
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1933. Neither the Agent’s compliance with Applicable Laws nor its disclaimer of warranties relating to the Collateral shall be considered to adversely affect the commercial reasonableness of any sale. To the extent the rights of notice cannot be legally waived hereunder, each Credit Party agrees that any requirement of reasonable notice shall be met if such notice, specifying the place of any public sale or the time after which any private sale is to be made, is personally served on or mailed, postage prepaid, to the Credit Parties in accordance with the notice provisions of Section 12.1 at least 10 days before the time of sale or other event giving rise to the requirement of such notice. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Credit Party further acknowledges and agrees that any offer to sell any Pledged Equity which has been (A) publicly advertised on a bona fide basis in a newspaper or other publication of general circulation in the financial community of New York, New York (to the extent that such offer may be advertised without prior registration under the Securities Act of 1933), or (B) made privately in the manner described above shall be deemed to involve a “public sale” under the UCC, notwithstanding that such sale may not constitute a “public offering” under the Securities Act of 1933, and the Agent may, in such event, bid for the purchase of such securities. The Agent shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. To the extent permitted by Applicable Laws any holder of Obligations may be a purchaser at any such sale. To the extent permitted by Applicable Laws, each of the Credit Parties hereby waives all of its rights of redemption with respect to any such sale. Subject to the provisions of Applicable Laws, the Agent may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, to the extent permitted by Applicable Laws, be made at the time and place to which the sale was postponed, or the Agent may further postpone such sale by announcement made at such time and place.
(b) Remedies relating to Accounts. During the continuation of an Event of Default, whether or not the Agent has exercised any or all of its rights and remedies hereunder, (i) each Credit Party will promptly upon request of the Agent instruct all account debtors to remit all payments in respect of Accounts to a mailing location selected by the Agent and (ii) the Agent shall have the right to enforce any Credit Party’s rights against its customers and account debtors, and the Agent or its designee may notify any Credit Party’s customers and account debtors that the Accounts of such Credit Party have been assigned to the Agent or of the Agent’s security interest therein, and may (either in its own name or in the name of a Credit Party or both) demand, collect (including without limitation by way of a lockbox arrangement), receive, take receipt for, sell, sue for, compound, settle, compromise and give acquittance for any and all amounts due or to become due on any Account, and, in the Agent’s discretion, file any claim or take any other action or proceeding to protect and realize upon the security interest of the holders of the Obligations in the Accounts. Each Credit Party acknowledges and agrees that the cash Proceeds of its Accounts remitted to or on behalf of the Agent in accordance with the provisions hereof shall be applied to the Obligations pursuant to Section 10.3 after the occurrence and during the continuation of an Event of Default, and that such Credit Party shall not have any right, title or interest in such Accounts or in any such other amounts except as expressly provided herein. Neither the Agent nor the holders of the Obligations shall have any liability or responsibility to any Credit Party for acceptance of a check, draft or other order for payment of money bearing the legend “payment in full” or words of similar import or any other restrictive legend or endorsement or be responsible for determining the correctness of any remittance. Furthermore, during the continuation of an Event of Default, (i) the Agent shall have the right, but not the obligation, to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and the Credit Parties shall furnish all such assistance and information as the Agent may require in connection with such test verifications, (ii) upon the Agent’s request and at the expense of the Credit Parties, the Credit Parties shall cause independent public accountants or others satisfactory to the Agent to furnish to the Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts and (iii) the Agent in its own name or in the name of others may communicate with account debtors on the Accounts to verify with them to the Agent’s satisfaction the existence, amount and terms of any Accounts.
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(c) Deposit Accounts. Upon the occurrence of an Event of Default and during continuation thereof, the Agent may (i) prevent withdrawals or other dispositions of funds in Deposit Accounts maintained with the Agent and (ii) exercise control pursuant to any control agreement governing a Deposit Account not held with the Agent.
(d) Access. In addition to the rights and remedies hereunder, upon the occurrence of an Event of Default and during the continuance thereof, the Agent shall have the right to enter and remain upon the various premises of the Credit Parties, consistent with commercial reasonableness, without cost or charge to the Agent, and use the same, together with materials, supplies, books and records of the Credit Parties for the purpose of collecting and liquidating the Collateral, or for preparing for sale and conducting the sale of the Collateral, whether by foreclosure, auction or otherwise. In addition, upon the occurrence of an Event of Default and during the continuance thereof, the Agent may remove Collateral, or any part thereof, from such premises and/or any records with respect thereto, in order to effectively collect or liquidate such Collateral.
(e) Nonexclusive Nature of Remedies. Failure by the Agent or the holders of the Obligations to exercise any right, remedy or option under this Agreement, any other Loan Document, any other document relating to the Obligations, or as provided by Applicable Laws, or any delay by the Agent or the holders of the Obligations in exercising the same, shall not operate as a waiver of any such right, remedy or option. No waiver hereunder shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically stated, which in the case of the Agent or the holders of the Obligations shall only be granted as provided herein. To the extent permitted by Applicable Laws, neither the Agent, the holders of the Obligations, nor any party acting as attorney for the Agent or the holders of the Obligations, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct hereunder. The rights and remedies of the Agent and the holders of the Obligations under this Agreement shall be cumulative and not exclusive of any other right or remedy which the Agent or the holders of the Obligations may have.
(f) Retention of Collateral. With respect to retention of collateral by the Agent, Sections 9-620 and 9-621 of the UCC shall apply. Unless and until the Agent shall have provided such notices, however, the Agent shall not be deemed to have retained any Collateral in satisfaction of any Obligations for any reason.
(g) Deficiency. In the event that the proceeds of any sale, collection or realization are insufficient to pay all amounts to which the Agent or the holders of the Obligations are legally entitled, the Credit Parties shall be jointly and severally liable for the deficiency, together with interest thereon at the Default Rate, together with the costs of collection, including the fees, charges and disbursements of counsel, to the extent required by this Agreement. Any surplus remaining after the full payment and satisfaction of the Obligations shall be returned to the Credit Parties or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto. Notwithstanding any provision to the contrary contained herein, in any other of the Loan Documents or in any other documents relating to the Obligations, the obligations of each Credit Party under this Agreement and the other Loan Documents shall be limited to an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under Section 548 of the Bankruptcy Code or any other applicable Debtor Relief Law (including any comparable provisions of any applicable state Applicable Laws).
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SECTION 6. CONDITIONS PRECEDENT
Section 6.1 Conditions Precedent to Initial Credit Extensions. The amendment and restatement of the Existing Loan Agreement and the obligation of each Lender to make a Credit Extension on the Effective Date is subject to the satisfaction of the following conditions on or before the Effective Date:
(a) Executed Loan Documents. Receipt by the Agent of executed counterparts of this Agreement and the other Loan Documents (other than any Loan Documents required to be delivered under Section 8.18), in each case, in form and substance reasonably satisfactory to the Agent and the Lenders and duly executed by the appropriate parties thereto.
(b) Organizational Documents. Receipt by the Agent of the following:
(i) Charter Documents. Copies of articles of incorporation, certificate of organization or formation, or other like document for each of the Credit Parties certified as of a recent date by the appropriate Governmental Authority.
(ii) Organizational Documents Certificate. (A) Copies of bylaws, operating agreement, partnership agreement or like document, (B) copies of resolutions approving the transactions contemplated in connection with the financing and authorizing execution and delivery of the Loan Documents, and (C) incumbency certificates, for each of the Credit Parties, in each case certified by an Authorized Officer in form and substance reasonably satisfactory to the Agent.
(iii) Good Standing Certificate. Copies of certificates of good standing, existence or the like of a recent date for each of the Credit Parties from the appropriate Governmental Authority of its jurisdiction of formation or organization.
(iv) Closing Certificate. A certificate from an Authorized Officer of the Borrower, in form and substance reasonably satisfactory to the Agent and the Required Lenders, confirming, among other things, (A) all consents, approvals, authorizations, registrations, or filings required to be made or obtained by the Borrower and the other Credit Parties, if any, in connection with this Agreement and the other Loan Documents and the transactions contemplated herein and therein have been obtained and are in full force and effect, (B) no investigation or inquiry by any Governmental Authority regarding this Agreement and the other Loan Documents and the transactions contemplated herein and therein is ongoing and all applicable waiting periods have expired, (C) since the date of the most-recent annual audited financial statements for the Borrower, there has been no event or circumstance which could be reasonably expected to have a Material Adverse Effect, (D) the Borrower and its Subsidiaries, taken as a whole, are Solvent after giving effect to the transactions contemplated hereby and the incurrence of Debt and other liabilities related thereto, (E) that the Consolidated Leverage Ratio does not exceed 2.00 to 1.00 after giving effect to all Borrowings to be made on the Effective Date on a pro forma basis (as supported by reasonably detailed calculations) and (F) the conditions in Sections 6.2(c) and 6.2(d) have been satisfied as of the Effective Date.
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(c) Opinions of Counsel. Receipt by the Agent of customary opinions of counsel for each of the Credit Parties, including, among other things, opinions regarding the due authorization, execution and delivery of the Loan Documents and the enforceability thereof.
(d) Personal Property Collateral. Receipt by the Agent of the following:
(i) UCC Financing Statements. Such UCC financing statements necessary or appropriate to perfect the security interests in the personal property collateral, as determined by the Agent.
(ii) Intellectual Property Filings. Such patent, trademark and copyright notices, filings and recordations in the United States Patent and Trademark Office or United States Copyright Office, as applicable, necessary or appropriate to perfect the security interests in intellectual property and intellectual property rights, as determined by the Agent.
(iii) Pledged Equity Interests. The Pledge Agreement, in form and substance reasonably satisfactory to Agent, setting forth the pledge of all Equity Interests owned by the Credit Parties, together with original certificates evidencing any certificated Equity Interests pledged as collateral, undated stock transfer powers executed in blank and certified resolutions of each issuer of Equity Interests that is not a Credit Party authorizing such pledge.
(iv) Evidence of Insurance. Certificates of insurance for casualty, liability and any other insurance required by the Loan Documents, identifying the Agent as lender loss payee with respect to the casualty insurance and additional insured with respect to the liability insurance, as appropriate, together with such other insurance documents and endorsements as Agent may request (other than the endorsements required to be delivered under Section 8.18).
(v) Third Party Agreements. Commercially reasonable efforts to obtain amendments to or amendments and restatements of the Third Party Agreements, as applicable, in each case, in form and substance reasonably satisfactory to the Agent.
(e) Funding Notice; Funds Disbursement Instructions. The Agent shall have received a duly executed Funding Notice with respect to the Credit Extension to occur on the Effective Date including disbursement instructions (with wiring instructions and account information) for all disbursements to be made on the Effective Date.
(f) Financial Statements. The Agent shall have received copies of (i) the internally-prepared quarterly financial statements of the Borrower and its Subsidiaries on a consolidated basis for the Fiscal Quarter ended December 31, 2017 and (ii) the audited consolidated financial statements of the Borrower and its Subsidiaries for the Fiscal Year ended December 31, 2016 (and if available prior to the Effective Date for the Fiscal Year ended December 31, 2017).
(g) Fees and Expenses. The Agent shall have confirmation that all reasonable out-of-pocket fees and expenses (including all filing and recording fees and expenses) actually incurred and required to be paid on or before the Effective Date have been paid to the extent invoiced prior to the Effective Date, including the reasonable out-of-pocket fees and expenses of counsel for the Agent to the extent actually incurred by the Agent and invoiced on or prior to the Effective Date (with any amounts subsequently invoiced or incurred to be paid by Borrower in accordance with the other terms of this Agreement).
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(h) Patriot Act; Anti-Money Laundering Laws. The provision by the Credit Parties of all documentation and other information that the Agent or any Lender requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act.
For purposes of determining compliance with the conditions specified in this Section 6.1, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Agent shall have received notice from such Lender prior to the proposed Effective Date specifying its objection thereto. The funding of the initial Loans hereunder shall evidence the satisfaction of the foregoing conditions.
Section 6.2 Conditions to Each Credit Extension. The obligation of each Lender to fund its Term Loan Commitment Percentage or Revolving Commitment Percentage of any Credit Extension on any Credit Date, including the Effective Date, are subject to the satisfaction, or waiver in accordance with Section 12.4, of the following conditions precedent:
(a) the Agent shall have received a fully executed and delivered Funding Notice, together with any documentation and certifications required therein with respect to each Credit Extension;
(b) after making the Credit Extension requested on such Credit Date, (i) the aggregate outstanding principal amount of the Revolving Loans shall not exceed the aggregate Revolving Commitments then in effect and (ii) the aggregate outstanding principal amount of the Term Loans shall not exceed the respective Term Loan Commitments then in effect;
(c) as of such Credit Date, the representations and warranties contained herein and in the other Loan Documents shall be true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) on and as of that Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects (except that if any such representation or warranty contains any materiality qualifier, such representation or warranty shall be true and correct in all respects) on and as of such earlier date;
(d) as of such Credit Date, no event shall have occurred and be continuing or would result from the consummation of the applicable Credit Extension that would constitute an Event of Default or a Default.
Any Agent or the Required Lenders shall be entitled, but not obligated to, request and receive, prior to the making of any Credit Extension, additional information reasonably satisfactory to the requesting party confirming the satisfaction of any of the foregoing if, in the reasonable good faith judgment of such Agent or Required Lenders, such request is warranted under the circumstances.
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SECTION 7. REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this Agreement and to make each Credit Extension to be made thereby, the Borrower and each other Credit Party represents and warrants to each Agent and Lender, on the Effective Date and on each Credit Date that the following statements are true and correct:
Section 7.1 Valid Existence and Power. Such Credit Party and each Subsidiary of such Credit Party is a corporation, limited liability company, or limited partnership, as applicable, duly incorporated, organized, or formed, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, organization, or formation and is duly qualified or licensed to transact business in all places where the failure to be so qualified could reasonably be likely to have a Material Adverse Effect. Each Credit Party and each other Person which is a party to any Loan Document (other than the Agent and the Lenders) has the power to make and perform the Loan Documents executed by it and all Loan Documents will constitute the legal, valid, and binding obligations of such Person, enforceable in accordance with their respective terms, subject only to bankruptcy and similar laws affecting creditors’ rights generally. Such Credit Party is organized under the laws of the jurisdiction set forth in the Collateral Disclosure Certificate and has not changed the jurisdiction of its organization within the five (5) years preceding the date hereof except as disclosed in the Collateral Disclosure Certificate.
Section 7.2 Authority. The execution, delivery, and performance thereof by such Credit Party and each other Person (other than the Agent and the Lenders) executing any Loan Document have been duly authorized by all necessary actions of such Person, and do not and will not violate any provision of law or regulation, or any writ, order, or decree of any Governmental Authority or any provision of the governing instruments of such Person, and do not and will not, with the passage of time or the giving of notice, result in a breach of, or constitute a default or require any consent under, or result in the creation of any Lien upon any property or assets of such Person pursuant to, any law, regulation, instrument, or agreement to which any such Person is a party or by which any such Person or its respective properties may be subject, bound, or affected.
Section 7.3 Financial Condition. As of the Effective Date, other than as disclosed in such financial statements or set forth on Schedule 7.3 attached hereto and made a part hereof, none of such Credit Party or any Subsidiary of such Credit Party has any material direct or contingent obligations or liabilities or any material unrealized or anticipated losses from any commitments of such Person. As of the Effective Date, all material operating leases and material Capital Leases under which such Credit Party or any Subsidiary of such Credit Party is lessee are disclosed in the financial statements delivered to the Agent on or before the Effective Date or on Schedule 7.3. All financial statements from time to time delivered to the Agent by the Credit Parties shall have been prepared in accordance with GAAP and fairly present in all material respects the financial condition of such Person as of the date thereof. Such Credit Party is not aware of any material adverse fact (other than facts which are generally available to the public and not particular to such Credit Party, such as general economic trends) concerning the condition (financial or otherwise) or future prospects of such Credit Party or any Subsidiary of such Credit Party which has not been fully disclosed to the Agent, including any material adverse change in the operations or financial condition of such Person since the date of the most recent financial statements delivered to the Agent. The Credit Parties viewed as a whole are Solvent and, after consummation of the transactions set forth in this Agreement and the other Loan Documents, will be Solvent.
Section 7.4 Litigation. Except as disclosed on Schedule 7.4, attached hereto and made a part hereof, there are no suits or proceedings pending or, to such Credit Party’s knowledge, threatened by or before any Governmental Authority against or affecting such Credit Party, any Subsidiary of a Credit Party, or their respective assets, which could reasonably be expected to have a Material Adverse Effect.
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Section 7.5 Agreements, Etc. Neither such Credit Party nor any Subsidiary of such Credit Party is a party to any material agreement or instrument or subject to any material order or decree of any Governmental Authority or any charter or other corporate restriction, materially and adversely affecting its business, assets, operations, or condition (financial or otherwise), nor is any such Person in default in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any material agreement or instrument to which it is a party, or any law, regulation, decree, order, or the like to which it is subject, except to the extent that such default could not reasonably be expected to have a Material Adverse Effect. There is no basis upon which any party (other than a Credit Party) could terminate a Material Agreement prior to its scheduled termination date, except for any Material Agreement with a supplier or distributer to the extent such agreement could reasonably be replaced substantially concurrently with the termination thereof or is not reasonably necessary to the applicable Credit Party’s ordinary course of business.
Section 7.6 Authorizations. All material authorizations, consents, approvals, and licenses required under applicable law for the ownership or operation of the property owned or operated by such Credit Party or any Subsidiary of such Credit Party or for the conduct of any business in which it is engaged have been duly issued and are in full force and effect, and it is not in default, nor has any event occurred which with the passage of time or the giving of notice, or both, would constitute a default, under any of the terms or provisions of any part thereof, or under any order, decree, ruling, regulation, closing agreement or other decision or instrument of any Governmental Authority having jurisdiction over such Person, which default could reasonably be expected to have a Material Adverse Effect on such Person. Except as noted herein or otherwise obtained prior to the date hereof, no approval, consent or authorization of, or filing or registration with, any governmental commission, bureau or other regulatory authority or agency is required with respect to the execution, delivery or performance of any Loan Document.
Section 7.7 Title. Each of such Credit Party and each Subsidiary of a Credit Party has good title to all of the assets shown in its financial statements free and clear of all Liens, except Permitted Liens.
Section 7.8 Collateral.
(a) The security interests granted to the Agent pursuant to the Collateral Documents (a) constitute and, as to subsequently acquired property included in the Collateral covered by the Collateral Documents, will constitute, security interests under the UCC entitled to all of the rights, benefits, and, if perfected, priorities provided by the UCC and (b) are and, as to such subsequently acquired Collateral, will be, fully perfected, superior, and prior to the rights of all third persons, now existing or hereafter arising, upon the filing of a UCC-1 financing statement (with respect to all Collateral which may be perfected by the filing of a UCC-1 financing statement, subject only to Permitted Liens that are expressly permitted by the terms of this Agreement to have priority over the Liens granted to the Agent hereunder).
(b) All of the Marks (as defined in the Collateral Disclosure Certificate) which are material to the operation of the Credit Parties’ business as currently conducted are shown in Schedule 3 of the Collateral Disclosure Certificate. All of the copyrights which are material to the operation of the Credit Parties’ business as currently conducted are shown in Schedule 4 of the Collateral Disclosure Certificate. All of the Patents (as defined in the Collateral Disclosure Certificate) which are material to the operation of the Credit Parties’ business as currently conducted are shown in Schedule 5 of the Collateral Disclosure Certificate.
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Section 7.9 Jurisdiction of Organization; Location. The jurisdiction in which each of such Credit Party and each Subsidiary of a Credit Party is organized, the chief executive office of such Credit Party and each Subsidiary of a Credit Party, the office where such Credit Party’s and each Subsidiary of a Credit Party’s books and records are located, all of such Credit Party’s other places of business, and any other places where any Collateral is kept, are all correctly and completely indicated in the Collateral Disclosure Certificate as in existence as of the Effective Date (or, after the Effective Date, as may be reflected in a prior written notice delivered by the Credit Parties to the Agent, which notice, as applicable, shall be provided in compliance with Section 9.8). The Collateral is located and shall at all times be kept and maintained only at a Permitted Location. No material Collateral is attached or affixed to any real property so as to be classified as a Fixture unless the Agent has otherwise agreed in writing. Such Credit Party has not changed its legal status or the jurisdiction in which it is organized or moved its chief executive office within the 5 years preceding the Effective Date, other than as set forth in the applicable Collateral Disclosure Certificate.
Section 7.10 Taxes. Such Credit Party and the Subsidiaries of a Credit Party have filed all federal and state income and other material tax returns which are required to be filed, and have paid all taxes as shown on said returns, all withholding and FICA taxes, and all taxes, including ad valorem taxes, shown on all assessments received by it to the extent that such taxes have become due except for any payment of the foregoing which is Properly Contested. Neither any Credit Party nor any Subsidiary of a Credit Party has received any notice of deficiency or other official notice to pay any material taxes, except as promptly disclosed to Agent in writing. In any event, each Credit Party and the Subsidiaries of each Credit Party have paid all material sales and excise taxes payable by it.
Section 7.11 Labor Law Matters. No goods or services have been or will be produced by such Credit Party or any Subsidiary of a Credit Party in violation of any applicable labor laws or regulations or any collective bargaining agreement or other labor agreements or in violation of any minimum wage, wage-and-hour or other similar laws or regulations. There are no material grievances, disputes or controversies with any union or other organization of such Credit Party’s or any Subsidiary of a Credit Party’s employees, or any asserted or threatened strikes, work stoppages or demands for collective bargaining.
Section 7.12 Accounts. Each Account, Instrument, Chattel Paper, and other writing constituting any portion of the Collateral (a) is genuine and enforceable in accordance with its terms except for such limits thereon arising from bankruptcy and similar laws relating to creditors’ rights; (b) is not subject to any deduction or discount, defense, set-off, claim, or counterclaim against such Credit Party except for any deductions, discounts, defenses, set-offs, claims or counterclaims that exist in the ordinary course of business and that are not, in the aggregate, material to the value of the Accounts; (c) is not subject to any other circumstances that would impair in any material respect the validity, enforceability or amount of such Collateral except as to which such Credit Party promptly notified the Agent in writing; (d) arises from a bona fide sale of goods or delivery of services in the ordinary course and in accordance with the terms and conditions of any applicable purchase order, contract or agreement; (e) is free of all Liens other than Permitted Liens; and (f) is for a liquidated amount maturing as stated in the invoice therefor.
Section 7.13 Judgment Liens. Neither any Credit Party nor any Subsidiary of a Credit Party, nor any of their respective assets, is subject to any unpaid judgments (whether or not stayed) or any judgment Liens in any jurisdiction, in each case, (a) which were not disclosed to the Agent in writing on or before the Effective Date or (b) of which such Credit Party has not given notice to the Agent in accordance with Section 8.4.
Section 7.14 Company Structure.
(a) As of the Sixth Amendment Effective Date, Schedule 7.14, attached hereto and made a part hereof, sets forth (i) the correct name of each Subsidiary of a Credit Party and its jurisdiction of organization; (ii) the number, type or class, and name of the holder of all issued and outstanding Equity Interests of such Credit Party and each of its Subsidiaries, together with the number and percentage of Equity Interests held by each such holder; and (iii) the number of authorized and issued Equity Interests (and treasury shares) of such Credit Party and each Subsidiary of a Credit Party, by type or class.
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(b) Such Credit Party has good title to all of the Equity Interests it purports to own of each of its Subsidiaries, free and clear in each case of any Lien other than Permitted Liens. All such Equity Interests have been duly issued and are fully paid and non-assessable. Except as set forth on Schedule 7.14, there are no outstanding options to purchase, or any rights or warrants to subscribe for or acquire, or any commitments or agreements to issue or sell, or any Equity Interests or obligations convertible into, or any powers of attorney relating to, Equity Interests issued by any Credit Party or any of its Subsidiaries. Except as set forth on Schedule 7.14, there are no outstanding agreements or instruments binding upon the holders of any of the Equity Interests issued by such Credit Party or any Subsidiary relating to the ownership of such Equity Interests.
Section 7.15 Deposit Accounts. Such Credit Party and its Subsidiaries have no Deposit Accounts other than (a) on the Effective Date, those listed in the Collateral Disclosure Certificate and (b) after the Effective Date, those permitted by Section 8.16.
Section 7.16 Environmental. Except as disclosed on Schedule 7.16, attached hereto and made a part hereof, and except for Regulated Materials used in compliance in all material respects with Environmental Laws, none of such Credit Party, any Subsidiary of a Credit Party, or, to such Credit Party’s knowledge, any current or previous owner or operator of any real property currently owned or operated by such Credit Party or a Subsidiary of a Credit Party, has generated, stored, or disposed of any Regulated Material on any portion of such property, or transferred any Regulated Material from such property to any other location in violation of any applicable Environmental Laws. Except as disclosed on Schedule 7.16, to such Credit Party’s knowledge, no Person (other than a Credit Party or a Subsidiary of a Credit Party) has generated, stored or disposed of any Regulated Material on any portion of the real property currently owned or operated by such Credit Party or any Subsidiary of a Credit Party, and, except for Regulated Materials used in compliance in all material respects with Environmental Laws, no Regulated Material is now located on such property. Except as disclosed on Schedule 7.16, each of such Credit Party and its Subsidiaries is in material compliance with all applicable Environmental Laws and neither such Credit Party nor any Subsidiary has been notified of any material action, suit, proceeding, or investigation which calls into question compliance by such Credit Party or any Subsidiary of a Credit Party with any Environmental Laws or which seeks to suspend, revoke or terminate any license, permit, or approval necessary for the generation, handling, storage, treatment, or disposal of any Regulated Material.
Section 7.17 ERISA. (a) Except as could not reasonably be expected to have a Material Adverse Effect, each of the Credit Parties and their Subsidiaries are in compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to its Pension Plan, and have performed all their obligations under each Pension Plan in all material respects, (b) each Pension Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code has received a favorable determination letter or is the subject of a favorable opinion letter from the Internal Revenue Service indicating that such Pension Plan is so qualified and, to the best knowledge of the Credit Parties, nothing has occurred subsequent to the issuance of such determination letter which would cause such Pension Plan to lose its qualified status except where such event could not reasonably be expected to result in a Material Adverse Effect, (c) except as could not reasonably be expected to have a Material Adverse Effect, no liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Pension Plan (other than for routine claims and required funding obligations in the ordinary course) or any trust established under Title IV of ERISA has been incurred by any Credit Party, any of its Subsidiaries or any of their ERISA Affiliates, (d) except as would not reasonably be expected to result in liability to any Credit Party or any of its Subsidiaries in excess of $1,000,000, no
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ERISA Event has occurred, and (e) except to the extent required under Section 4980B of the Internal Revenue Code and Section 601 et seq. of ERISA or similar state laws and except as could not reasonably be expected to have a Material Adverse Effect, no Pension Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of any Credit Party or any of its Subsidiaries. As of the Effective Date, no Credit Party nor any of its Subsidiaries are, and will not be, a Benefit Plan. The Borrower represents and warrants as of the Effective Date that the Borrower is not and will not be using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments.
Section 7.18 Mortgages. Each of the Mortgages, if any, is effective to create in favor of the Agent, for the ratable benefit of the holders of the Obligations, a legal, valid and enforceable security interest in the Real Estate Assets identified therein in conformity with Applicable Laws, except to the extent the enforceability thereof may be limited by applicable Debtor Relief Laws affecting creditors’ rights generally and by equitable principles of law (regardless of whether enforcement is sought in equity or at law) and, when such Mortgages and UCC financing statements in appropriate form are duly recorded at the locations identified in such Mortgages, and recording or similar taxes, if any, are paid, such Mortgages shall constitute a legal, valid and enforceable Lien on, and security interest in, all right, title and interest of the grantors thereunder in such Real Estate Assets, in each case prior and superior in right to any other Lien (other than Permitted Liens). As of the Effective Date, there are no Mortgages.
Section 7.19 Insider. Such Credit Party is not, and no Person having “control” (as that term is defined in 12 U.S.C. § 375(b)(5) or in regulations promulgated pursuant thereto) of such Credit Party is, an “executive officer,” “director,” or “principal shareholder” (as those terms are defined in 12 U.S.C. § 375(b) or in regulations promulgated pursuant thereto) of the Agent or any Lender, of a bank holding company of which the Agent or any Lender is a subsidiary, or of any subsidiary of a bank holding company of which the Agent or any Lender is a subsidiary.
Section 7.20 Government Regulations.
(a) No Credit Party or any of its Subsidiaries is subject to regulation under the Investment Company Act of 1940. No Credit Party or any of its Subsidiaries is an “investment company” or a company “controlled” by a “registered investment company” or a “principal underwriter” of a “registered investment company” as such terms are defined in the Investment Company Act of 1940.
(b) No Credit Party nor any of its Subsidiaries is an “enemy” or an “ally of the enemy” within the meaning of Section 2 of the Trading with the Enemy Act of the United States of America (50 U.S.C. App. §§ 1 et seq.), as amended. To its knowledge, no Credit Party or any of its Subsidiaries is in violation of (i) the Trading with the Enemy Act, as amended, (ii) any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto or (iii) the Patriot Act. No Credit Party or any of its Subsidiaries (A) is a blocked person described in Section 1 of the Anti-Terrorism Order or (B) to the best of its knowledge, engages in any dealings or transactions, or is otherwise associated, with any such blocked person.
(c) None of the Credit Parties, their Subsidiaries and their respective Affiliates is in violation of any of the country or list based economic and trade sanctions administered and enforced by OFAC that are described or referenced at http://www.ustreas.gov/offices/enforcement/ofac/ or as otherwise published from time to time.
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(d) None of the Credit Parties and their Subsidiaries or, to the knowledge of each Credit Party or its Subsidiaries, any of their respective directors, officers, employees or Affiliates (i) is a Sanctioned Person, (ii) has any of its assets located in a Sanctioned Country (unless approved by the Lenders), or (iii) derives any of its operating income from investments in, or transactions with Sanctioned Persons (unless approved by the Lenders). The proceeds of any Credit Extension or other transaction contemplated by this Agreement or any other Loan Document have not been used (x) in violation of any Sanctions, (y) to fund any operations in, finance any investments or activities in or make any payments to, a Sanctioned Person or a Sanctioned Country or (z) in any other manner that would result in a violation of Sanctions by any Person (including the Agent, the Lenders or any other Person participating in the Credit Extensions, whether as an underwriter, advisor, investor or otherwise).
(e) Each of the Credit Parties and their Subsidiaries and, to the knowledge of each Credit Party and its Subsidiaries, each of their respective directors, officers, employees and Affiliates, is in compliance with Anti-Corruption Laws. None of the Credit Parties or their respective Subsidiaries has made a payment, offering, or promise to pay, or authorized the payment of, money or anything of value (a) in order to assist in obtaining or retaining business for or with, or directing business to, any foreign official, foreign political party, party official or candidate for foreign political office, (b) to a foreign official, foreign political party or party official or any candidate for foreign political office, and (c) with the intent to induce the recipient to misuse his or her official position to direct business wrongfully to such Credit Party or any of its Subsidiaries or to any other Person, in violation of any Anti-Corruption Law. No part of the proceeds of any Credit Extension or other transaction contemplated by this Agreement or any other Loan Document will violate Anti-Corruption Laws.
(f) To the extent applicable, each Credit Party and its Subsidiaries are in compliance with Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001) (as amended from time to time, the “Patriot Act”).
(g) No Credit Party or any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of any Credit Extension made to such Credit Party will be used (i) to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System as in effect from time to time or (ii) to finance or refinance any (A) commercial paper issued by such Credit Party or (B) any other Debt, except for Debt that such Credit Party incurred for general corporate or working capital purposes. Following the application of the proceeds of each borrowing hereunder or drawing under each Letter of Credit, not more than 25% of the value of the assets (either of the Borrower or of the Borrower and its Subsidiaries on a consolidated basis) will be Margin Stock.
(h) No Credit Party is an Affected Financial Institution
Section 7.21 Compliance with Covenants; No Default. Such Credit Party is, and upon the making of the initial extensions of credit on the Effective Date will be, in compliance with all of the covenants hereof. No Default or Event of Default is in existence, and the execution, delivery, and performance of the Loan Documents and the making of the initial extensions of credit on the Effective Date will not cause a Default or Event of Default.
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Section 7.22 Full Disclosure.
(a) Each Credit Party has disclosed to the Agent each fact and circumstance which such Credit Party knows or should know and which, by itself or together with any other fact disclosed or undisclosed, could reasonably be expected to have Material Adverse Effect. No Loan Document or any other agreement, document, certificate, or statement delivered by a Credit Party or a Subsidiary of a Credit Party to the Agent or any Lender contains any untrue statement of a material fact or omits to state any material fact which is known or which should be known by such Person necessary to keep the other statements from being materially misleading.
(b) As of the Sixth Amendment Effective Date, the information included in the Beneficial Ownership Certification is true and correct in all respects.
Section 7.23 Collateral Disclosure Certificates. All information set forth in the Collateral Disclosure Certificates is true and correct as of the date thereof.
Section 7.24 Operating and Capital Leases. Schedule 7.24, attached hereto and made a part hereof, sets forth (a) each operating lease and Capital Lease to which such Credit Party or any Subsidiary of a Credit Party is a party as a lessee and which requires aggregate rentals of greater than $250,000 per year, (b) the name of the lessor, and (c) a brief description of the property leased thereunder.
Section 7.25 Compliance with Laws. Each Credit Party and its Subsidiaries is in compliance with (a) the Patriot Act and OFAC rules and regulations as provided in Section 7.20 and (b) except such non-compliance with such other Applicable Laws that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, all other Applicable Laws. Each Credit Party and its Subsidiaries possesses all certificates, authorities or permits issued by appropriate Governmental Authorities necessary to conduct the business now operated by them and the failure of which to have could reasonably be expected to have a Material Adverse Effect and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit the failure of which to have or retain could reasonably be expected to have a Material Adverse Effect.
Section 7.26 Insurance. The properties of the Credit Parties and their Subsidiaries are insured with financially sound and licensed insurance companies not Affiliates of such Persons, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the applicable Credit Party or the applicable Subsidiary operates. The insurance coverage of the Credit Parties and their Subsidiaries as in effect on the Effective Date is outlined as to carrier, policy number, expiration date, type, amount and deductibles on Schedule 7.26.
Section 7.27 No Material Adverse Effect; No Default.
(a) No Material Adverse Effect. Since December 31, 2021, no event, circumstance or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.
(b) No Default. No Default has occurred and is continuing.
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SECTION 8. AFFIRMATIVE COVENANTS
Each Credit Party covenants and agrees that until the Obligations shall have been paid in full or otherwise satisfied (other than contingent indemnification Obligations that have not been asserted and are not liquidated in amount), and the Commitments hereunder shall have expired or been terminated, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 8.
Section 8.1 Use of Loan Proceeds. The Borrower shall use the proceeds of the Loans and any Letters of Credit only (i) to pay fees, costs and expenses arising under or in connection with this Agreement, the Fourth Amendment, the Sixth Amendment and the transactions contemplated hereby and thereby, (ii) for the Borrower’s and, to the extent otherwise permitted hereunder, its Subsidiaries’ working capital and other lawful corporate purposes, (iii) to make the Effective Date Distribution, the Post-Effective Date Distribution and the First Amendment Distribution, (iv) on the Sixth Amendment Effective Date, use the proceeds of the Sixth Amendment Term Loan A to repay outstanding Revolving Loans (without any reduction of the aggregate Revolving Commitments) and (v) to refinance certain existing Debt and to finance Capital Expenditures, Permitted Acquisitions and investments in joint ventures, in each case to the extent permitted by the terms of this Agreement, and the Borrower shall furnish the Agent all evidence it may reasonably request with respect to such uses.
Section 8.2 Maintenance of Business and Properties. The Credit Parties shall at all times (a) (i) keep all Collateral and the remainder of their property used or useful in the conduct of their business in good repair, working order, and condition (ordinary wear and tear excepted), and (ii) make, or cause to be made, all material needful and proper repairs, renewals, replacements, betterments, and improvements thereto so that the business carried on in connection therewith may be conducted properly and in accordance with standards generally accepted in businesses of a similar type and size and (b) maintain and keep in full force and effect all licenses and permits necessary to the proper conduct of their business.
Section 8.3 Insurance. The Credit Parties will maintain or cause to be maintained, with financially sound and licensed insurers, property insurance, such public liability insurance, third party property damage insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of the each Credit Party and its Subsidiaries as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in each case in such amounts, with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons; provided that the Borrower and each of its Subsidiaries shall maintain at all times pollution legal liability insurance with coverage amounts equal to or greater than, deductibles no greater than, and otherwise with terms and conditions no less favorable to the Lenders than, the pollution legal liability insurance in effect as of the Effective Date. Without limiting the generality of the foregoing, each of the Borrower and its Subsidiaries will maintain or cause to be maintained (a) if available, fully paid flood hazard insurance on each Flood Hazard Property and that constitutes Collateral, on such terms and in such amounts as required by The National Flood Insurance Reform Act of 1994, the Federal Flood Disaster Protection Act and rules and regulations promulgated thereunder or as otherwise required by the Agent or any Lender, (b) furnish to the Agent evidence of the renewal (and payment of renewal premiums therefor) of all such policies prior to the expiration or lapse thereof, (c) furnish to the Agent prompt written notice of any re-designation of any such improved real property into or out of a special flood hazard area and (d) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses. Each such policy of insurance shall (i) name the Agent, on behalf of the holders of the Obligations, as an additional insured thereunder as its interests may appear, and (ii) in the case of each property insurance policy, contain a loss payable clause or endorsement, reasonably satisfactory in form and substance to the Agent, that names the Agent, on behalf of the holders of the Obligations, as the loss payee thereunder and provides for at least thirty (30) days’ prior written notice (or such shorter prior written notice as may be agreed by the Agent in its reasonable discretion) to the Agent of any modification or cancellation of such policy.
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Section 8.4 Certain Notices. The Credit Parties shall provide the Agent with prompt (but in any event within 1 Business Day of the occurrence or commencement thereof) notice of (a) the occurrence of a Default or Event of Default and what action (if any) the Credit Parties are taking to correct the same; (b) any litigation with respect to a Credit Party or Subsidiary thereof involving an amount at issue in excess of $2,000,000 or changes in existing litigation or any judgment against it or its assets in excess of $2,000,000; (c) any damage or loss to property owned by a Credit Party or Subsidiary thereof in excess of $2,000,000; (d) any notice received by a Credit Party or Subsidiary thereof from taxing authorities as to claimed deficiencies or any tax lien or any notice received by a Credit Party or Subsidiary thereof relating to alleged ERISA violations; (e) any Reportable Event, as defined in ERISA with respect to a Credit Party or Subsidiary thereof; (f) any pending or threatened labor dispute, strike or walkout, or expiration of any material labor contract with respect to a Credit Party or Subsidiary thereof; (g) any rejection, return, offset, dispute, loss, or other circumstance having a Material Adverse Effect on any material Collateral; (h) the cancellation or termination of, or any material default under, any Material Agreement, except for any Material Agreement with a supplier or distributer to the extent such agreement is replaced substantially concurrently with such cancellation or termination thereof, or such material default thereunder, or is not reasonably necessary to the applicable Credit Party’s ordinary course of business; (i) any acceleration of the maturity of any Debt or other liability of any Credit Party or Subsidiary thereof or the occurrence or existence of any event or circumstances which gives the holder of such Debt or liability the right to accelerate; (j) any loss or threatened loss of material licenses or permits of a Credit Party or Subsidiary thereof; or (k) any litigation with respect to a Credit Party or Subsidiary thereof alleging any potential or actual violation of health care laws, including Medicare or Medicaid.
Section 8.5 Inspections of Books and Records and Field Examinations; Appraisals; Physical Inventories.
(a) The Credit Parties shall permit the Agent and its agents to conduct inspections, verifications (of accounts and otherwise), appraisals, and field examinations of the Collateral and such Person’s other property and books and records at such times as the Agent may reasonably request (limited to, unless a Default or Event of Default exists, normal business hours), with (i) when no Default or Event of Default is in existence, no more than two (2) times per calendar year and with reasonable notice thereof and (ii) when any Default or Event of Default is in existence, no notice thereof. The Borrower shall pay the cost of such inspections, verifications, appraisals, and field examinations; provided, the cost of field examinations shall not exceed $950 per examiner per day, plus the Agent’s and its agents’ actual out-of-pocket expenses.
(b) Books and Records. Each Credit Party will keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities to the extent necessary to prepare the consolidated financial statements of the Borrower in conformity with GAAP.
Section 8.6 Financial Information. The Credit Parties shall, and shall cause their Subsidiaries to, maintain books and records in accordance with GAAP and shall furnish to the Agent for distribution to the Lenders the following periodic financial information:
(a) Interim Statements. On or before the date that is 45 days after the last day of each Fiscal Quarter, a consolidated balance sheet of the Borrower and its Subsidiaries at the end of such Fiscal Quarter and a consolidated income statement and statement of cash flows for such period (and for the portion of the Fiscal Year ending with such period), together with all supporting schedules, setting forth in comparative form the figures for the same period of the preceding Fiscal Year and together with a corresponding discussion and analysis of results from management. The foregoing statements and reports shall be certified by the Borrower’s chief financial officer as true and correct in all material respects and fairly representing the financial condition of the Borrower and its Subsidiaries and that such statements are prepared in accordance with GAAP, except without footnotes and subject to normal year-end audit adjustments.
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(b) Annual Statements. Within 120 days after the end of each Fiscal Year, a detailed audited financial report of the Borrower and its Subsidiaries containing a consolidated balance sheet at the end of such period and a consolidated income statement and statement of cash flows for such period, setting forth in comparative form the figures for the preceding Fiscal Year, together with all supporting schedules and footnotes, and containing an unqualified audit opinion (which opinion shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit (other than a going-concern exception or explanatory note resulting solely from an upcoming maturity date hereunder occurring within one year from the time such opinion is delivered)) of independent certified public accountants acceptable to the Agent that the financial statements were prepared in accordance with GAAP.
(c) Compliance and No Default Certificate. Together with each report required by Sections 8.6(a) and 8.6(b), a Compliance Certificate in the form of Exhibit 8.6(c), attached hereto and made a part hereof. Each such Compliance Certificate will be accompanied by a spreadsheet showing the Borrower’s calculations of all financial covenants, which must be of such detail as reasonably requested by the Agent from time to time.
(d) Auditor’s Management Letters. Promptly upon receipt thereof, copies of any management letters submitted to the Borrower by independent public accountants.
(e) Other Information. (i) Such other information reasonably requested by the Agent from time to time concerning the business, properties, or financial condition of the Credit Parties and their respective Subsidiaries and (ii) without limiting the generality of the foregoing, such information as the Agent may request from time to time with respect to the Credit Parties’ Affiliates (including, without limitation, the identity thereof and nature of affiliation).
(f) Projections. Within thirty (30) days following the beginning of each Fiscal Year, Projections for such Fiscal Year, prepared on a quarter-to-quarter basis.
(g) Anti-Money-Laundering; Beneficial Ownership Regulation. Promptly following any request therefor, information and documentation reasonably requested by the Agent or any Lender for purposes of compliance with applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the PATRIOT Act and the Beneficial Ownership Regulation.
Section 8.7 Maintenance of Existence and Rights. Except pursuant to an Asset Sale, liquidation or merger permitted by Section 9.13, the Credit Parties shall preserve and maintain their legal existence, authorities to transact business, rights and franchises, trade names, patents, trademarks, and permits necessary to the conduct of its business.
Section 8.8 Payment of Taxes, Etc. The Credit Parties shall, and shall cause their Subsidiaries to, file all federal and state income and other material tax returns which are required to be filed, and pay all taxes as shown on said returns, all withholding and FICA, and all taxes, including ad valorem taxes, shown on all assessments received by it to the extent that such taxes have become due except for any payment of the foregoing which is being Properly Contested.
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Section 8.9 Subordination. The Borrower shall cause all (a) Debts, liabilities and other obligations now or hereafter owed to any Guarantor or Affiliate (other than trade debt incurred in the ordinary course of business in compliance with Section 9.7) and (b) all trade debt payable to any Guarantor or Affiliate, in each case, to be subordinated to the Obligations on terms satisfactory to the Agent.
Section 8.10 Compliance; Hazardous Materials. The Credit Parties shall, and shall cause their Subsidiaries to, comply in all material respects with all laws, regulations, ordinances, and other legal requirements, including, without limitation, ERISA, all securities laws, and all laws relating to hazardous materials and the environment. Unless approved in writing by the Agent, no Credit Party nor any Subsidiary of a Credit Party shall engage in the storage, manufacture, disposition, processing, handling, use, or transportation of Regulated Materials, whether or not in compliance with Environmental Laws, except in compliance in all material respects with all Environmental Laws (and the Credit Parties shall cause their respective Subsidiaries to comply with the foregoing). Credit Parties shall promptly report to the Agent any notices of any violations of such laws or regulations received from any Governmental Authority, along with the Credit Parties’ proposed corrective action as to such violation.
Section 8.11 Further Assurances. The Credit Parties shall (a) promptly execute and deliver to the Agent, or cause to be executed and delivered to the Agent, all such further documents, agreements, and instruments and (b) take such further action, in each case in compliance with or for the accomplishment of the covenants and agreements of the Credit Parties’ in this Agreement and the other Loan Documents, all as may be necessary or appropriate in connection herewith or therewith and as may be reasonably requested by the Agent.
Section 8.12 Covenants Regarding Collateral.
(a) The Credit Parties shall defend the Collateral against all claims and demands of all Persons, except for Permitted Liens;
(b) The Credit Parties shall exercise commercially reasonable efforts to obtain and deliver to the Agent such Third Party Agreements as the Agent may request from time to time;
(c) The Credit Parties shall promptly notify Agent of all Items, Instruments, Chattel Paper, and documents which constitute Collateral that evidence an amount payable in excess of $500,000, individually, or $2,000,000, in the aggregate, and, if requested by Agent, shall deliver to the Agent any such items, Instruments, Chattel Paper, and documents appropriately indorsed to the Agent’s order (or, in the case of Items, if requested by Agent, shall promptly deposit same into a Deposit Account subject to the Agent’s Control or otherwise in compliance with Section 2.11(c));
(d) The Credit Parties shall promptly deliver to the Agent all Investment Property in the form of certificated securities, together with appropriate stock transfer powers;
(e) The Credit Parties shall not create any electronic chattel paper evidencing an amount payable in excess (together with Items, Instruments, Chattel Paper, and documents that are or evidence Collateral and are not subject to the Agent’s possession) of $500,000, individually or in the aggregate, without first promptly notifying Agent thereof and, if requested by Agent, granting the Agent Control thereof pursuant to such measures as the Agent shall request;
(f) The Credit Parties shall promptly notify the Agent of any registered (including applications for) patents, trademarks, or copyrights to which a Credit Party or a Subsidiary of a Credit Party acquires title or rights after the Effective Date, whether registered with any domestic or foreign entity or registry (but excluding registrations made solely with a State of the United States or the District of Columbia, unless material) and any license agreements (other than shrink-wrap or off-the-shelf business software acquired in the ordinary course of business) entered into after the Effective Date by any Credit Party or any Subsidiary of a Credit Party authorizing such Credit Party or such Subsidiary to use any third party’s patents, trademarks, or copyrights;
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(g) The Credit Parties shall give the Agent at least thirty (30) days written notice before using any trade, assumed, or fictitious name not already disclosed in the Collateral Disclosure Certificate and shall use all trade, assumed, or fictitious names in accordance with all applicable laws; and
(h) The Credit Parties shall promptly notify the Agent of the existence of any Commercial Tort Claims in an amount (individually or in the aggregate with other Commercial Tort Claims) in excess of $500,000 which arise after the Effective Date and shall provide the Agent with such information, and otherwise take such action with respect to such Commercial Tort Claims, as is requested by Agent and reasonably necessary for the Agent to perfect its security interest thereon.
Section 8.13 Lenders Meetings. The Borrower will, upon the request of the Agent or the Required Lenders, participate in a meeting of the Agent and the Lenders once during each Fiscal Year to be held at the Borrower’s corporate offices (or at such other location as may be agreed to by the Borrower and the Agent) at such time as may be agreed to by the Borrower and the Agent.
Section 8.14 [Reserved].
Section 8.15 Additional Real Estate Assets.
(a) In the event that any Credit Party owns or acquires a Material Owned Real Estate Asset, then such Credit Party, no later than forty-five (45) days (or such longer period as may be agreed in writing by the Agent in its sole discretion) after acquiring such Material Owned Real Estate Asset shall take all such actions and execute and deliver, or cause to be executed and delivered, all such Mortgages, documents, instruments, agreements, opinions and certificates similar to those described in clause (b) immediately below that the Agent shall reasonably request to create in favor of the Agent, for the benefit of the holders of the Obligations, a valid and, subject to any filing and/or recording referred to herein, enforceable Lien on, and security interest in such Material Owned Real Estate Asset. The Agent may, in its reasonable judgment, grant extensions of time for compliance or exceptions with respect to the provisions of this Section 8.15 by any Credit Party. In addition to the foregoing, the applicable Credit Party shall, at the request of the Required Lenders, deliver, from time to time, to the Agent such appraisals as are required by law or regulation of Material Owned Real Estate Assets with respect to which the Agent has been granted a Lien. Notwithstanding the provisions of this Section 8.15(a), if at any time any real property is pledged as Collateral hereunder (A) the Borrower shall provide at least twenty (20) days’ prior written notice to the pledge of such real property as Collateral, (B) the Borrower shall provide (1) standard flood hazard determination forms and (2) if any property is located in a special flood hazard area, (x) notices to (and confirmations of receipt by) the Borrower as to the existence of a special flood hazard and, if applicable, the unavailability of flood hazard insurance under the National Flood Insurance Program and (y) evidence of applicable flood insurance, if available, in each case in such form, on such terms and in such amounts as required by The National Flood Insurance Reform Act of 1994, the Federal Flood Disaster Protection Act and rules and regulations promulgated thereunder or as otherwise required by the Agent or any Lender, and (C) the Agent shall not enter into, accept or record any mortgage in respect of such real property until the Agent shall have received written confirmation from each Lender that flood insurance compliance
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has been completed by such Lender with respect to such real property (such written confirmation not to be unreasonably withheld or delayed). Any increase, extension or renewal of any of the Commitments, Loans or this Agreement (including, without limitation, the provision of any incremental credit facilities hereunder, but excluding (i) any continuation of conversion of borrowings, (ii) the making of any Revolving Loans or (iii) the issuance, renewal or extension of Letters of Credit) shall be subject to flood insurance due diligence and flood insurance compliance reasonably satisfactory to the Agent and each Lender, including without limitation the prior delivery of all flood hazard determination certifications, acknowledgments and evidence of flood insurance and other flood-related documentation as required by Applicable Laws or as otherwise reasonably required by the Lenders; provided that the Agent shall have received written confirmation from the Lenders that flood insurance due diligence and flood insurance compliance has been completed by the Lenders (such written confirmation not to be unreasonably withheld, conditioned or delayed).
(b) In order to create in favor of the Agent, for the benefit of the holders of the Obligations, a valid and, subject to any filing and/or recording referred to herein, enforceable Lien on, and security interest in, any Material Owned Real Estate Asset that is prior and superior in right to any other Lien (other than Permitted Liens), the Agent and the Agent (with copies sufficient for each Lender) shall have received from the Borrower with respect to such Material Owned Real Estate Asset:
(i) fully executed and notarized Mortgages, in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering such Material Owned Real Estate Asset;
(ii) an opinion of counsel (which counsel shall be reasonably satisfactory to the Agent) in each state in which such Material Owned Real Estate Asset is located with respect to the enforceability of the form(s) of Mortgages to be recorded in such state and such other matters as the Agent may reasonably request, in each case in form and substance reasonably satisfactory to the Agent;
(iii) (A) ALTA mortgagee title insurance policies or unconditional commitments therefor issued by one or more title companies reasonably satisfactory to the Agent (each, a “Title Policy”) with respect to such Material Owned Real Estate Asset, in amounts not less than the fair market value of such Material Owned Real Estate Asset, together with a title report issued by a title company with respect thereto and copies of all recorded documents listed as exceptions to title or otherwise referred to therein, each in form and substance reasonably satisfactory to the Agent and (B) evidence reasonably satisfactory to the Agent that the Borrower has paid to the title company or to the appropriate Governmental Authorities all expenses and premiums of the title company and all other sums required in connection with the issuance of each Title Policy and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Mortgage for such Material Owned Real Estate Asset in the appropriate real estate records;
(iv) a recently issued flood zone determination certificate;
(v) evidence of flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, in form and substance reasonably satisfactory to the Agent;
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(vi) if an exception to the Title Policy with respect to any Material Owned Real Estate Asset subject to a Mortgage would arise without such ALTA surveys, ALTA surveys of such Material Owned Real Estate Asset; and
(vii) other customary reports and other information reasonably requested by the Agent, in form, scope and substance reasonably satisfactory to the Agent, regarding environmental matters relating to such Material Owned Real Estate Asset.
Section 8.16 Pledge of Personal Property Assets.
(a) Equity Interests. Each Credit Party shall cause (i) one hundred percent (100%) of the issued and outstanding Equity Interests in each Domestic Subsidiary owned by such Credit Party and (ii) sixty-six and two thirds percent (66 2/3%) of the issued and outstanding Equity Interests entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) and one hundred percent (100%) of the issued and outstanding Equity Interests not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) in the case of each Foreign Subsidiary that is directly owned by any Credit Party or any Domestic Subsidiary to be subject at all times to a first priority lien (subject to any Permitted Lien) in favor of the Agent, for the benefit of the Lenders, pursuant to the terms and conditions of the Collateral Documents, together with opinions of counsel and any filings and deliveries or other items reasonably requested by the Agent necessary in connection therewith (to the extent not delivered on the Effective Date) to perfect the security interests therein, all in form and substance reasonably satisfactory to the Agent.
(b) Personal Property. Each Credit Party shall (i) cause all of its owned and leased personal property (other than Excluded Property) to be subject at all times to first priority (subject to any Permitted Lien), perfected Liens in favor of the Agent, for the benefit of the holders of the Obligations, to secure the Obligations pursuant to the terms and conditions of the Collateral Documents or, with respect to any such property acquired subsequent to the Effective Date, such other additional security documents as the Agent shall reasonably request, subject in any case to Permitted Liens and (ii) deliver such other documentation as the Agent may reasonably request in connection with the foregoing, including, without limitation, appropriate UCC1 financing statements, certified resolutions and other organizational and authorizing documents of such Person, opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above and the perfection of the Agent’s Liens thereunder) and other items reasonably requested by the Agent necessary in connection therewith to perfect the security interests therein, all in form, content and scope reasonably satisfactory to the Agent.
(c) Deposit Accounts; Exclusive Control. No Credit Party shall, and shall not permit any Subsidiary of a Credit Party to, open or maintain any Deposit Accounts except for (a) Deposit Accounts with the Agent; (b) Deposit Accounts listed in the Collateral Disclosure Certificate; (c) Deposit Accounts which are not with the Agent but which are subject to the Agent’s Control on terms satisfactory to the Agent; and (d) such other Deposit Accounts as shall be necessary for payroll, petty cash, local trade payables, and other occasional needs of such Credit Party or Subsidiary; provided that the aggregate balance of any Deposit Accounts of the Credit Parties which are not subject to the Agent’s Control on terms acceptable to the Agent may not at any time exceed $500,000.
(d) Third Party Agreements. Upon the reasonable request of the Agent, the Credit Parties shall use commercially reasonable efforts to obtain Third Party Agreements with respect to leased locations where corporate records or material amounts of personal property of any of the Credit Parties are maintained.
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Section 8.17 Additional Subsidiaries.
(a) Together with the financial information required by Section 8.6(a) delivered in connection with each Fiscal Quarter of each calendar year, the Credit Parties shall notify the Agent, in writing, of the acquisition or formation of any Subsidiary that was formed during such Fiscal Quarter, together with the (i) jurisdiction of formation, (ii) number of shares of each class of Equity Interests outstanding, (iii) number and percentage of outstanding shares of each class owned (directly or indirectly) by any Credit Party or any Subsidiary and (iv) number and effect, if exercised, of all outstanding options, warrants, rights of conversion or purchase and all other similar rights with respect thereto.
(b) Within thirty (30) days of the delivery of the information required under clause (a) above (or such later date as may be agreed in writing by the Agent in its sole discretion):
(i) if such Subsidiary is a wholly-owned Domestic Subsidiary (other than a joint venture of a Credit Party that is not a wholly owned Subsidiary of a Credit Party), cause such Person to (A) become a Guarantor by executing and delivering to the Agent a Guarantor Joinder Agreement or such other documents as the Agent shall deem reasonably appropriate for such purpose, and (B) deliver to the Agent documents of the types referred to in Sections 6.1(b) and (d) and opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in the immediately foregoing clause (A)), all in form, content and scope satisfactory to the Agent; and
(ii) in the case of Subsidiaries that are joint ventures that are not wholly owned by the Credit Parties, provide one or more duly executed pledge agreement amendments and supplements reflecting the pledge of the Equity Interests of such Subsidiary owned by the applicable Credit Party in favor of the Agent, together with certified resolutions and such other agreements and documents as the Agent shall reasonably request in connection therewith, in each case in form and substance reasonably satisfactory to the Agent.
Section 8.18 Post-Closing Covenants.
(a) Insurance Endorsements. On or before the date that is thirty (30) days after the Effective Date (or such later date as agreed to by the Agent in its sole discretion), the Credit Parties shall provide to the Agent (i) additional insured endorsements for their general liability, excess and umbrella policies, in each case in favor of the Agent and in each case reflecting all Credit Parties as named insured on the face thereof and (ii) notice of cancellation endorsements in respect of the Credit Parties’ liability policies in favor of the Agent, in each case in form and substance required under Section 8.3 and otherwise in form and substance reasonably satisfactory to the Agent.
(b) Third Party Agreements. On or before the date that is thirty (30) days after the Effective Date (or such later date as agreed to by the Agent in writing), the Credit Parties shall have exercised commercially reasonable efforts to provide the Agent with a duly executed Third Party Agreement with the landlord for the Exel Warehouse located at 98 Excellence Way, Vonore, TN 37885.
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(c) Proposed IPO Joinders
(i) On or before the date that is thirty (30) days after the Proposed IPO Effective Date (or such later date as agreed to by the Agent in writing), the Credit Parties shall cause Guardian Pharmacy Services to (A) have delivered an affirmation and assumption agreement or joinder agreement pursuant to which it will become the “Borrower” hereunder in form and substance reasonably acceptable to the Agent, (B) take the actions required by Sections 8.15, 8.16 and 8.17 hereof and (C) deliver such other documents, certificates and agreements as would have been delivered if it were a party to this Agreement on the Effective Date.
(ii) On or before the date that is thirty (30) days after the Proposed IPO Effective Date (or such later date as agreed to by the Agent in writing), the Credit Parties shall cause each of the Subsidiaries listed on Schedule 8.18(c) hereto (so long as each such Subsidiary is a wholly-owned Domestic Subsidiary on such date) to (A) take the actions required by Sections 8.15, 8.16 and 8.17 hereof and (B) deliver such other documents, certificates and agreements as would have been delivered if it were a party to this Agreement on the Effective Date.
(d) Sixth Amendment Subsidiary Documentation. On or before December 31, 2024 (or such later date as may be agreed in writing by the Agent in its sole discretion), the Credit Parties shall deliver all information and documentation required under Section 8.17 of this Agreement in connection with the acquisition or formation of the Subsidiary identified in Section 3 of Schedule 1 of the Sixth Amendment.
SECTION 9. NEGATIVE COVENANTS
Each Credit Party covenants and agrees that until the Obligations shall have been paid in full or otherwise satisfied (other than contingent indemnification Obligations that have not been asserted and are not liquidated in amount), and the Commitments hereunder shall have expired or been terminated, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 9.
Section 9.1 Debt. The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, create or permit to exist any Debt, including any guaranties or other contingent obligations, except the following:
(a) the Obligations;
(b) indorsement of Items for collection in the ordinary course of business;
(c) unsecured earnouts or similar payments and unsecured Debt constituting a deferred payment of the purchase price, in each case, with respect to any Permitted Acquisition and, in each case, only so long as such amounts do not exceed $6,000,000 in connection with any such Permitted Acquisition;
(d) purchase money Debt (including Debt of a Credit Party or any Subsidiary represented by obligations under a Capital Lease) incurred to purchase or acquire Equipment; provided that the amount of such Debt shall not at any time (i) exceed the price of the Equipment purchased or acquired or (ii) exceed, in aggregate principal amount at any time outstanding for Credit Parties and their Subsidiaries, $20,000,000;
(e) [reserved];
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(f) Debt listed in Schedule 9.1, attached hereto and made a part hereof, to the extent such Debt exists as of the Effective Date, together with any Debt incurred in any refinancing or renewal thereof (each, a “Refinancing”), so long as the principal amount of such Refinancing is not greater than the existing principal amount of such Debt, the principal amount of such Refinancing does not mature earlier than, or have a weighted average life to maturity shorter than, such Debt, and the covenants, representations, warranties, and events of default related to such Refinancing, taken as a whole, are not materially more restrictive than those, taken as a whole, existing in connection with such Debt; provided, that, in connection with the incurrence of any such Refinancing, the Borrower shall have delivered to the Agent a certificate from an Authorized Officer of the Borrower certifying that such Refinancing complies with the requirements of this Section 9.1(f);
(g) (i) Debt of any Subsidiary (other than a Credit Party) owing to the Borrower or another Subsidiary and (ii) Debt of any Credit Party owing to another Credit Party;
(h) (i) purchase money Debt incurred solely to purchase Inventory from pharmaceutical wholesalers so long as the amount of such Debt shall not at any time exceed the purchase price of the Inventory purchased, and (ii) Debt provided by pharmaceutical wholesalers to Subsidiaries of the Borrower for purposes of financing the start-up of new pharmacy businesses so long as such Debt is incurred within twelve (12) months of such new business commencing operations; provided that, with respect to the Debt described in the foregoing clause (ii), (A) such Debt shall not exceed an aggregate principal amount at any time outstanding of $6,000,000 for the Borrower and its Subsidiaries, and (B) the documentation evidencing such Debt, and any Liens permitted to secure the same, shall be in form and substance satisfactory to Agent in all respects;
(i) the unsecured Guaranties permitted pursuant to Section 9.4(d)(x) of this Agreement;
(j) other unsecured Debt in an aggregate amount outstanding at any time not to exceed $8,000,000; and
(k) indebtedness representing the financing of insurance premiums in the ordinary course of business and not for borrowed money.
Section 9.2 Liens. The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, create or permit or suffer to exist any Liens on any of their property except the following (collectively, “Permitted Liens”):
(a) Liens securing the Obligations;
(b) Liens for taxes, assessments, and charges or levies instituted or levied by any Governmental Authority (but not including any Lien imposed pursuant to ERISA or any Environmental Law) which are not yet due and payable or which are being Properly Contested;
(c) the claims of Third Parties arising out of operation of law so long as the obligations secured thereby are not past due or are being Properly Contested;
(d) Liens existing in respect of deposits or pledges made in the ordinary course of business in connection with workers’ compensation, unemployment insurance, social security, and similar laws;
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(e) judgment and other similar non-tax Liens arising in connection with court proceedings, but only to the extent such judgments and Liens do not result in an Event of Default under Section 10.1(i);
(f) Liens securing purchase money Debt (including Debt of a Credit Party or any Subsidiary represented by obligations under a Capital Lease) incurred solely to purchase or acquire Equipment, but only to the extent such Liens attach only to the Equipment purchased and secure no more than the purchase price therefor;
(g) Liens in favor of a consignor of goods consigned to such Credit Party (as consignee), but only to the extent such Lien arises by operation of law;
(h) Liens on a Credit Party’s or a Subsidiary’s Inventory which is on consignment from such Credit Party or such Subsidiary, as consignor, to another Person, as consignee, but only if (i) such Liens are in favor of such Person’s creditors, (ii) such Inventory is on consignment pursuant to a written consignment agreement which is described in the Collateral Disclosure Certificate or which has otherwise been approved in writing by the Agent, and (iii) the applicable consignment agreement creates a “consignment” (as such term is defined and used in the UCC);
(i) Liens listed in Schedule 9.2, attached hereto and made a part hereof, to the extent such Liens exist as of the Effective Date and are not otherwise permitted by this Section 9.2;
(j) (i) Liens in favor of pharmaceutical wholesalers arising in the Borrower’s and its Subsidiaries’ ordinary course of business and securing purchase money Debt incurred solely to purchase Inventory, but only to the extent such Liens (A) attach only to the Inventory purchased and (B) secure no more than the Debt permitted under Section 9.1(h) of this Agreement, and (ii) Liens in favor of Parmed in the Inventory of the Borrower and its Subsidiaries securing the Permitted Parmed Debt but only to the extent such Liens (A) are granted by the Borrower or Subsidiary that has incurred such Permitted Parmed Debt and secure only such Debt of the Borrower or Subsidiary, and (B) do not extend to any proceeds arising out of the sale of such Inventory (including, without limitation, proceeds consisting of accounts receivable);
(k) Liens on assets of the Borrower’s Subsidiaries that are not Credit Parties in favor of vendors of the Borrower’s Subsidiaries that are not Credit Parties arising in such Subsidiaries’ ordinary course of business and securing JV Vendor Payables, but only to the extent such Liens secure no more than $30,000,000 of JV Vendor Payables; and
(l) Liens on unearned insurance premiums securing any insurance premium financing permitted by Section 9.1(k).
Section 9.3 Restricted Payments. The Credit Parties shall not, and shall not permit any Subsidiary to, make any Restricted Payment, except that (a) any Subsidiary of the Borrower may make Restricted Payments to any Person that owns Equity Interests in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made, in each case, so long as no Default or Event of Default exists or is occurring as a result of such Restricted Payment; (b) the Borrower may make Tax Distributions; provided that, the Borrower and its Subsidiaries may make the payments referred to in the foregoing clauses (a) and (b) only if, at the time of and after giving effect to such Restricted Payments, the Borrower or the Subsidiary making a Restricted Payment is Solvent and such Restricted Payment is not in violation of Applicable Law; (c) the Borrower may make the Effective Date Distribution so long as no Default exists or would result from the making of the Effective Date Distribution; (d) the Borrower may make the Post-Effective Date Distribution so long as
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(i) no Default exists or would result from the making of the Post-Effective Date Distribution, (ii) the Borrower is in compliance with the financial covenants in Section 9.17 on a pro forma basis after giving effect to the Post-Effective Date Distribution (and if the Borrower elects to increase Consolidated Leverage Ratio test level pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase) and (iii) the Consolidated Leverage Ratio is less than or equal to 3.00 to 1.00 on a pro forma basis after giving effect to the Post-Effective Date Distribution, (e) the Borrower may make the First Amendment Distribution so long as (i) no Default exists or would result from the making of the First Amendment Distribution, (ii) the Borrower is in compliance with the financial covenants in Section 9.17 on a pro forma basis after giving effect to the First Amendment Distribution (and if the Borrower elects to increase Consolidated Leverage Ratio test level pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase) and (iii) the Consolidated Leverage Ratio is less than or equal to 3.00 to 1.00 on a pro forma basis after giving effect to the First Amendment Distribution, (f) the Borrower may make the Third Amendment Distribution, so long as (i) no Default exists or would result from the making of the Third Amendment Distribution and (ii) the Borrower is in compliance with the financial covenants in Section 9.17 on a pro forma basis after giving effect to the Third Amendment Distribution (and if the Borrower elects to increase Consolidated Leverage Ratio test level pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase), and (g) the Borrower may make the Fifth Amendment Distribution, so long as (i) no Default exists or would result from the making of the Fifth Amendment Distribution and (ii) the Borrower is in compliance with the financial covenants in Section 9.17 on a pro forma basis after giving effect to the Fifth Amendment Distribution (and if the Borrower elects to increase Consolidated Leverage Ratio test level pursuant to the terms of Section 9.17(b) and has provided an officer’s certificate demonstrating such compliance, after giving effect to any such Leverage Ratio Increase).
Section 9.4 Loans and Other Investments. With respect to any Person, the Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, (a) make or permit to exist any advances or loans to such Person, (b) guarantee or become contingently liable, directly or indirectly, in connection with the obligations, leases, Equity Interests, or dividends or distributions of such Person, (c) own, purchase, or make any commitment to purchase any Equity Interests, bonds, notes, debentures, or other securities of, or any interest in such Person, or (d) make any capital contributions to such Person (all of which are sometimes collectively referred to herein as “Investments”), except for (i) purchases of direct obligations of the United States; (ii) deposits in commercial banks; (iii) commercial paper of any U.S. corporation having the highest ratings then given by the Moody’s Investors Services, Inc. or Standard & Poor’s Corporation; (iv) investments in Subsidiaries existing as of the Effective Date; (v) endorsement of negotiable instruments for collection in the ordinary course of business; (vi) advances to employees for business travel and other expenses incurred in the ordinary course of business which do not at any time exceed in the aggregate $10,000; (vii) (A) any Swap Agreements entered into under Section 8.14 and (B) any Swap Agreements entered into in the ordinary course of business and not for speculative purposes with a counterparty reasonably acceptable to the Agent; (viii) Investments (other than loans) by the Borrower in its Subsidiaries; provided that at any time an Event of Default exists, no such Investment in any Subsidiary that is not a Credit Party may be made with any proceeds of the Loans without the Agent’s prior written consent; (ix) Investments by any Subsidiary that is not a Credit Party in any Subsidiary that is not a Credit Party; (x) the Pharmaceutical Wholesalers Guaranties in an aggregate amount not greater than $80,000,000 at any time; (xi) loans by the Borrower to Subsidiaries of the Borrower that are joint ventures (each such loan, a “Joint Venture Loan”), so long as (A) such Joint Venture Loans are guaranteed in favor of the Borrower by all of the Persons owning the Equity Interests of such Subsidiary, other than the Borrower (each such guaranty, a “Joint Venture Guaranty”), in proportion of the Equity Interests such Person owns in such Subsidiary, and, if any Joint Venture Loan is secured, the Borrower has taken appropriate steps to perfect is Lien, and (B) the documentation evidencing each such Joint Venture Loan and the corresponding Joint Venture
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Guaranty are in form and substance satisfactory to the Agent (including, without limitation, that the corresponding Joint Venture Guaranty is on an unconditional basis (but may be limited based on the proportion of the Equity Interests each applicable guarantor owns in such Subsidiary) and, together with the documentation evidencing the Joint Venture Loan, includes a pledge and collateral assignment in favor of the Agent); provided, that the Credit Parties shall not be required to comply with the foregoing clauses (A) or (B) in respect of a loan by the Borrower to a joint venture which (x) does not exceed (together with all other such loans made to the joint venture) a principal amount of $500,000 and (y) does not exceed (together with all loans with respect to which the Credit Parties’ obligation to comply with the foregoing clauses (A) or (B) is excepted pursuant to this proviso) a principal amount of $1,000,000; (xii) promissory notes payable by customers of the Credit Parties and their Subsidiaries to the applicable Credit Parties or Subsidiaries thereof in an aggregate principal amount not exceeding $2,000,000 at any time; (xiii) Permitted Acquisitions otherwise permitted by this Agreement; (xiv) so long as no Default or Event of Default exists before and immediately after giving effect thereto, the Credit Parties and their Subsidiaries may purchase Equity Interests of their joint venture Subsidiaries from the minority owners of such joint venture Subsidiaries on arms’-length terms; and (xv) loans by the Borrower to any Person in an aggregate principal amount not to exceed $2,000,000 at any time outstanding.
Section 9.5 Change in Business; Activities Covered by Insurance.
(a) The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, enter into any business which is substantially different from the business in which it is engaged on the Effective Date.
(b) The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, permit or undergo any changes in its business and related activities which could result in the termination, revocation, ineffectiveness, or unenforceability of any of the policies of insurance required by Section 8.3.
Section 9.6 Accounts. (a) The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, sell, assign, or discount any of its Accounts, Chattel Paper, or Instruments other than the discount of promissory notes in the ordinary course of business for collection; (b) the Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, create or accept any Account, Instrument, Chattel Paper or other obligation of any kind due from or owed by a Sanctioned Person or own any Chattel Paper in the form of a lease where (i) the lessee thereunder is a Sanctioned Person and (ii) such chattel paper is Collateral; and (c) the Credit Parties shall provide any information relating to a material and adverse change in any material Account Debtor’s financial condition or ability to pay its obligations or an Account Debtor’s status as a Sanctioned Person.
Section 9.7 Transactions with Affiliates. The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, in the ordinary course of business or otherwise, (a) directly or indirectly purchase, acquire, lease, or license any property from any Affiliate, (b) sell, transfer, lease, or license any property to any Affiliate, (c) pay any management, consulting, or similar fees to any Affiliate, (d) make payments to officers or employees of any Credit Party other than reasonable compensation for services actually rendered and other advances permitted under Section 9.4(d)(vi), or (e) otherwise deal with any Affiliate, other than (i) where such Affiliate is a Subsidiary and a Credit Party, (ii) transactions described on Schedule 9.7, attached hereto and made a part hereof, and (iii) transactions on arms’-length terms which are no less favorable to such Credit Party or such Subsidiary than would exist if the parties thereto were not Affiliates.
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Section 9.8 No Change in Name, Offices, or Jurisdiction of Organization; Removal of Collateral. The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, (a) change its legal name or the jurisdiction in which it is organized, (b) unless it shall have given thirty (30) days’ advance written notice thereof to the Agent, conduct business under any trade name, assumed name, or fictitious name which was not listed in its Collateral Disclosure Certificate as of the Effective Date, (c) unless it shall have given thirty (30) days’ advance written notice thereof to the Agent, change the location of its chief executive office or other office where books or records are kept, (d) locate its chief executive office or keep its books and records in any jurisdiction other than in a state within the United States of America or the District of Columbia, (e) amend, restate, or modify its articles or certificate of incorporation, organization, formation, or limited partnership in any manner that is adverse to the interests the Lenders or in any manner which could reasonably be expected to have a Material Adverse Effect, or (f) permit tangible Collateral to be located at any location other than a Permitted Location.
Section 9.9 No Sale, Leaseback. The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, enter into any sale-and-leaseback or similar transaction.
Section 9.10 Margin Stock. The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, use any proceeds of the Loan to purchase or carry any margin stock (within the meaning of Regulation U of the Board of Governors of Federal Reserve System) or extend credit to others for the purpose of purchasing or carrying any margin stock.
Section 9.11 Tangible Collateral. The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, except to the extent otherwise permitted herein or as otherwise permitted by Agent in writing, (a) allow any material Collateral to be commingled with, or become an Accession to or part of, any property of any other Person or (b) allow any material Collateral to become a Fixture.
Section 9.12 Subsidiaries. The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, without the prior written consent of the Agent, (a) acquire or form any Subsidiary, (b) cause or permit any Subsidiary to dissolve, voluntarily or involuntarily, or (c) permit any Subsidiary to issue any Equity Interests except to its parent; provided, however, that notwithstanding the foregoing clause (a), the Borrower shall be permitted to form or acquire new Domestic Subsidiaries after the Effective Date that are directly owned by the Borrower, so long as the Borrower complies with Section 8.17 with respect thereto. Nothing in this Section 9.12 shall be deemed to permit the Credit Parties to engage in any Acquisition or other transaction not otherwise permitted by the terms of this Agreement and no Subsidiary formed or acquired after the Effective Date shall be a non-wholly owned Subsidiary without the prior written consent of the Agent (unless acquired in connection with a Permitted Acquisition permitted by this Agreement and with respect to which the Credit Parties shall have complied with the Section 8.17 with respect thereto).
Section 9.13 Liquidation, Mergers, Consolidations, and Dispositions of Assets; Name and Good Standing. The Credit Parties shall not, and shall not permit any Subsidiary of a Credit Party to, (a) merge (except in connection with a Permitted Acquisition occurring substantially concurrently with the consummation of the applicable Acquisition pursuant to merger documentation satisfactory to the Agent and pursuant to which the surviving Person is a Credit Party (unless such merger occurred among solely among Subsidiaries that are not Credit Parties)), reorganize, consolidate, or amalgamate with any Person, except that, with the prior written consent of the Agent, any wholly-owned Subsidiary of the Borrower may liquidate or merger with and into the Borrower or any other Credit Party; provided that if the Borrower is a party to such merger, the Borrower shall be the surviving Person; (b) liquidate, wind up its affairs or dissolve itself; (c) engage in any Acquisition except for Permitted Acquisitions; (d) sell, transfer, lease, or otherwise dispose of any of its assets, except for (i) the sale of Inventory in the ordinary course of business, (ii) to the extent not in violation of Section 8.14, the voluntary termination of Swap Agreements to which such Credit Party or such Subsidiary is a party, (iii) the sale of assets that are obsolete, unmerchantable or otherwise unsalable in the ordinary course of business and (iv) the sale, transfer, lease or other disposition of assets (individually or in the aggregate) having a fair market value of less than $1,000,000 in any calendar
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year; (e) sell or dispose of any Equity Interests in any Subsidiary, whether in a single transaction or in a series of related transactions (except for (x) minority Equity Interests in Subsidiaries formed after the Effective Date in accordance with Section 9.12 in connection with the commencement of a joint venture and (y) upon not less than five (5) Business Days’ prior written notice to Agent (or such other time period for notice as Agent may agree in its reasonable discretion)), arms’ length sales of Equity Interests in joint venture Subsidiaries to the minority Equity Interest owners of such joint venture Subsidiaries, so long as no Default or Event of Default exists before and immediately after giving effect thereto and in no event shall the applicable Credit Party or Subsidiary thereof that is the seller own less than 60% of the outstanding Equity Interests of such joint venture Subsidiary; (f) change its Federal Employer Identification Number without giving at least thirty (30) days’ prior written notice to the Agent; or (g) fail to remain in good standing and qualified to transact business as a foreign entity in any state or other jurisdiction in which it is required to be qualified to transact business as a foreign entity and in which the failure to do so could reasonably be expected to have a Material Adverse Effect. Notwithstanding anything herein to the contrary, in the event that the Borrower undertakes an initial public offering (including the Proposed IPO), the Borrower shall be permitted to reorganize in a manner reasonably acceptable to Agent so long as (x) the plan of reorganization or similar documentation is reasonably acceptable to Agent and (y) any new “Borrower” (including Guardian Pharmacy Services) provides an affirmation and assumption agreement or a joinder in form and substance reasonably acceptable to Agent which is acknowledged, affirmed and agreed to by the Guarantors and delivers such other loan documents, certificates, and agreements as would have been delivered if such new Credit Party was a party to this Agreement as of the Effective Date (the foregoing, a “Permitted IPO Restructuring”).
Section 9.14 Change of Fiscal Year or Accounting Methods. The Credit Parties shall not, and shall not permit any Subsidiary to, change its Fiscal Year or its accounting methods. As of the Effective Date, each Credit Party’s and Subsidiary of a Credit Party’s fiscal year ends on or about December 31 of each year.
Section 9.15 Material Agreements. The Credit Parties shall not amend, restate, supplement, or otherwise modify any Material Agreement in any manner adverse in any material respect to the Agent’s or any Lender’s interest, except for any Material Agreement with a supplier or distributer to the extent such agreement could reasonably be replaced substantially concurrently with the cancellation or termination thereof or is not reasonably necessary to the applicable Credit Party’s ordinary course of business.
Section 9.16 Use of Proceeds. No Credit Party shall use the proceeds of any Credit Extension of the Loans except pursuant to Section 8.1. No Credit Party shall use, and each Credit Party shall ensure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Credit Extension (i) to refinance any commercial paper, (ii) in any manner that causes or might cause such Credit Extension or the application of such proceeds to violate any applicable Sanctions, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System as in effect from time to time or any other regulation thereof or to violate the Exchange Act, (iii) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, or (iv) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country.
Section 9.17 Financial Covenants. The Borrower covenants and agrees that, from the date hereof and until the full and final payment and performance of all Obligations (other than contingent indemnification Obligations that have not been asserted and are not liquidated in amount) and the termination of this Agreement, the Borrower shall comply with each of the following covenants:
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(a) Consolidated Fixed Charge Coverage Ratio. As of the last day of each Fiscal Quarter ending after the Effective Date, the Consolidated Fixed Charge Coverage Ratio for the four (4) Fiscal Quarters then ending shall equal or exceed 1.25 to 1.00.
(b) Consolidated Leverage Ratio. As of the last day of each Fiscal Quarter, the Consolidated Leverage Ratio for the four (4) Fiscal Quarters then ending shall not exceed 3.00 to 1.00; provided that the Consolidated Leverage Ratio levels set forth above may, at the election of the Borrower, be increased by 0.50 to 1.00 (a “half turn”) if the Borrower provides notice of such election five (5) Business Days prior to the consummation of a Permitted Acquisition constituting a Material Acquisition (or the last of a series of Permitted Acquisitions consummated in any six month period collectively constituting a Material Acquisition) for each of the next two Fiscal Quarters ending following the consummation of a Material Acquisition (any such increase, a “Leverage Ratio Increase”); provided, further, that (x) in any event, the maximum Consolidated Leverage Ratio for any period of four Fiscal Quarters shall not be increased to be greater than 3.50 to 1.00, (y) the Consolidated Leverage Ratio levels shall not be increased pursuant to this Section 9.17(b) on more than two occasions prior to the Latest Maturity Date and (z) there must be a period of at least two full Fiscal Quarters in which the Consolidated Leverage Ratio has not been increased pursuant to this Section 9.17(b) before such increase option may again be exercised by the Borrower.
Section 9.18 No Further Negative Pledges. No Credit Party shall, nor shall it permit any of its Subsidiaries to, enter into any Contractual Obligation (other than this Agreement and the other Loan Documents) that limits the ability of any Credit Party or any such Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person; provided, however, that this Section 9.18 shall not prohibit (i) any negative pledge incurred or provided in favor of any holder of Debt permitted under Sections 9.1(d) or 9.1(h), solely to the extent any such negative pledge relates to the property financed by or subject to Permitted Liens securing such Debt, (ii) any Permitted Lien or any document or instrument governing any Permitted Lien; provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien, (iii) customary restrictions and conditions contained in any agreement relating to the disposition of any property or assets permitted under Section 9.13 pending the consummation of such disposition, and (iv) customary provisions restricting assignments, subletting or other transfers contained in leases, licenses, joint venture agreements, organizational documents and similar agreements entered into in the ordinary course of business in a manner substantially consistent with past practices.
Section 9.19 Burdensome Agreements. No Credit Party shall, nor shall it permit any of its Subsidiaries to, enter into, or permit to exist, any Contractual Obligation that encumbers or restricts the ability of any such Person to (i) pay dividends or make any other distributions to the Borrower or other Credit Party on its Equity Interests or with respect to any other interest or participation in, or measured by, its profits, (ii) pay any Debt or other obligation owed to the Borrower or any other Credit Party, (iii) make loans or advances to the Borrower or any other Credit Party, (iv) sell, lease or transfer any of its property to the Borrower or any other Credit Party, (v) pledge its property pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof or (vi) act as the Borrower pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (i)-(iv) above) for (1) this Agreement and the other Loan Documents, (2) any document or instrument governing Debt incurred pursuant to Sections 9.1(e) or 9.1(h); provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, (3) any Permitted Lien or any document or instrument governing any Permitted Lien; provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien, (4) customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under Section 9.13 pending the consummation of such sale or (5) customary provisions contained in leases, licenses, joint venture agreements, organizational documents and similar agreements entered into in the ordinary course of business in a manner substantially consistent with past practices.
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SECTION 10. EVENTS OF DEFAULT; REMEDIES; APPLICATION OF FUNDS.
Section 10.1 Events of Default. Each of the following conditions or events constitutes an Event of Default:
(a) (i) the Borrower shall fail to pay when due any principal of or interest on any Note, any fee due to the Agent, any Lender or the Issuing Bank hereunder or any other Loan Document, or (except as provided in (b) and (c) below) any other Obligations or (ii) the Borrower shall fail to pay any amount (other than principal, interest and fees provided for in the foregoing clause (i)) due to the Agent, any Lender or the Issuing Bank hereunder or any other Loan Document within five (5) days of such amounts becoming due; or
(b) the Borrower or other Credit Party shall default on the performance of any agreement, covenant, or obligation contained in Sections 8.1, 8.4, 8.5, 8.6, 8.7, 8.9, 8.12, 8.18 or Section 9; or
(c) the Borrower or any other party to any Loan Document (other than the Agent, the Lenders and the Issuing Bank) shall default on the performance of any other agreement, covenant, or obligation contained in this Agreement or such Loan Document not provided for elsewhere in this Section 10 and the breach of such agreement, covenant, or obligation shall not have been cured to the Agent’s satisfaction within thirty (30) days after the sooner to occur of (i) any Authorized Officer’s receipt of notice of such breach from the Agent or (ii) the date on which such failure or neglect first became known to any Authorized Officer; provided, however, that such notice and opportunity to cure shall not apply in the case of any default on an agreement, covenant, or obligation which is not capable of being cured at all or within such 30-day period or which was a willful and knowing breach by the Borrower or such other party; or
(d) any representation or warranty made by the Borrower or any other party to any Loan Document (other than the Agent, the Lenders and the Issuing Bank) in this Agreement or any other Loan Document, or in any certificate or report furnished in connection with this Agreement or any other Loan Document, shall prove to have been untrue or incorrect in any material respect when made; or
(e) the Borrower, any Subsidiary, or any Guarantor shall default in any obligation which (i) is owed to the Agent, any Lender, the Issuing Bank or any Affiliates of the Agent, any Lender or the Issuing Bank and (ii) arose under any agreement other than a Loan Document, but only if such default was not cured within any applicable cure period provided for in such agreement; or
(f) the Borrower, any Subsidiary, or any Guarantor shall fail to make any payment in respect of outstanding Debt (other than the Obligations) or other liabilities having an aggregate outstanding principal amount in excess of $2,000,000 or more when due after the expiration of any applicable grace period, or any event or condition shall occur which results in the acceleration of the maturity of such Debt or liability (including, without limitation, any required mandatory prepayment or “put” of such Debt or liability to any such Person) or enables (or, with the giving of notice or passing of time or both, would enable) the holders of such Debt or liability or a commitment related to such Debt or liability (or any Person acting on such holders’ behalf) to accelerate the maturity thereof or terminate any such commitment before its normal expiration (including, without limitation, any required mandatory prepayment or “put” of such Debt or liability to such Person); or
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(g) the Borrower, any Subsidiary or any Guarantor shall (i) voluntarily dissolve, liquidate, or terminate operations or apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of such Person or of all or of a substantial part of its assets, (ii) admit in writing its inability, or be generally unable, to pay its debts as the debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy Code or any other Debtor Relief Law (as now or hereafter in effect), (v) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition, or adjustment of debts, (vi) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or other Debtor Relief Law, or (vii) take any company action for the purpose of effecting any of the foregoing; or
(h) an involuntary petition or complaint shall be filed against the Borrower, any Subsidiary or any Guarantor seeking bankruptcy relief or reorganization or the appointment of a receiver, custodian, trustee, intervenor, or liquidator of the Borrower, any Subsidiary or any Guarantor, of all or substantially all of its assets, and such petition or complaint shall not have been dismissed within sixty (60) days of the filing thereof; or an order, order for relief, judgment, or decree shall be entered by any competent Governmental Authority approving or ordering any of the foregoing actions; or
(i) a judgment of more than $2,000,000 in excess of insurance coverage therefor (as provided by an underwriter acceptable to the Agent, where such underwriter has agreed in writing to pay such judgment, and for which the deductible does not exceed $2,000,000) shall be rendered against the Borrower, any Subsidiary or any Guarantor and shall remain undischarged, undismissed, and unstayed for more than thirty (30) days or there shall occur any levy upon, or attachment, garnishment, or other seizure of, any portion of the Collateral or other assets of the Borrower, any Subsidiary, or any Guarantor in excess of $2,000,000 by reason of the issuance of any tax levy, judicial attachment, garnishment, or levy of execution; or
(j) a material disruption in the Borrower’s or any Subsidiary’s business based upon a strike or work stoppage; or
(k) any Guarantor shall repudiate, revoke, or attempt to revoke any Guaranty, in whole or in part; or
(l) there shall occur any loss, theft, damage, or destruction of any material portion of the Collateral for which there is either no insurance coverage or for which, in the Agent’s reasonable opinion, there is insufficient insurance coverage; or
(m) a Material Adverse Effect shall occur; or
(n) a Change of Control shall occur; or
(o) there shall occur one or more ERISA Events which individually or in the aggregate results in liability of any Credit Party, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $2,000,000 during the term hereof and which is not paid by the applicable due date; or
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(p) at any time after the execution and delivery thereof, (i) this Agreement or any other Loan Document ceases to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms hereof or thereof or the satisfaction in full of the Obligations (other than contingent and indemnified obligations not then due and owing) in accordance with the terms hereof) or shall be declared null and void, or the Agent shall not have or shall cease to have a valid and perfected Lien in any material portion of the Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document, or (ii) any Credit Party shall contest the validity or enforceability of any Loan Document in writing or deny in writing that it has any further liability, including with respect to future advances by the Lenders, under any Loan Document to which it is a party.
Section 10.2 Remedies. (1) Upon the occurrence of any Event of Default described in Section 10.1(g) or (h), automatically, and (2) upon the occurrence and during the continuance of any other Event of Default, in the Agent’s discretion (or at the request of the Required Lenders to Agent), upon notice to the Borrower by the Agent, (A) the Revolving Commitments, if any, of each Lender having such Revolving Commitments, and the obligation of the Issuing Bank to issue any Letter of Credit shall, in each case, immediately terminate; (B) each of the following shall immediately become due and payable, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each of the Credit Parties: (I) the unpaid principal amount of and accrued interest on the Loans, (II) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (regardless of whether any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letters of Credit), and (III) all other Obligations; provided, the foregoing shall not affect in any way the obligations of the Lenders under Section 2.2(b)(iii) or Section 2.3(e); (C) the Agent may cause the Agent to enforce any and all Liens and security interests created pursuant to the Collateral Documents and (D) without duplication of amounts paid by Borrower pursuant to the foregoing clause (B)(II), the Agent shall direct the Borrower to Cash Collateralize (and the Borrower hereby agrees upon receipt of such notice, or upon the occurrence of any Event of Default specified in Section 10.1(g) or (h) to Cash Collateralize) the Letter of Credit Obligations then outstanding under arrangements acceptable to the Agent. Notwithstanding anything herein or otherwise to the contrary, any Event of Default occurring hereunder shall continue to exist (and shall be deemed to be continuing) until such time as such Event of Default has been cured to the satisfaction of the Agent or waived in writing in accordance with the terms of Section 12.4.
Section 10.3 Application of Funds. After the exercise of any of the remedies provided for in Section 10.2 (or after the Loans have automatically become immediately due and payable), any amounts received on account of the Obligations shall be applied by the Agent in the following order:
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (other than principal, interest and Letter of Credit Fees but including without limitation all reasonable and actually incurred out-of-pocket fees, expenses and disbursements of any law firm or other counsel and amounts payable under Section 3.1, Section 3.2 and Section 3.3) payable to the Agent, in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders including without limitation all reasonable and actually incurred out-of-pocket fees, expenses and disbursements of any law firm or other counsel and amounts payable under Section 3.1, Section 3.2 and Section 3.3), ratably among the Lenders in proportion to the respective amounts described in this clause Second payable to them;
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Third, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, Letter of Credit Borrowings and other Obligations ratably among such parties in proportion to the respective amounts described in this clause Third payable to them; and
Fourth, to (a) payment of that portion of the Obligations constituting unpaid principal of the Loans and Letter of Credit Borrowings, (b) payment of breakage, termination or other amounts owing in respect of any Swap Agreement between the Borrower or any of its Subsidiaries and any Swap Provider, to the extent such Swap Agreement is permitted hereunder, (c) payments of amounts due under any Treasury Management Agreement between the Borrower or any of its Subsidiaries and any Treasury Management Bank, and (d) the Agent for the account of the Issuing Bank, to Cash Collateralize that portion of the Letter of Credit Obligations comprised of the aggregate undrawn amount of Letters of Credit, ratably among such parties in proportion to the respective amounts described in this clause Fourth payable to them; and
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Applicable Laws.
Subject to Section 2.3, amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fourth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
Excluded Swap Obligations with respect to any Guarantor shall not be paid with amounts received from such Guarantor or such Guarantor’s assets, but appropriate adjustments shall be made with respect to payments from other Credit Parties to preserve the allocation to Obligations otherwise set forth above in this Section 10.3. Notwithstanding the foregoing, Secured Swap Obligations and Secured Treasury Management Obligations shall be excluded from the application described above if the Agent has not received a Secured Party Designation Notice, together with such supporting documentation as the Agent may request, from the applicable Qualifying Swap Bank or Qualifying Treasury Management Bank, as the case may be. Each Qualifying Swap Bank or Qualifying Treasury Management Bank not a party to this Agreement that has given the notice contemplated by the preceding sentence shall, by such notice, be deemed to have acknowledged and accepted the appointment of the Agent pursuant to the terms of Section 11 for itself and its Affiliates as if a “Lender” party hereto.
SECTION 11. AGENCY
Section 11.1 Appointment and Authority.
(a) Each of the Lenders and the Issuing Bank hereby irrevocably appoints Regions Bank to act on its behalf as the Agent hereunder and under the other Loan Documents and authorizes the Agent to take such actions on its behalf and to exercise such powers as are delegated to the Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Section 11 are solely for the benefit of the Agent, the Lenders and the Issuing Bank, and no Credit Party nor any of its Subsidiaries shall have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
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(b) Each of the Lenders hereby irrevocably appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each Collateral Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any Collateral Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein or therein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein and in the other Loan Documents with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. The Agent shall act on behalf of the Lenders with respect to any Collateral and the Collateral Documents, and the Agent shall have all of the benefits and immunities (i) provided to the Agent under the Collateral Documents with respect to any acts taken or omissions suffered by the Agent in connection with any Collateral as fully as if the term “Agent” as used in such Loan Documents included the Agent with respect to such acts or omissions, and (ii) as additionally provided herein or in the Collateral Documents with respect to the Agent.
Section 11.2 Rights as a Lender. The Person serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary of the Borrower or other Affiliate thereof as if such Person were not the Agent hereunder and without any duty to account therefor to the Lenders.
Section 11.3 Exculpatory Provisions.
(a) The Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Agent:
(i) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(ii) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that the Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Agent to liability or that is contrary to any Loan Document or Applicable Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
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(iii) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Agent or any of its Affiliates in any capacity.
(b) The Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 11.4 and 10.2) or (ii) in the absence of its own gross negligence or willful misconduct, as determined by a court of competent jurisdiction by final and nonappealable judgment. The Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Agent in writing by the Borrower, a Lender or the Issuing Bank.
(c) The Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 6 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agent.
Section 11.4 Reliance by Agent. The Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the Issuing Bank, the Agent may presume that such condition is satisfactory to such Lender or the Issuing Bank unless the Agent shall have received notice to the contrary from such Lender or the Issuing Bank prior to the making of such Loan or the issuance of such Letter of Credit. The Agent may consult with legal counsel (who may be counsel for the Borrower and its Subsidiaries), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
Section 11.5 Delegation of Duties. The Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Agent. The Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Section 11 shall apply to any such sub-agent and to the Related Parties of the Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent. The Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that the Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
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Section 11.6 Resignation or Removal of Agent.
(a) The Agent may at any time give notice of its resignation to the Lenders, the Issuing Bank and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the Resignation Effective Date), then the retiring Agent may (but shall not be obligated to) on behalf of the Lenders and the Issuing Bank, appoint a successor Agent meeting the qualifications set forth above. Whether or not a successor has been appointed such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b) If the Person servicing as Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by Applicable Law by notice in writing to the Borrower and such Person remove such Person as the Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days (or such earlier day as shall be agreed by the Required Lenders (the “Removal Effective Date”)), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (1) the retiring or removed Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Agent on behalf of the Lenders or the Issuing Bank under any of the Loan Documents, the retiring or removed Agent shall continue to hold such collateral security until such time as a successor Agent is appointed) and (2) except for any indemnity payments owed to the retiring or removed Agent, all payments, communications and determinations provided to be made by, to or through the Agent shall instead be made by or to each Lender and the Issuing Bank directly, until such time as the Required Lenders appoint a successor Agent as provided for above in this Section 11.6. Upon the acceptance of a successor’s appointment as Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Agent (other than any rights to indemnity payments owed to the retiring or removed Agent), and the retiring or removed Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section 11). The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Section 11 and Section 12.2 shall continue in effect for the benefit of such retiring ore removed Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Agent was acting as Agent.
Section 11.7 Non-Reliance on Agent and Other Lenders. Each of the Lenders and the Issuing Bank acknowledges that it has, independently and without reliance upon the Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders and the Issuing Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
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Section 11.8 No Other Duties, etc. Anything herein to the contrary notwithstanding, the Lead Arranger shall not have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Agent, a Lender or the Issuing Bank hereunder.
Section 11.9 Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Credit Party, the Agent (irrespective of whether the principal of any Loan or Letter of Credit Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Agent shall have made any demand on the Borrower) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, Letter of Credit Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuing Bank and the Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the Issuing Bank and the Agent and their respective agents and counsel and all other amounts due the Lenders, the Issuing Bank and the Agent under Section 2.10 and Section 12.2) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the Issuing Bank to make such payments to the Agent and, in the event that the Agent shall consent to the making of such payments directly to the Lenders and the Issuing Bank, to pay to the Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Agent and its agents and counsel, and any other amounts due the Agent under Section 2.10 and Section 12.2).
Section 11.10 Collateral Matters.
(a) The Lenders (including the Issuing Bank and the Swingline Lender) irrevocably authorize the Agent, at its option and in its discretion,
(i) to release any Lien on any property granted to or held under any Loan Document securing the Obligations (x) upon termination of the commitments under this Agreement and payment in full of all Obligations (other than contingent indemnification obligations) and the expiration or termination of all Letters of Credit (other than Letters of Credit as to which other arrangements satisfactory to the Agent and the Issuing Bank shall have been made), (y) that is sold or otherwise disposed of or to be sold or otherwise disposed of as part of or in connection with any sale or other disposition permitted under the Loan Documents or consented to in accordance with the terms of this Agreement, or (z) subject to Section 12.4, if approved, authorized or ratified in writing by the Required Lenders;
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(ii) to subordinate any Lien on any property granted to or held under any Loan Document securing the Obligations to the holder of any Lien on such property that is permitted by Section 9.2(f); and
(iii) to release any Guarantor from its obligations under this Agreement and the other Loan Documents if such Person ceases to be a Guarantor as a result of a transaction permitted under the Loan Documents.
Upon request by the Agent at any time, the Required Lenders will confirm in writing the Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under this Agreement pursuant to this Section 11.10.
(b) The Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Agent’s Lien thereon, or any certificate prepared by any Credit Party in connection therewith, nor shall the Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.
(c) Anything contained in any of the Loan Documents to the contrary notwithstanding, the Credit Parties, the Agent, and the other holders of the Obligations each hereby agrees that (i) no holder of the Obligations shall have any right individually to realize upon any of the Collateral or to enforce this Agreement, the Notes or any other Loan Document, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by the Agent, on behalf of the holders of the Obligations in accordance with the terms hereof and all powers, rights and remedies under the Collateral Documents may be exercised solely by the Agent, and (ii) in the event of a foreclosure by the Agent on any of the Collateral pursuant to a public or private sale or other disposition, the Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale or other disposition and the Agent, as agent for and representative of the holders of the Obligations (but not any Lender or Lenders in its or their respective individual capacities unless the Required Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by the Agent at such sale or other disposition.
(d) No Secured Swap Agreement or Secured Treasury Management Agreement will create (or be deemed to create) in favor of any Qualifying Swap Bank or any Qualifying Treasury Management Bank, respectively that is a party thereto any rights in connection with the management or release of any Collateral or of the obligations of the Borrower or any other Credit Party under the Loan Documents except as expressly provided herein or in the other Loan Documents. By accepting the benefits of the Collateral, each such Qualifying Swap Bank and Qualifying Treasury Management Bank shall be deemed to have appointed the Agent as its agent and agreed to be bound by the Loan Documents as a holder of the Obligations, subject to the limitations set forth in this clause (d). Furthermore, it is understood and agreed that the Qualifying Swap Bank and Qualifying Treasury Management Banks, in their capacity as such, shall not have any right to notice of any action or to consent to, direct or object to any action hereunder or under any of the other Loan Documents or otherwise in respect of the Collateral (including the release or impairment of any Collateral, or to any notice of or consent to any amendment, waiver or modification of the provisions hereof or of the other Loan Documents) other than in its capacity as a Lender and, in any case, only as expressly provided herein
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Section 11.11 Erroneous Payments.
(a) If the Agent notifies a Lender, the Issuing Bank, other holder of the Obligations or any Person who has received funds on behalf of a Lender, the Issuing Bank or other holder of the Obligations (any such Lender, Issuing Bank, other holder of the Obligations or other recipient, (and each of their respective successors and assigns), a “Payment Recipient”) that the Agent, as applicable, has determined in its sole discretion (whether or not after receipt of any notice under the immediately succeeding clause (b)) that any funds (as set forth in such notice from the Agent) received by such Payment Recipient from the Agent or any of its Affiliates were erroneously or mistakenly transmitted to, or otherwise erroneously or mistakenly received by, such Payment Recipient (whether or not known to such Lender, the Issuing Bank, other holder of the Obligations or other Payment Recipient on its behalf) (any such funds, whether transmitted or received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise, individually and collectively, an “Erroneous Payment”) and demands in writing the return of such Erroneous Payment (or a portion thereof), such Erroneous Payment shall at all times remain the property of the Agent pending its return or repayment as contemplated below in this Section 11.11 and held in trust for the benefit of the Agent and such Lender, the Issuing Bank or other holder of the Obligations shall (or, with respect to any Payment Recipient who received such funds on its behalf, shall cause such Payment Recipient to) promptly, but in no event later than two (2) Business Days thereafter, (or such later date as the Agent may, in its sole discretion, specify in writing), return to the Agent the amount of any such Erroneous Payment (or portion thereof) as to which such a demand was made, in same day funds (in the currency so received), together with interest thereon (except to the extent waived in writing by the Agent) in respect of each day from and including the date such Erroneous Payment (or portion thereof) was received by such Payment Recipient to the date such amount is repaid to the Agent in same day funds at the greater of the Federal Funds Rate and a rate determined by the Agent in accordance with banking industry rules on interbank compensation from time to time in effect. A notice of the Agent to any Payment Recipient under this clause (a) shall be conclusive, absent manifest error.
(b) Without limiting immediately preceding clause (a), each Lender, the Issuing Bank, other holder of the Obligations or any Person who has received funds on behalf of a Lender, the Issuing Bank or other holder of the Obligations (and each of their respective successors and assigns) hereby further agrees that if it receives a payment, prepayment or repayment (whether received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise) from the Agent (or any of its Affiliates) (x) that is in a different amount than, or on a different date from, that specified in this Agreement or in a notice of payment, prepayment or repayment sent by the Agent (or any of its Affiliates) with respect to such payment, prepayment or repayment, (y) that was not preceded or accompanied by a notice of payment, prepayment or repayment sent by the Agent (or any of its Affiliates), or (z) that such Lender, the Issuing Bank, other holder of the Obligations or other such recipient, otherwise becomes aware was transmitted, or received, in error or by mistake (in whole or in part), then in each such case:
(i) it acknowledges and agrees that (A) in the case of immediately preceding clauses (x) or (y), an error and mistake shall be presumed to have been made (absent written confirmation from the Agent to the contrary) or (B) in the case of immediately preceding clause (z), an error and mistake has been made, in each case, with respect to such payment, prepayment or repayment; and
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(ii) such Lender, the Issuing Bank or other holder of the Obligations shall (and shall cause any other recipient that receives funds on its respective behalf to) promptly (and, in all events, within one (1) Business Day of its knowledge of the occurrence of any of the circumstances described in immediately preceding clauses (x), (y) and (z)) notify the Agent of its receipt of such payment, prepayment or repayment, the details thereof (in reasonable detail) and that it is so notifying the Agent pursuant to this Section 11.11(b).
For the avoidance of doubt, the failure to deliver a notice to the Agent pursuant to this Section 11.11(b) shall not have any effect on a Payment Recipient’s obligations pursuant to Section 11.11(a) or on whether or not an Erroneous Payment has been made.
(c) Each Lender, the Issuing Bank or other holder of the Obligations hereby authorizes the Agent to set off, net and apply any and all amounts at any time owing to such Lender, the Issuing Bank or other holder of the Obligations under any Loan Document, or otherwise payable or distributable by the Agent to such Lender, the Issuing Bank or other holder of the Obligations under any Loan Document with respect to any payment of principal, interest, fees or other amounts, against any amount that the Agent has demanded to be returned under immediately preceding clause (a).
(d) In the event that an Erroneous Payment (or portion thereof) is not recovered by the Agent for any reason, after demand therefor in accordance with immediately preceding clause (a), from any Lender, the Issuing Bank or other holder of the Obligations that has received such Erroneous Payment (or portion thereof) (and/or from any Payment Recipient who received such Erroneous Payment (or portion thereof) on its respective behalf) (such unrecovered amount, an “Erroneous Payment Return Deficiency”), upon the Agent’s notice to such Lender, the Issuing Bank or other holder of the Obligations at any time, then effective immediately (with the consideration therefor being acknowledged by the parties hereto), (A) such Lender, the Issuing Bank or other holder of the Obligations shall be deemed to have assigned its Loans (but not its Commitments) of the relevant class with respect to which such Erroneous Payment was made (the “Erroneous Payment Impacted Class”) in an amount equal to the Erroneous Payment Return Deficiency (or such lesser amount as the Agent may specify) (such assignment of the Loans (but not Commitments) of the Erroneous Payment Impacted Class, the “Erroneous Payment Deficiency Assignment”) (on a cashless basis and such amount calculated at par plus any accrued and unpaid interest (with the assignment fee to be waived by the Agent in such instance)), and is hereby (together with the Borrower) deemed to execute and deliver an Assignment Agreement (or, to the extent applicable, an agreement incorporating an Assignment Agreement by reference pursuant to a Platform as to which the Agent and such parties are participants) with respect to such Erroneous Payment Deficiency Assignment, and such Lender, the Issuing Bank or other holder of the Obligations shall deliver any Notes evidencing such Loans to the Borrower or the Agent (but the failure of such Person to deliver any such Notes shall not affect the effectiveness of the foregoing assignment), (B) the Agent as the assignee Lender shall be deemed to have acquired the Erroneous Payment Deficiency Assignment, (C) upon such deemed acquisition, the Agent as the assignee Lender shall become a Lender, the Issuing Bank or other holder of the Obligations, as applicable, hereunder with respect to such Erroneous Payment Deficiency Assignment and the assigning Lender, the Issuing Bank or other holder of the Obligations shall cease to be a Lender, the Issuing Bank or other holder of the Obligations, as applicable, hereunder with respect to such Erroneous Payment Deficiency Assignment, excluding, for the avoidance of doubt, its obligations under the indemnification provisions of this Agreement and its applicable Commitments which shall survive as to such assigning Lender, the Issuing Bank or other holder of the Obligations, (D) the Agent and the Borrower shall each be deemed to have waived any consents required under this Agreement to any such Erroneous Payment Deficiency Assignment, and (E) the Agent shall reflect in the Register its ownership interest in the Loans subject to the Erroneous Payment Deficiency Assignment. For the avoidance of doubt, no Erroneous Payment Deficiency Assignment will reduce the Commitments of any Lender and such Commitments shall remain available in accordance with the terms of this Agreement.
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(e) Subject to Section 12.5 (but excluding, in all events, any assignment consent or approval requirements (whether from the Borrower or otherwise)), the Agent may, in its discretion, sell any Loans acquired pursuant to an Erroneous Payment Deficiency Assignment and upon receipt of the proceeds of such sale, the Erroneous Payment Return Deficiency owing by the applicable Lender, the Issuing Bank or other holder of the Obligations shall be reduced by the net proceeds of the sale of such Loan (or portion thereof), and the Agent shall retain all other rights, remedies and claims against such Lender, the Issuing Bank or other holder of the Obligations (and/or against any recipient that receives funds on its respective behalf). In addition, an Erroneous Payment Return Deficiency owing by the applicable Lender (x) shall be reduced by the proceeds of prepayments or repayments of principal and interest, or other distribution in respect of principal and interest, received by the Agent on or with respect to any such Loans acquired from such Lender pursuant to an Erroneous Payment Deficiency Assignment (to the extent that any such Loans are then owned by the Agent), and (y) may in the sole discretion of the Agent be reduced by an amount specified by the Agent in writing to the applicable Lender from time to time.
(f) The parties hereto agree that (x) irrespective of whether the Agent may be equitably subrogated, in the event that an Erroneous Payment (or portion thereof) is not recovered from any Payment Recipient that has received such Erroneous Payment (or portion thereof) for any reason, the Agent shall be subrogated to all the rights and interests of such Payment Recipient (and, in the case of any Payment Recipient who has received funds on behalf of a Lender, the Issuing Bank or other holder of the Obligations, to the rights and interests of such Lender, the Issuing Bank or other holder of the Obligations, as the case may be) under the Loan Documents with respect to such amount (the “Erroneous Payment Subrogation Rights”) (provided, that, the Obligations under the Loan Documents in respect of the Erroneous Payment Subrogation Rights shall not be duplicative of such Obligations in respect of Loans that have been assigned to the Agent under an Erroneous Payment Deficiency Assignment) and (y) an Erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by any Credit Party; provided, that, this Section 11.11(f) shall not be interpreted to increase (or accelerate the due date for), or have the effect of increasing (or accelerating the due date for), the Obligations relative to the amount (and/or timing for payment) of the Obligations that would have been payable had such Erroneous Payment not been made by the Agent; provided, further, that, for the avoidance of doubt, the immediately preceding clauses (x) and (y) shall not apply except, in each case, to the extent such Erroneous Payment is, and solely with respect to the amount of such Erroneous Payment that is, comprised of funds received by the Agent from the Borrower for the purpose of making such Erroneous Payment.
(g) To the extent permitted by Applicable Law, no Payment Recipient shall assert any right or claim to an Erroneous Payment, and hereby waives, and is deemed to waive, any claim, counterclaim, defense or right of set-off or recoupment with respect to any demand, claim or counterclaim by the Agent for the return of any Erroneous Payment received, including without limitation, any defense based on “discharge for value” or any similar doctrine.
(h) Each party’s obligations, agreements and waivers under this Section 11.11 shall survive the resignation or replacement of the Agent, any transfer of rights or obligations by, or the replacement of, a Lender, the Issuing Bank or other holder of the Obligations, the termination of the Commitments and/or the repayment, satisfaction or discharge of all Obligations (or any portion thereof) under any Loan Document.
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SECTION 12. MISCELLANEOUS
Section 12.1 Notices; Effectiveness; Electronic Communications.
(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in Section 12.1(b)), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier or electronic mail as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i) if to the Agent, the Issuing Bank, the Borrower or any other Credit Party, to the address, telecopier number, electronic mail address or telephone number specified in Appendix B:
(ii) if to any Lender, to the address, telecopier number, electronic mail address or telephone number in its Administrative Questionnaire on file with the Agent.
Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices and other communications delivered through electronic communications to the extent provided in Section 12.1(b), shall be effective as provided in such Section 12.1(b).
(b) Electronic Communications. Notices and other communications to the Lenders and the Issuing Bank hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Agent; provided that the foregoing shall not apply to notices to any Lender or the Issuing Bank pursuant to Section 2 if such Lender or the Issuing Bank, as applicable, has notified the Agent and the Borrower that it is incapable of receiving notices under such Section 2 by electronic communication. The Agent or any Credit Party may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
Unless the Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided that, with respect to clauses (i) and (ii) above, if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient
(c) Change of Address, Etc. Any party hereto may change its address or telecopier number for notices and other communications hereunder by notice to the other parties hereto.
(d) Platform.
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(i) Each Credit Party agrees that the Agent may, but shall not be obligated to, make the Communications (as defined below) available to the Issuing Bank and the other Lenders by posting the Communications on Debtdomain, Intralinks, Syndtrak or a substantially similar electronic transmission system (the “Platform”).
(ii) The Platform is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform. In no event shall the Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Borrower or the other Credit Parties, any Lender or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s, any other Credit Party’s or the Agent’s transmission of communications through the Platform. “Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Credit Party pursuant to any Loan Document or the transactions contemplated therein which is distributed to the Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to this Section 12.1, including through the Platform.
Section 12.2 Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. The Credit Parties shall pay (i) all reasonable out-of-pocket expenses incurred by the Agent and its Affiliates (including the reasonable out-of-pocket fees, charges and disbursements of counsel for the Agent to the extent actually incurred) in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out-of-pocket expenses incurred by the Agent, any Lender or the Issuing Bank (including the reasonable out-of-pocket fees, charges and disbursements of any counsel for the Agent, any Lender or the Issuing Bank) in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section 12.2, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) Indemnification by the Credit Parties. The Credit Parties shall indemnify the Agent (and any sub-agent thereof), each Lender and the Issuing Bank, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the reasonable out-of-pocket fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Credit Party) other than such Indemnitee or its Related Parties arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the
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performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Regulated Materials on or from any property owned or operated by the Borrower or any other Credit Party, or any liability under Environmental Laws related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any of its Subsidiaries, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. This Section 12.2(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(c) Reimbursement by Lenders. To the extent that the Credit Parties for any reason fail to indefeasibly pay any amount required under Sections 12.2(a) or 12.2(b) to be paid by it to the Agent (or any sub-agent thereof), the Issuing Bank or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Agent (or any such sub-agent), the Issuing Bank or such Related Party, as the case may be, such Lender’s pro rata share (in each case, determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Agent (or any such sub-agent) or the Issuing Bank in its capacity as such, or against any Related Party of any of the foregoing acting for the Agent (or any such sub-agent) or the Issuing Bank in connection with such capacity. The obligations of the Lenders under this Section 12.2(c) are subject to the provisions of this Agreement that provide that their obligations are several in nature, and not joint and several.
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by Applicable Law, none of the Credit Parties shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in Section 12.2(b) shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e) Payments. All amounts due under this Section 12.2 shall be payable promptly, but in any event within ten (10) Business Days after written demand therefor (including delivery of copies of applicable invoices).
(f) Survival. The provisions of this Section 12.2 shall survive resignation or replacement of the Agent, the Issuing Bank or any Lender, termination of the commitments hereunder and repayment, satisfaction and discharge of the loans and obligations hereunder.
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Section 12.3 Set-Off. If an Event of Default shall have occurred and be continuing, each Lender, the Issuing Bank, and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by Applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the Issuing Bank or any such Affiliate to or for the credit or the account of the Borrower or any other Credit Party against any and all of the obligations of the Borrower or such Credit Party now or hereafter existing under this Agreement or any other Loan Document to such Lender, the Issuing Bank or their respective Affiliates, irrespective of whether or not such Lender, the Issuing Bank or such Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Credit Party may be contingent or unmatured or are owed to a branch, office or Affiliate of such Lender or the Issuing Bank different from the branch or office holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Agent for further application in accordance with the provisions of Section 2.16 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Agent, the Issuing Bank, and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender, the Issuing Bank and their respective Affiliates under this Section 12.3 are in addition to other rights and remedies (including other rights of setoff) that such Lender, the Issuing Bank or their respective Affiliates may have. The Lenders and the Issuing Bank each agree to notify the Borrower and the Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application. Notwithstanding the provisions of this Section 12.3, if at any time any Lender, the Issuing Bank or any of their respective Affiliates maintains one or more Deposit Accounts for the Borrower or any other Credit Party into which Medicare and/or Medicaid receivables are deposited, such Person shall waive the right of setoff set forth herein.
Section 12.4 Amendments and Waivers.
(a) Required Lenders’ Consent. Subject to Section 12.4(b) and Section 12.4(c), no amendment, modification, termination or waiver of any provision of the Loan Documents, or consent to any departure by any Credit Party therefrom, shall in any event be effective without the written concurrence of the Agent and the Required Lenders; provided that (i) the Agent may, with the consent of the Borrower only, amend, modify or supplement this Agreement to cure any ambiguity, omission, defect or inconsistency, so long as such amendment, modification or supplement does not adversely affect the rights of any Lender or the Issuing Bank, (ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto, (iii) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitments, Loans and/or Letter of Credit Obligations of such Lender may not be increased or extended without the consent of such Lender; provided that any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender which affects a Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender, (iv) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein, (v) the Required Lenders shall determine whether or not to allow any Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding and such determination shall be binding on all of the Lenders, (vi) Agent may amend and modify Appendix A to reflect the Lenders, Commitments, Revolving Commitment Percentages and Term Loan Commitment Percentages existing as of any date of determination, (vii) Agent and the Borrower (together with any Lenders providing additional or increased Commitments pursuant
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to Section 2.1(d)) may amend and modify this Agreement to reflect additional or increased Commitments pursuant to Section 2.1(d) and the corresponding terms thereof, including changes in the Applicable Margin, and (viii) the Agent and the Borrower, without the consent or approval of any Lender or any other Person, may enter into amendments contemplated by Section 3.1(b).
(b) Affected Lenders’ Consent. Without the written consent of each Lender (other than a Defaulting Lender except as provided in clause (a)(iii) above) that would be affected thereby, but subject to Section 3.1(h), no amendment, modification, termination, or consent shall be effective if the effect thereof would:
(i) extend the Revolving Commitment Termination Date;
(ii) waive, reduce or postpone any scheduled repayment (but not prepayment) or alter the required application of any prepayment pursuant to Section 2.12 or the application of funds pursuant to Section 10.3, as applicable;
(iii) extend the stated expiration date of any Letter of Credit, beyond the Revolving Commitment Termination Date;
(iv) reduce the principal of or the rate of interest on any Loan (other than any waiver of the imposition of the Default Rate pursuant to Section 2.9) or any fee or premium payable hereunder; provided, however, that only the consent of the Required Lenders shall be necessary (A) to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate or (B) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan or to reduce any fee payable hereunder;
(v) extend the time for payment of any such interest or fees;
(vi) reduce the principal amount of any Loan or any reimbursement obligation in respect of any Letter of Credit;
(vii) amend, modify, terminate or waive any provision of this Section 12.4(b) or Section 12.4(c) or any other provision of this Agreement that expressly provides that the consent of all Lenders is required;
(viii) change the percentage of the outstanding principal amount of Loans that is required for the Lenders or any of them to take any action hereunder; or amend the definition of “Required Lenders” or “Term Loan A Commitment Percentage”, “Sixth Amendment Term Loan A Commitment Percentage”, “Term Loan Commitment Percentage” or release all or substantially all of the Collateral or all or substantially all of the Guarantors from their obligations hereunder, in each case, except as expressly provided in the Loan Documents; or “Revolving Commitment Percentage”; or modify the amount of the Commitment of any Lender;
(ix) consent to the assignment or transfer by the Borrower of any of its rights and obligations under any Loan Document (except pursuant to a transaction permitted hereunder).
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(c) Other Consents. No amendment, modification, termination or waiver of any provision of the Loan Documents, or consent to any departure by the Borrower or any other Credit Party therefrom, shall:
(i) increase any Revolving Commitment of any Lender over the amount thereof then in effect without the consent of such Lender; provided, no amendment, modification or waiver of any condition precedent, covenant, Default or Event of Default shall constitute an increase in any Revolving Commitment of any Lender;
(ii) amend, modify, terminate or waive any provision hereof relating to the Swingline Sublimit or the Swingline Loans without the consent of the Swingline Lender;
(iii) amend, modify, terminate or waive any obligation of Lenders relating to the purchase of participations in Letters of Credit as provided in Section 2.3(e) without the written consent of the Agent and of the Issuing Bank; or
(iv) amend, modify, terminate or waive any provision of this Section 12 as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent.
(d) Execution of Amendments, etc. The Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 12.4 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by the Borrower, on the Borrower.
Section 12.5 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor any other Credit Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of Section 12.5(b), (ii) by way of participation in accordance with the provisions of Section 12.5(d) or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 12.5(e) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 12.5(d) and, to the extent expressly contemplated hereby, the Related Parties of each of the Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments, Loans and obligations hereunder at the time owing to it); provided that any such assignment shall be subject to the following conditions:
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(i) Minimum Amounts.
(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s commitments and the loans at the time owing to it (in each case with respect to any credit facility) or contemporaneous assignments to Approved Funds that equal at least to the amounts specified in Section 12.5(b)(i)(B) in the aggregate) or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) in any case not described in Section 12.5(b)(i)(A), the aggregate amount of the commitment (which for this purpose includes loans and obligations in respect thereof outstanding thereunder) or, if the commitment is not then in effect, the principal outstanding balance of the loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment Agreement with respect to such assignment is delivered to the Agent or, if “Trade Date” is specified in the Assignment Agreement, as of the Trade Date) shall not be less than $1,000,000, in the case of any assignment in respect of any Revolving Commitments and/or Revolving Loans, or $1,000,000, in the case of any assignment in respect of any Term Loan Commitments and/or Term Loans, unless each of the Agent and, so long as no Event of Default shall have occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).
(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Commitments and Loans assigned, except that this clause (ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations on a non-pro rata basis as between its Revolving Commitment and/or Revolving Loans, on the one hand, and any Term Loan Commitment and/or Term Loans, on the other the hand.
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by Section 12.5(b)(i)(B) and, in addition:
(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default shall have occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Agent within five (5) Business Days after having received notice thereof;
(B) the consent of the Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of (i) commitments under revolving credit facilities and unfunded commitments under term loan facilities if such assignment is to a Person that is not a Lender with a commitment in respect of such facility, an Affiliate of such Lender or an Approved Fund with respect to such Lender or (ii) a funded Term Loan to a Person who is not a Lender, an Affiliate of a Lender or an Approved Fund;
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(C) the consent of the Issuing Bank (such consent not to be unreasonably withheld or delayed) shall be required for any assignment in respect of any Revolving Commitment; and
(D) the consent of the Swingline Lender (such consent not to be unreasonably withheld or delayed) shall be required for any assignment in respect of any Revolving Commitment.
(iv) Assignment Agreement. The parties to each assignment shall execute and deliver to the Agent an Assignment Agreement, together with a processing and recordation fee in the amount of $3,500, unless waived, in whole or in part by the Agent in its discretion. The assignee, if it is not a Lender, shall deliver to the Agent an Administrative Questionnaire.
(v) No Assignment Certain Persons. No such assignment shall be made to (A) the Borrower or any Affiliates or Subsidiaries of the Borrower or (B) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B).
(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.
(vii) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Agent, the Issuing Bank, the Swingline Lender and each other Lender hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swingline Loans in accordance with its Revolving Commitment Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under Applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Agent pursuant to Section 12.5(c), from and after the effective date specified in each Assignment Agreement, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.16, 2.17 and 12.2 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party
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hereunder arising from that Lender’s having been a Defaulting Lender. The Borrower will execute and deliver on request, at its own expense, Notes to the assignee evidencing the interests taken by way of assignment hereunder. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 12.5(b) shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.5(d).
(c) Register. The Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in the United States, a copy of each Assignment Agreement delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the Loans and Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Agent, sell participations to any Person (other than a natural Person or the Borrower or any Affiliates or Subsidiaries of the Borrower) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iii) the Borrower, the Agent, the Issuing Bank and Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 12.2(c) with respect to any payments made by such Lender to its Participant(s).
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in Sections 12.4(b)(ix) or 12.4(c) that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.1, 3.2 and 3.3 (subject to the requirements and limitations therein, including the requirements under Section 3.3(f) (it being understood that the documentation required under Section 3.3(f) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.5(b); provided that such Participant (A) agrees to be subject to the provisions of Sections 2.17 and 3.4 and as if it were an assignee under Section 12.5(b); and (B) shall not be entitled to receive any greater payment under Sections 3.2 or 3.3, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.17 with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 12.3 as though it were a Lender; provided that such Participant agrees to be subject to Section 2.14 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all
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or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Agent (in its capacity as Agent) shall have no responsibility for maintaining a Participant Register.
(e) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement, or any promissory notes evidencing its interests hereunder, to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
Section 12.6 [Reserved].
Section 12.7 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.
Section 12.8 Survival of Representations, Warranties and Agreements. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of any Credit Extension. Notwithstanding anything herein or implied by law to the contrary, the agreements of each Credit Party set forth in Section 3.1(c), Section 3.2, Section 3.3, Section 12.2, Section 12.3, and Section 12.10 and the agreements of the Lenders and the Agents set forth in Section 2.14, Section 11.3 and Section 12.2(c) shall survive the payment of the Loans, the cancellation, expiration or cash collateralization of the Letters of Credit, and the termination hereof.
Section 12.9 No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Loan Documents, any Swap Agreements or any Treasury Management Agreements. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
Section 12.10 Marshalling; Payments Set Aside. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Credit Party or any other Person or against or in payment of any or all of the Obligations. To the extent that any Credit Party makes a payment or payments to the Agent, the Issuing Bank, the Swingline Lender or the Lenders (or to the Agent, on behalf of Lenders), or the Agent, the Agent, the Issuing Bank or the Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any Debtor Relief Law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.
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Section 12.11 Severability. In case any provision in or obligation hereunder or any Note or other Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
Section 12.12 Obligations Several; Independent Nature of Lenders’ Rights. The obligations of the Lenders hereunder are several and no Lender shall be responsible for the obligations or Revolving Commitment of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by the Lenders pursuant hereto or thereto, shall be deemed to constitute the Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and, subject to Section 11.10(d), each Lender shall be entitled to protect and enforce its rights arising under this Agreement and the other Loan Documents and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
Section 12.13 Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
Section 12.14 Applicable Laws.
(a) Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Georgia. This Agreement is intended to take effect as a sealed instrument under Georgia law.
(b) Submission to Jurisdiction. Each party hereto irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the State of Georgia in Fulton County and of the United States District Court of the Northern District, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Georgia State court or, to the fullest extent permitted by Applicable Law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Loan Document shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Credit Party or its properties in the courts of any jurisdiction.
(c) Waiver of Venue. Each party hereto irrevocably and unconditionally waives, to the fullest extent permitted by Applicable Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in Section 12.14(b). Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
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(d) Service of Process. Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 12.1. Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by Applicable Law.
Section 12.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.15.
Section 12.16 Confidentiality. Each of the Agent, the Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by Applicable Laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 12.16, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in (including, for purposes hereof, any new lenders invited to join hereunder on an increase in the Loans and Commitments hereunder, whether by exercise of an accordion, by way of amendment or otherwise), any of its rights or obligations under this Agreement or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower or its obligations, this Agreement or payments hereunder, (g) on a confidential basis to (i) any rating agency in connection with rating the Borrower or its Subsidiaries or the credit facilities provided for herein, or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers or other market identifiers with respect to the credit facilities provided for herein, (h) with the consent of the Borrower, (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section 12.16 or (y) becomes available to the Agent, any Lender, the Issuing Bank or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower or (j) for purposes of establishing a “due diligence” defense. In addition, (i) the Agent and the Lenders may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry and service providers to the Agent or any Lender in connection with the administration of this Agreement, the other Loan Documents, and the Commitments and (ii) the Borrower consents to the publication by the Agent or any Lender of customary advertising material relating to the transactions contemplated hereby using the name, product photographs, logo or trademark of the Borrower.
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For purposes of this Section 12.16, “Information” means all information received from the Borrower or any of its Subsidiaries relating to the Borrower or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Agent, any Lender or the Issuing Bank on a nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries; provided that, in the case of information received from the Borrower or any of its Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 12.16 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Each of the Agent, the Agent, the Issuing Bank and the Lenders acknowledges that (i) the Information may include material non-public information concerning the Borrower, or any Subsidiary, as the case may be, (ii) it has developed compliance procedures regarding the use of material non-public information and (iii) it will handle such material non-public information in accordance with Applicable Law, including United States federal and state securities laws.
Section 12.17 Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged or agreed to be paid with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under Applicable Laws shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the aggregate outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and each of the Credit Parties to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender’s option be applied to the aggregate outstanding amount of the Loans made hereunder or be refunded to each of the applicable Credit Parties. In determining whether the interest contracted for, charged, or received by the Agent or a Lender exceeds the Highest Lawful Rate, such Person may, to the extent permitted by Applicable Laws, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest, throughout the contemplated term of the Obligations hereunder.
Section 12.18 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to the Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 6, this Agreement shall become effective when it shall have been executed by the Agent and when the Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or other electronic imaging means (e.g. “pdf” or “tif” format) shall be effective as delivery of a manually executed counterpart of this Agreement.
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Section 12.19 No Advisory of Fiduciary Relationship. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each of the Credit Parties acknowledges and agrees, and acknowledges its Affiliates’ understanding, that: (a)(i) the arranging and other services regarding this Agreement provided by the Agent, are arm’s-length commercial transactions between the Credit Parties, on the one hand, and the Agent, on the other hand, (ii) the Credit Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (iii) each of the Credit Parties is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (b)(i) the Agent is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not and will not be acting as an advisor, agent or fiduciary, for any Credit Party or any of their Affiliates or any other Person and (ii) the Agent does not have any obligation to any Credit Party or any of their Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (c) the Agent and its respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Credit Parties and their Affiliates, and the Agent does not have any obligation to disclose any of such interests to any Credit Party or its Affiliates. To the fullest extent permitted by law, each of the Credit Parties hereby waives and releases, any claims that it may have against the Agent with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
Section 12.20 Electronic Execution of Assignments and Other Documents. The words “execution,” “signed,” “signature,” and words of like import in any Assignment Agreement or in any amendment, waiver, modification or consent relating hereto shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any Applicable Laws, including the Federal Electronic Signatures in Global and National Commerce Act or any other similar state laws based on the Uniform Electronic Transactions Act.
Section 12.21 USA PATRIOT Act. Each Lender subject to the PATRIOT Act hereby notifies each of the Credit Parties that pursuant to the requirements of the PATRIOT Act, it is required to obtain, verify and record information that identifies each of the Credit Parties, which information includes the name and address of each of the Credit Parties and other information that will allow such Lender to identify each of the Credit Parties in accordance with the PATRIOT Act.
Section 12.22 Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender that is an Affected Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by (a) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any Lender that is an Affected Financial Institution; and (b) the effects of any Bail-in Action on any such liability, including, if applicable: (i) a reduction in full or in part or cancellation of any such liability; (ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or (iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of the applicable Resolution Authority.
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Section 12.23 Certain ERISA Matters.
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Agent, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Credit Party, that at least one of the following is and will be true:
(i) such Lender is not using “plan assets” (within the meaning of Section 3(42) of ERISA or otherwise) of one or more Benefit Plans with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments or this Agreement;
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement;
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement; or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Agent, in its sole discretion, and such Lender.
(b) In addition, unless either (i) clause (i) in the immediately preceding clause (a) is true with respect to a Lender or (ii) a Lender has provided another representation, warranty and covenant as provided in clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Agent, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Credit Party, that the Agent is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
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Section 12.24 Amendment and Restatement. This Agreement amends and restates the Existing Loan Agreement. All rights, benefits, indebtedness, interests, liabilities and obligations of the parties to the Existing Loan Agreement are hereby renewed, amended and restated in their entirety according to the terms and provisions set forth herein. This Agreement does not constitute nor shall it result in, a waiver of or release, discharge or forgiveness of any amount payable pursuant to the Existing Loan Agreement or the other Existing Loan Documents or any indebtedness, liabilities or obligations of the Borrower thereunder, all of which are renewed and continued and are hereafter payable and to be performed in accordance with this Agreement and the other Loan Documents. Notwithstanding any prior, temporary mutual disregard of the terms of any of the Existing Loan Documents, the Borrower hereby agrees that it shall be required strictly to comply with all of the terms of the Loan Documents on and after the date hereof. Neither this Agreement nor any other Loan Document extinguishes the indebtedness or liabilities outstanding in connection with the Existing Loan Documents, nor do they constitute a novation with respect thereto. All security interests, pledges, assignments and other Liens previously granted by the Borrower pursuant to the Existing Loan Documents are hereby renewed and continued, and all such security interests, pledges, assignments and other Liens shall remain in full force and effect as security for the Obligations. PRIOR TO THE EFFECTIVE DATE, LOANS AND EXTENSIONS OF CREDIT SHALL CONTINUE TO BE EXTENDED BY THE AGENT TO THE BORROWER PURSUANT TO THE PROVISIONS OF THE EXISTING LOAN AGREEMENT.
Section 12.25 Reallocation. The Agent, the Borrower and the Lenders hereby acknowledge and agree that the Commitment amount(s) of each Lender as set forth on Appendix A is/are the Commitment amounts of such Lender as of the Effective Date, with the reallocation of Loans outstanding under the Commitments of the Lenders as they existed immediately prior to the Effective Date having been made per instructions from the Agent, and neither any Assignment Agreement nor any other action of any Person is required to give effect to such Commitments as set forth on Appendix A.
Section 12.26 Acknowledgment Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for Swap Agreements or any other agreement or instrument that is a QFC (such support, “QFC Credit Support”, and each such QFC, a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of Georgia and/or of the United States or any other state of the United States):
(a) In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
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(b) As used in this Section 12.26, the following terms have the following meanings:
“BHC Act Affiliate” means, with respect to any Person, an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. § 1841(k)) of such Person.
“Covered Entity” means any of (i) a “covered entity” (as such term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b)); (ii) a “covered bank” (as such term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” (as such term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b)).
“Default Right” means as defined in, and interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“QFC” means a “qualified financial contract” (as defined in, and interpreted in accordance with, 12 U.S.C. § 5390(c)(8)(D)).
[Signature Pages Intentionally Omitted]
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Exhibit 21.1
Subsidiaries of the Registrant
Effective upon the Corporate Reorganization and the completion of this offering, the subsidiaries of the registrant will be as follows:
| 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 |
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. 1 to the Registration Statement (Form S-1 No. 333-274847) of Guardian Pharmacy Services, Inc. dated August 22, 2024.
/s/ Ernst & Young LLP
Atlanta, Georgia
August 22, 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. 1 to the Registration Statement (Form S-1 No. 333-274847) of Guardian Pharmacy Services, Inc. dated August 22, 2024.
/s/ Ernst & Young LLP
Atlanta, Georgia
August 22, 2024